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Montuori: Back-to-school time – saving for college

montuoriAdvice:  Save early and often!

One of the biggest financial hurdles that parents face is saving for their children’s college expenses.  It seems that every year the cost of college increases dramatically.

When faced with what seems like an insurmountable goal, many people freeze and avoid taking action until it is too late.  Whether it is saving for a home, for retirement or for college, my advice is to start as early as possible and commit to a systematic savings discipline.

Very simply, the earlier you start saving, the better.  It is difficult for young parents to devote a big chunk of their incomes to saving but studies have shown that saving a little amount of money over a long period of time is more effective than trying to catch up down the road.

The adjacent chart shows that starting early and making forced savings part of your budget is the key to helping you meet your financial goals.  As soon as your child is born, I recommend picking a dollar figure you feel comfortable putting aside and start saving immediately.

After a while when you feel you have firmer financial footing, try to increase that savings figure every six months or annually.  In any case, make savings a required component of your monthly montuoribudget. Once you commit to a savings schedule, you must decide how to invest those funds to achieve your financial goals.

In the past when interest rates were higher, zero coupon bonds and FDIC insured CDs with staggered maturities leading up to college were more attractive to investors. In our current low interest rate environment, investors feel forced into the stock market.  Investors typically fare better in the stock market when they can invest over a long period of time.

You should have at least a five year time horizon before considering investing in the stock market. If you are comfortable investing in the stock market you might consider a 529 College Savings Plan which is a tax advantaged method of saving for college that allows you to establish a college savings account for your child (beneficiary) and use the money to pay for college expenses. Some parents save by opening a brokerage account in their names and designating that account for college. This option gives you more investment options than a 529 plan.

Custodial accounts (UGMA and UTMA – Uniform Gifts to Minors and Uniform Transfer to Minors) are an option where a custodian oversees the account for the minor until the age of majority (adulthood).  The custodian can use these funds to benefit the minor, including but not limited to paying college expenses. Once the minor reaches the age of majority, they take control of the money and can use it for any purpose.  Whatever the savings mechanism just remember – save early and often!


Montuori  is a First Vice President – Investment Officer and partner at The Alpert Group of Wells Fargo Advisors, LLC in Woodbury, which manages assets in excess of $1 billion. He began his financial services career in 1999 with Salomon Smith Barney He can be reached at 516-677-5603 or Michael.Montuori@wellsfargoadvisors.com www.thealpertgroup.net  CAR-0716-04987


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