As a parent of a high school student, what should my short-term cash policy be to optimize my college costs?
"There is no simple answer to your question.  It depends on many things, perhaps most notably what college your daughter ends up going to and what kind of aid you hope to receive. Your daughter will probably fill out the FAFSA as part of her financial aid application.  Here is one discussion of what parental assets ""count"" towards the Expected Family Contribution on the FAFSA.  You can find many similar pages by googling.  Retirement accounts and primary residence are notable categories that do not count.  So, if you were looking to reduce your ""apparent"" assets for aid purposes, dumping money into your mortgage or retirement account is a possibility. However, you should be cautious when doing this type of gaming, because it's not always clear exactly how it will affect financial aid.  For one thing, ""financial aid"" includes both grants and loans.  Everyone wants grants, but sometimes increasing your ""eligibility"" may just make you (or your daughter) eligible for larger loans, which may not be so great. Also, each college has its own system for allocating financial aid.  Individual schools may ask for more detailed information (such as the CSS Profile).  So strategies for minimizing your apparent assets that work for one school may not work for others.  Some elite schools with large endowments have generous aid policies that allow even families with sizable incomes to pay little or nothing (e.g., Stanford waives tuition for most families with incomes under $125,000). You should probably research the financial aid policies of schools your daughter is interested in.  It can be helpful to talk to financial aid advisors at colleges, as well as high school counselors, not to mention general financial advisors if you really want to start getting technical about what assets to move around.  Needless to say, it all begins with talking with your daughter about her thoughts on where to go."
529 plans.  They accumulate earnings over time and by the time your child goes to college you will be able to withdraw funds for college TAX FREE.  The best part about 529s is that there are several different options you can choose from, and you aren't limited to the plans sponsored by your state, you can use whichever plan works best for you.  For example, I live in South Carolina and use Utah's Educational Savings Plan because it has no minimum amount to open one up and it has low fees.  Hope this helped. Good luck with your search! "There are entire books devoted to this topic... :) I'd suggest focusing on a % of income that you can set aside for each child and start doing that instead of looking at a specific dollar target. I would look at a 529 plan to get the state tax benefit for growth. Also, be careful to counter the ""advice"" given by admissions folks, who encourage high school kids to ""choose the college that will make you happy"" and expose them to as many pictures of lovely, leafy private campuses as possible. The lawns at the private school are nice, but state colleges offer a great education at a relative bargain. Try to teach your kids about money so they understand the downsides of the loans that schools throw at you. I went to a state school, had very supportive parents and worked throughout. I came out with $750 of debt (on a 0% credit card for a laptop replacement). I have a friend who went to a similar, private school who came from a similar background and who is now in a similar place career-wise. Except he has a $500/mo monthly tribute to Sallie Mae. My parents started working on me when I was about 12, and it worked!" My god man, where do you live that is too expensive to live on your own and  7K isn't enough for emergency cash? Anyway, with your age and income I would be more worried about a long-term sustainable lifestyle. In other words, a job that nets you more than $26K/year. Someday you may want to have a wife and kids and that income sure as hell wont pay for their college.   That was life advice, now for financial: I've always been a believer that if someone is not a savvy investor, their priorities before investments should be paying off debt. If you had a lot of capital or knew your way around investment vehicles and applicable returns then I would be telling you something different. But in your case, pay off that car first giving yourself more money to invest in the long-run. I didn't mean as a legal maximum, but rather how many hours they choose to work &amp; get scheduled for. Some youth are lucky, and their parents pay their bills.   I didn't have as expensive bills as you. Only cell phone, and my bus pass in high school. But I did have to pay for all of my graduation costs myself and post-secondary application fees. So keeping a savings amount really helps. (I also had 4 jobs simultaneously in high school. ) "The statement ""Finance is something all adults need to deal with but almost nobody learns in school."" hurts me. However I have to disagree, as a finance student, I feel like everyone around me is sound in finance and competition in the finance market is so stiff that I have a hard time even finding a paid internship right now. I think its all about perspective from your circumstances, but back to the question. Personally, I feel that there is no one-size-fits-all financial planning rules. It is very subjective and is absolutely up to an individual regarding his financial goals.  