Quicken 2012 For Dummies by Stephen L. Nelson

Author:Stephen L. Nelson
Language: eng
Format: epub
Publisher: Wiley
Published: 2011-11-15T00:00:00+00:00

Figure 10-6: Use the College Calculator dialog box to determine whether you’ll have to take out a second mortgage to pay for Junior’s college education.

5. Enter the amount of the current college savings.

Move the cursor to the Current College Savings field and type an amount. Figure 10-6 shows this amount as $20,000. Perhaps Grandpa has really come through for little Junior on this.

6. Enter the annual yield that you expect the college savings to earn.

Move the cursor to the Annual Yield text box and type the percent. Figure 10-6 shows the yield as 9 percent.

7. Enter the inflation rate anticipated in college tuition.

Move the cursor to the Inflation text box and type the inflation rate percent. Figure 10-6 shows this rate as 4 percent.

8. Indicate whether you plan to increase your annual contribution as a result of inflation.

Select the Adjust Based on Inflation Rate check box if you plan to annually increase — by the annual inflation rate — the amount you save. Figure 10-6 shows this check box selected.

After you enter all the information, click Calculate or move the selection cursor. The Annual Contribution field shows how much you need to save each year until the child graduates from college.

Just to beat this thing to death, Figure 10-6 shows that the lucky student will attend five years at a college that currently costs $20,000 per year and that you expect to earn 9 percent annually and anticipate 4 percent annual inflation. Given these cold hard facts, you need to start saving $3,663.95 every year.

Because I’m a CPA, I want to offer you a quick tax-planning tip. If you do embark on a serious college savings program for a child or grandchild, take a look at the Sec. 529 college savings plans that are offered by most banks, brokers, and mutual fund companies. With a Sec. 529 plan, neither you nor the future college student gets taxed on the interest the college savings earn as long as the money is ultimately used for college expenses.

To get more information on the annual deposits, tuition, and balance, click the Schedule button, which appears on the face of the College Calculator dialog box. Quicken whips up a quick little report showing the annual deposits, tuition, and ending college savings account balances for each year you add to, and Junior withdraws from, the college savings money.

If you’re now bummed out about college costs

Look at the positive side: You now understand the size of the problem and the solution.

College planning depends on four things:

College costs

The number of years that the savings earn interest

The real yield (that is, adjusted for inflation) you earn — in other words, the annual yield minus the predicted inflation

The yearly payments

I don’t mean to sound like a simpleton, but you can ease the burden of paying for a college education in four basic ways:

Reduce the years spent in school

Reduce the annual costs (find a less expensive school)

Invest in things that deliver higher yields

Boost the yearly payments

You

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