Retirement planning and college savings plans are not either or situations. A wise person will be working on both systems at the same time. The key is to live below your means. The problem many people have with savings for the kid’s college and their own retirement is that they spend everything they earn and live from paycheck to paycheck. This trap that most Americans are in is compounded by our ability to make time payments on so many things, and the use of credit cards. If you were to take a look at the most successful men in America and their own spending habits however, you’d find that many of these people are unknown millionaires. While they have large bank accounts and investment portfolios you’d never know because they drive cards that are two, three or four years old, live in nice but modest homes, and in general live below their means. Sam Walton, founder of Wal-Mart was a prime example. When Sam was a billionaire he still drove a ten year old pickup truck to work every day.
Step one is to put as much as possible every month into a Roth IRA and a 401(k) retirement plan. Pay yourself first. Then put money into junior’s college fund, and one of the best ways to do this is to pre-pay. Many private and state universities have pre-pay programs where you can begin paying on the kid’s college now, letting them have use of the money for the intervening years, paying much less now in current dollars, but knowing that the education will be paid for when the time comes. These programs are often times state sponsored and can be good for any state university. Private schools these days have similar systems. These are bargains, so check them out. Having an education IRA is also a good idea. This allows you to put money into a college fund tax deferred, but if you do this put it in with your or another adult having sole control. Do not put it in the child’s name. A sweet child now can be an irresponsible adolescent in 15 years, so why take the chance. Keep control of the funds yourself.
If you handle your money wisely there is no reason why college for the kids and retirement for you can’t both be handled quite easily. Your chances are greater if you get out of the credit card trap. Most Americans have large balances on their credit cards and many pay only the minimum interest on the cards. The best way to handle a card is to use it only for those things you’d pay cash for anyway, and then pay the whole balance off at the end of every month. In this way you’ll improve your credit rating, but not go into debt with the card, and avoid the massive interest penalties that accrue. Work to make yourself debt free as soon as possible, and then save money like crazy to be ready for retirement when it comes.