The number 1 rule I have of my own is - Do not ever spend what I do not have. Your reflected point is ""Always pay off your credit card at the end of each month."", to which I ask, why not spend out of your savings? plan your grocery monies, necessary monthly expenditures, before spending on your ""wants"" should you have any leftovers. That way, you would not even have to pay credit every month because you don't owe any. Secondly, when you can get the above in check, then you start thinking about saving for the rainy days (i.e. Emergency fund). This is absolutely according to each individual's circumstance and could be regarded as say - 6 months * monthly income. Start saving a portion of your monthly income until you have set up a strong emergency fund you think you will require. After you have done than, and only after, should you start thinking about investments. Personally, health > wealth any time you ask. I always advise my friends/family to secure a minimum health insurance before venturing into investments for returns. You can choose not to and start investing straight away, but should any adverse health conditions hit you, all your returns would be wiped out into paying for treatments unless you are earning disgusting amounts in investment returns. This risk increases when you are handling the bills of your family. When you stick your money into an index ETF, the most powerful tool as a retail investor would be dollar-cost-averaging and I strongly recommend you read up on it. Also, because I am not from the western part of the world, I do not have the cultural mindset that I have to move out and get into a world of debt to live on my own when I reached 18. I have to say I could not be more glad that the culture does not exist in Asian countries. I find that there is absolutely nothing wrong with living with your parents and I still am at age 24. The pressure that culture puts on teenagers is uncalled for and there are no obvious benefits to it, only unmanageable mortgage/rent payments arise from it with the entry level pay that a normal 18 year old could get." There are some great answers on this site similar to what you asked, with either a non-jurisdictional or a US-centric focus. I would read those answers as well to give yourself more points of view on early investing. There are a few differences between Canada and the US from an investing perspective that you should also then consider, namely tax rules, healthcare, and education. I'll get Healthcare and Education out of the way quickly. Just note the difference in perspective in Canada of having government healthcare; putting money into health-savings plans or focusing on insurance as a workplace benefit is not a key motivating factor, but more a 'nice-to-have'. For education, it is more common in Canada for a student to either pay for school while working summer / part-time jobs, or at least taking on manageable levels of debt [because it is typically not quite as expensive as private colleges in the US]. There is still somewhat of a culture of saving for your child's education here, but it is not as much of a necessity as it may be in the US. From an investing perspective, I will quickly note some common [though not universal] general advice, before getting Canadian specific. I have blatantly stolen the meat of this section from Ben Miller's great answer here: Oversimplify it for me: the correct order of investing Once you have a solid financial footing, some peculiarities of Canadian investing are below. For all the tax-specific plans I'm about to mention, note that the banks do a very good job here of tricking you into believing they are complex, and that you need your hand to be held. I have gotten some criminally bad tax advice from banking reps, so at the risk of sounding prejudiced, I recommend that you learn everything you can beforehand, and only go into your bank when you already know the right answer. The 'account types' themselves just involve a few pages of paperwork to open, and the banks will often do that for free. They make up their fees in offering investment types that earn them management fees once the accounts are created. Be sure to separate the investments (stocks vs bonds etc.) vs the investment vehicles. Canada has 'Tax Free Savings Accounts', where you can contribute a certain amount of money every year, and invest in just about anything you want, from bonds to stocks to mutual funds. Any Income you earn in this account is completely tax free. You can withdraw these investments any time you want, but you can't re-contribute until January 1st of next year. ie: you invest $5k today in stocks held in a TFSA, and they grow to $6k. You withdraw $6k in July. No tax is involved. On January 1st next year, you can re-contribute a new $6K, and also any additional amounts added to your total limit annually. TFSA's are good for short-term liquid investments. If you don't know for sure when you'll need the money, putting it in a TFSA saves you some tax, but doesn't commit you to any specific plan of action. Registered Retirement Savings Plans allow you to contribute money based on your employment income accrued over your lifetime in Canada. The contributions are deducted from your taxable income in the year you make them. When you withdraw money from your RRSP, the amount you withdraw gets added as additional income in that year. ie: you invest $5k today in stocks held in an RRSP, and get a $5k deduction from your taxable income this year. The investments grow to $6k. You withdraw $6k next year. Your taxable income increases by $6k [note that if the investments were held 'normally' {outside of an RRSP}, you would have a taxable gain of only 50% of the total gain; but withdrawing the amount from your RRSP makes the gain 100% taxable]. On January 1st next year, you CANNOT recontribute this amount. Once withdrawn, it cannot be recontributed [except for below items]. RRSP's are good for long-term investing for retirement. There are a few factors at play here: (1) you get an immediate tax deduction, thus increasing the original size of investment by deferring tax to the withdrawal date; (2) your investments compound tax-free [you only pay tax at the end when you withdraw, not annually on earnings]; and (3) many people expect that they will have a lower tax-rate when they retire, than they do today. Some warnings about RRSP's: (1) They are less liquid than TFSA's; you can't put money