Until recently, the extent of my money savings and investment was the meager 6% (5.5% Matched) to my company's 401k. What I had not taken into consideration, however, is how to make sure my kiddo will get their proverbial foot in the financial door.

Do not mistake me. My child (we will use the singular form as there is only one currently) will not be spoiled, spoonfed, or otherwise have his life handed to him on a silver platter. I do, however want to make sure that he has his education paid for. I was not fortunate enough to have this done for me, and while I still turned out pretty good, it would have been nice not to have $20k worth of student loans for only 2 semesters (yes, you read that right, 1 year).

Sherri and I have decided to look into State and/or Federally backed 529 College Savings Plans for the little Sprout (He is due in 4 weeks). Additionally, we are toying with putting $200/mo. into a separate account that we will roll into multiyear CD's annually.

Until the past week (I know, late bloomer) I was under the impression that the $200/mo. would most likely cover his tuition. I was ecstatic. Under the impression we would have a significant sum of money left over when we finally ship him off to school. With dollar signs covering my eyes, it was easy to picture the brand new 2025 year model Tige boat.

Much to my dismay, I was forcibly whipped back to reality this morning. I decided to get off my duff and do some in depth research into college tuition and savings plans. According to several ^{1 2} reputable plans, college tuition rates are growing faster than the standard rate of inflation. In some cases, 6-7% annually. I decided to use the College Tuition Calculator on the Enterprise529 website just to get an idea of what the monthly/yearly/total costs might be.

I chose the state of "Texas" being as that is where I "hang my hat". Then selected the University of Texas (Wife is an alum. I am a wannabe). Picked the "In-State tuition option" (see explanation above). Assuming he goes to school at 18 and spends 4 years, I have used all of the default criteria, sans the "Amount currently available for investment" where I selected $1000.

Now, given the average increase in tuition costs this "calculator" estimates that it will cost Sprout a total of $169,668 to attend college for 4 years. If I add up the $200 monthly and contribute it to a 5 year CD with a decent return (4.7%), this leaves us with roughly $68,744.37 after 18 years. As you may notice, this is significantly less than the projected $169,668 it will cost.

Analyzing the investment schedule provided by the College Tuition Calculator, it would cost roughly $357/mo. with $1000 down to accumulate the $169,668 needed. Even then, this is a with a theoretical return of 8%.

So, now what is the answer? There isn't a specific answer. I suppose the "lesson" is to do as much research as you can, and make your decisions wisely. Speak with a financial advisor if you must, because some of us just cannot grasp the concepts involved.

We have decided that the best option is to do both. Sure, it will be the cost of another vehicle monthly (payment + insurance + maintenance), but it is man than worth it to offer my child the opportunities we were not afforded.

Of note, we have made the decision not let him know about the "other" accounts (CDs). He will have to get a job and pay for the supplementary costs of college (room/board, transportation, etc...) on his own. Once he graduates, we will pay him back by giving him the money we put back for that cost. This should provide him with a nice nest egg to start his own life with.

Plus, if he decides that school is not for him (as was the case with myself), we can look foward to that new boat in 2025 AND maybe a nice motor-home to go with it.

Keep an eye out for the second part of this article that will be coming up in the next couple of days. I will compare/contrast the 529 College Savings Plan and the UGMA/UTMA "Trust" accounts.

For now,
Mike