Dear Kids,
We are very proud of you for getting into college! You’ve done a great job applying for financial aid and saving your earnings from your summer job. Now, it’s the time to have The Talk. Don’t worry, not that talk! It’s about something much more terrifying: Money.
We know that your savings and financial aid won’t be enough to pay for tuition, room and board, and all the other incidentals of college life. You are going to ask us for money. It’s OK. Here’s how to figure out how much to ask us for.
The big idea is that you need to figure out how much of your expenses you can meet on your own, with your own resources. You can ask us for whatever’s left over. Just understand that, if this is more than we can afford, you may need to borrow some of it.
Fire up the Excel and let’s get started! (If you like, start with this spreadsheet.)
First, project all of your expenses, including tuition (net of financial aid except loans and work-study), books, room, food plan, fees and expected living expenses, for each of the next twelve months. You can get most of these from the college’s website and your own experience and planning. Put these in the first several rows of your spreadsheet.
Next, project all of your income for each month: probably just work study or a part-time job and summer job.
Then, add up all the money you’re starting with: savings, parental contribution and loans (leave the last two blank for now).
Finally, calculate how much money you’ll have at the end of each month. The amount you will have at the end of the year will likely be a negative number: this is the amount you need to get from loans or your parents. (In the sample spreadsheet, it’s $14,000.)
Check your work carefully, then show this number to your parents and have an adult conversation about what they can contribute from a 529 plan or other savings. Understand that they may feel that their first priority is to remain (or get) on track to funding their retirement. You should be fine with this because it means you may not have to support them (as much) in their old age.
College-bound kids need to know that financial advisors generally recommend clients to fund their own retirement accounts first, before financing kids’ college education.
Eugene Skorodinsky, CFP®, a Financial Advisor with Minerva Wealth Advisory, a comprehensive wealth management firm in New York City.
Whatever is left over needs to be borrowed or financed some other way. Do your homework about student loans: they are not all alike. Get help from the school’s financial aid office.
Especially important: don’t borrow too much. If future years are like this one, how much in total will you have borrowed by the time you graduate? Keep in mind, college costs increase every year and many students take more than four years. Estimate the salary you expect to earn with your major. (Get this figure from your career services department.) Then use a calculator like this one to see how much you can safely borrow. If you plan to borrow a lot more than this, it’s time to think about either changing your major or your school. You can also apply for more scholarships and even appeal your financial aid package. (Your spreadsheet could help you make your case!)
That’s it! Even if the money you need to find feels like a lot, at least you’ve reduced the uncertainty and you can go about dealing with this challenge like a real adult!
This article first appeared on August 18, 2019 at Forbes.com.