in, take it out, and put it in again. In general, when you take it out, it's out, and therefore useless unless you leave it in for a long time; (2) Income gets re-characterized to be fully taxable [no dividend tax credits, no reduced capital gains tax rate]; and (3) There is no guarantee that your tax rate on retirement will be less than today. If you contribute only when your tax rate is in the top bracket, then this is a good bet, but even still, in 30 years, tax rates might rise by 20% [who knows?], meaning you could end up paying more tax on the back-end, than you saved in the short term. Home Buyer Plan RRSP withdrawals My single favourite piece of advice for young Canadians is this: if you contribute to an RRSP at least 3 months before you make a down payment on your first house, you can withdraw up to $25k from your RRSP without paying tax! to use for the down payment. Then over the next ~10 years, you need to recontribute money back to your RRSP, and you will ultimately be taxed when you finally take the money out at retirement. This means that contributing up to 25k to an RRSP can multiply your savings available for a down payment, by the amount of your tax rate. So if you make ~60k, you'll save ~35% on your 25k deposited, turning your down payment into $33,750. Getting immediate access to the tax savings while also having access to the cash for a downpayment, makes the Home Buyer Plan a solid way to make the most out of your RRSP, as long as one of your near-term goals is to own your own home. Registered Pension Plans are even less liquid than RRSPs. Tax-wise, they basically work the same: you get a deduction in the year you contribute, and are taxed when you withdraw. The big difference is that there are rules on when you are allowed to withdraw: only in retirement [barring specific circumstances]. Typically your employer's matching program (if you have one) will be inside of an RPP. Note that RPP's and RRSP's reduce your taxes on your employment paycheques immediately, if you contribute through a work program. That means you get the tax savings during the year, instead of all at once a year later on April 30th. *Note that I have attempted at all times to keep my advice current with applicable tax legislation, but I do not guarantee accuracy. Research these things yourself because I may have missed something relevant to your situation, I may be just plain wrong, and tax law may have changed since I wrote this to when you read it. Why not just hold that cash until you graduate from college? Why? Because it's a safety net - make sure you don't have any sudden expenses (medical, school bills, car bills, etc). Then after school you're going to need some cash for job moving, relocation, clothes, downpayment on apartment, utilities, etc. If all that cash is tied up into a 401 or IRA then you can't touch it and if something happens you'll be tempted to take a loan out. Ack!  You'll have plenty of time since you're just starting to save for retirement. Keep this cash as a beginning emergency fund and hang on cause as soon as you get out of school things really move fast. :) "I will answer the question from the back: who can NOT afford luxury cars? Those whose parents paid for their college education, cannot afford luxury cars, but buy them anyway. Why? I have what may seem a rather shocking proposition related to the point of not saving for kids' college: parents do NOT owe children a college education. Why should they? Did your parents fund your college? Or did you get it through a mix of Pell grants, loans, and work? If they did, then you owe them $ back for it, adjusted for inflation. If they did not, well then why do you feel your children deserve more than you deserved when you were a child? You do not owe your children a college education. They owe it to themselves. Gifts do not set one up for success, they set one up for dependence.   I will add one more hypothesis: financial discipline is best learned through one's own experiences. When an 18+ year old adult gets a very large amount of money as a gift every year for several years (in the form of paid tuition), does that teach them frugality and responsibility? My proposition is that those who get a free ride on their parents' backs are not well served in terms of becoming disciplined budgeters. They become the subjects of the question in this post: those why buy cars and houses they cannot afford, and pay for vacations with credit cards. We reap what we sow as a society.  Of course, college is only one case in point, but a very illustrative one. The bigger point is that financial discipline can only be developed when there are opportunities to develop it. Such opportunities arise under one important condition: financial independence.  What does buying children cars for their high-school graduation, buying them 4 years of college tuition, and buying them who knows what else (study abroad trips, airfare, apartment leases, textbooks, etc. etc.) teach? Does it teach independence or dependence?  It can certainly (at least that's what you hope for) teach them to appreciate when others do super nice things for them. But does free money instill financial responsibility?  Try to ask kids whose parents paid for their college WHY they did it. ""Because my parents want me to succeed"" is probably the best you can hope for. Now ask them, But do your parents OWE you a college education? ""Why yes, I guess they do."" Why? ""Well, I guess because they told me they do. They said they owe it to me to set me up for success in life."" Now think about this: Do people who become financially successful achieve that success because someone owed something to them? Or because they recognized that nobody owes them anything, and took it upon themselves to create that success for themselves? These are not very comfortable topics to consider, especially for those of you who have either already sunk many tens of thousands of dollars into your childrens' college education. Or for those who have been living very frugally and mindfully for the past 10-15 years driven by the goal of doing so. But I want to open this can of worms because I believe fundamentally it may be creating more problems than it is solving. I am sure there are some historical and cultural explanations for the ASSUMPTION that has at some point formed in the American society that parents owe their children a college education.  But as with most social conventions, it is merely an idea -- a shared belief. It has become so ingrained in conversations at work parties and family reunions that it seems that many of those who are ardent advocates of the idea of paying for their childrens' education no longer even understand why they feel that way. They simply go with the flow of social expectations, unwilling or unable to question either the premises behind these expectations, or the long-term consequences and results of such expectations.  With this comment I want to point to the connection between the free financial gifts that parents give to their (adult!) children, and the level of financial discipline of these young adults, their spending habits, sense of entitlement, and sense of responsibility over their financial decisions. The statistics of the U.S. savings rate, average credit card debt, foreclosures, and bankruptcy indeed tell a troubling story.  My point is that these trends don't just happen because of lots of TV advertising and the proverbial Jones's. These trends happen because of a lack of financial education, discipline, and experience with balancing one's own checkbook. Perhaps we need to think more deeply about the consequences of our socially motivated decisions as parents, and what is really in our children's best interests -- not while they are in college, but while they live the rest of their lives after college. Finally, to all the 18+ y.o. adult 'children' who are reeling from the traumatic experience of not having their parents pay for their college (while some of their friends parents TOTALLY did!), I have this perspective to offer:  Like you are now, your parents are adults. Their money is theirs to spend, because it was theirs to earn. You are under no obligation to pay for your parents' retirement (not that you were going to). Similarly your parents have no obligation to pay for your college. They can spend their money on absolutely whatever they want: be it a likeside cottage, vacations, a Corvette, or slots in the casino. How they spend their money is their concern only, and has nothing to do with your adult needs (such as college education).  If your parents mismanage their finances and go bankrupt, it is their obligation to get themselves back in the black -- not yours. If you have the means and may be so inclined, you may help them; if you do not or are not, fair enough. Regardless of what you do, they will still love you as their child no less.  Similarly, if your parents have the means and are so inclined, they may help you; if they do not or are not, fair enough. Regardless of what they do, you are to love them as your parents no less.  Your task as an adult is to focus on how you will meet your own financial needs, not to dwell on which of your needs were not met by people whose finances should well be completely separate from yours at this point in life. For an adult, to harbor an expectation of receiving something of value for free is misguided: it betrays unjustified, illusory entitlement. It is the expectation of someone who is clueless as to the value of money measured by the effort and time needed to earn it. When adults want to acquire stuff or services, they have to pay for these things with their own money. That's how adults live. When adults want to get a massage or take a ride in a cab, are they traumatized by their parents' unfulfilled obligation to pay for these services? No -- they realize that it's their own responsibility to take care of these needs. They either need to earn the money to pay for these things, or buy them on credit and pay off the debt later.  Education is a type of service, just like a massage or a cab ride. It is a service that you decide you need to get, in order to do xyz (become smarter, get a better paying job, join a profession, etc.). Therefore as with any other service, the primary responsibility for paying for this service is yours.  You have 3 options (or their combination): work now so that you can earn the money to pay for this service later; work part-time while you are receiving this service; acquire the service on credit and work later to pay it off. That's it. This is called the real world. The better you can deal with it, the more successful you will become in it. Good luck!" I know it isn't exactly the question you asked, but please consider your future too. 529 is the correct answer, because if you can fund a Roth, you should be funding it for your own retirement. Your retirement has much a higher priority over anybody's college fund.  It is pretty great that you want to set aside cash for the niece's education, I think asking which vehicle is best for saving for education might be the wrong question. Students have many options for going to school and paying for it but retirement is pretty limited. http://www.clarkhoward.com/news/clark-howard/education/clarks-529-guide/nFZS/ is a good place to learn about 529s and makes good suggestions on where to get one.  Do it yourself, and don't pay a broker or agent to do it for you. If your retirement is already handled, feel free to vote me down and I will delete this. "This is a tricky question, because the financial aid system can create odd incentives. Good schools tend to price themselves above and beyond any reasonable middle-class ability to save and then offer financial aid, much of it in the form of internal ""grants"" or ""loans"".  If you think about it, the internal grant is more of a discount than a grant since no money need have ever existed to ""fund"" the grant.  The actual price to the parents is based on financial aid paperwork and related rules, perhaps forming a college price-setting cartel.  It is these rules that need to be considered when creating a savings plan. Suppose it is $50k/year to send your kids to the best school admitting them.  Thats $200k for the 4 years.  Suppose you had $50k now to save instead of $10K, and are wondering whether to put it in your son's college savings (whether or not you can do so in a tax advantaged way) or to pay down the mortgage.  If you put it in your kids savings, and the $50k becomes $75k over time, that $75k will be used up in a year and a half as the financial aid system will suck it dry first before offering you much help.  On the other hand, if you put the $50k on paying down the mortgage [provided the mortgage is ""healthy"" not upside down], your house payment will still be the same when your kids go to college.  The financial aid calculations will consider that the kid has no savings, and allocate a ""grant"" and some loans the first year and a parental portion that you might be able to tap with a home equity loan or work overtime.     Generally, you should also be encouraging your kids to excel and perhaps obtain academic scholarships or at least obtain some great opportunities.  A large college savings fund might be as counterproductive as a zero fund.  They shouldn't be expecting to breeze through some party school with a nice pad and car, homework assistance, and beer money.  Unless they are good at a sport, like maybe football -- in which case you won't need to be the provider. It is not obvious how much the optimal ESA amount is.  It might not be $0.  Saving like crazy in there probably isn't the best thing to do, either." You have to sit down with HR for the school district. The options involved with with parents working for the same employer can be handled multiple ways. Unless you are a very small district, this situation has come up before. They will tell you what they allow, and then you have to determine which one saves you the most money. Also look into how the deductibles will work with the two policies. You also need to look at options for the two policies. For example if there are different levels of dental: you may not want to cover an orthodontist  on the single plan. College= 12786 grand a quarter = 38358 grand a year. Got loans of 5640.00 and scholarships of 5976.00 so leaves me 26742.00. Family is expected to put in that amount. Family dose not make a lot. Does not live high on the hog. I want to live a dream that I know I can work for but how do I pay. BTW I got the first 2 years covered with scholarships and military benefits. Dad put in his time so I could do this. I need advice. I will apply for things. I work every summer in jobs where I do see the wealthy enjoy the sport and not the grunt work. I go to a school where the wealthy go and they get the scholarships but they honestly can afford to not. If you pay 40 plus grand for a horse you don't need the 25 grand scholarship. They are lucky I know I have to work and I will; just need more advice on how to cover the cost of the dream :):) begin having them take community college courses while they are still in high school - this should be a better use of time than AP courses. if they continue and get an associates degree the credits should be transferrable anywhere take the associates degree to a state school and have them finish just their two years (4 semesters) at the state school. that should be an non-stressful and affordable approach that will give them a time/age-based advantage over their peers. so instead of playing with financial aid and retirement plan rules, this sort of goal can help you save, without creating inconsequential and unnecessary expectations for yourself or your family "The most common way to handle this in the US is with a UTMA account. UTMA is the Uniform Transfers / Gifts to Minors Act (""UTMA"" or ""UGMA"") which is a standard model law that most states have passed for special kinds of accounts. Once you open an account, anyone can contribute. Usually parents and grandparents will contribute $13,000 or less per year to make it a tax free transfer, but you can transfer more. The account itself would just be a standard brokerage account of any sort, but the title of the account would include your son's name, the applicable law depending on your state, and the name of the custodian who would control the account until your son turned 18. When your son does turn 18, the money is his. Until then, the money is his, but you control how it's invested. I'm a huge fan of Vanguard for UTMA/UGMAs. You may prefer to diversify a bit away from one company by selling the GE shares and buying an index mutual fund so that your child's education is not jeopardized by a rogue trader bringing down General Electric sometime in the next decade..." "First of all, I'm happy that the medical treatments were successful. I can't even imagine what you were going through.  However, you are now faced with a not-so-uncommon reality that many households face. Here's some other options you might not have thought of:   I would avoid adding more debt if at all possible.  I would first focus on the the cost side.  With a good income you can also squeeze every last dollar out of your budget to send them to school.   I agree with your dislike of parent loans for the same reasons, plus they don't encourage cost savings and there's no asset to ""give back"" if school doesn't work out (roughly half of all students that start college don't graduate) I would also avoid borrowing more than 80% of your home's value to avoid PMI or higher loan rates.  You also say that you can pay off the HELOC in 5 years - why can you do that but not cash flow the college?   Also note that a second mortgage may be worse that a HELOC - the fees will be higher, and you still won't be able to borrow more that what the house is worth."