Parents have mixed feelings when it comes to back-to-school season. Some approach the start of class with dread or sadness, while others feel relief. But there is no doubt that going back to school makes every parent think about the cost of education. It’s not just tuition, but books, backpacks, supplies, clothes, and more. That’s why this time of year makes for the perfect annual reminder to check in on one of your family’s biggest goals — funding your child’s college education. As we all know, our kids grow up way too fast, and a little planning now can spare your future self a lot of financial stress. Here’s why the start of a new school year is your sign to save for college the right way, with a Personal Investment Account.
Just like your little ones are preparing for their future in class, let your money do the work of preparing for their future in college. In this article, we’ll show you just how to do that, but first, let’s dive into how much college really costs today, and what that could look like in 10–15 years. Then, we’ll explore concrete contribution plans to help you hit your target in time for your kids’ high school graduation.
Key takeaways:
- A personal investment account with Finhabits can put you on the path to growing your wealth and saving for college.
- The earlier you start, the more your money can work for you, thanks to compound interest.
- Use back-to-school as your nudge to get in the habit of investing, or to add to your monthly contribution.
- Your time horizon and monthly contribution are the two factors that will determine how much you can save.
- Use Finhabits’ investment calculator to estimate how much you can save over time.
What college costs today (the full budget, not just tuition)
When families plan for college, we often look only at tuition. But the full student budget also includes housing, food, books, supplies, and transportation. For 2024–25, the College Board reports average total budgets (tuition + fees + typical living costs) of approximately:
- $20,570 at public two-year colleges (in-district)
- $29,910 at public four-year colleges (in-state)
- $49,080 at public four-year colleges (out-of-state)
- $62,990 at private nonprofit four-year colleges
These are average full-year budgets for full-time undergraduates. Your actual costs will vary by institution and location, but this gives you a practical, all-in planning anchor.
College tuition and fees (just that slice of the budget) vary a lot by state. For in-state public four-year colleges, the 2024–25 average ranges from roughly $6,360–$17,490 depending on where you live. That price spread is why it helps to target a savings range rather than one “perfect” number.
Why back-to-school is your nudge to start investing now
During back-to-school season, you’re already in planning mode—budgets, routines, after-school schedules, new habits. Add one more habit to your list: an automatic monthly investment into a Finhabits Personal Investment Account earmarked for future tuition and fees. By automating your investments in a way that you’ll barely feel month-to-month, you’ll be able to put more money in your pocket year after year. How? It all boils down to compound interest.
Compound interest: Your “Start Now” Financial Path to College
Historically, U.S. stock market returns have rewarded long-term, patient investors, which is why starting earlier dramatically lowers the monthly amount you need to contribute. Over long horizons, U.S. stocks have delivered average annual gains in the 6%–7% range, which means patience with the market matters more than trying to perfectly time it to score quick wins (which is what most day traders aim for). And according to Nerdwallet, the long-run average annual return of the S&P 500 has been around 10% per year over the last decade. That’s exactly why starting now—rather than “someday”—can lower the monthly amount you need to save.
How much should you plan for in 10 or 15 years?
When you’re thinking about investing in your child’s college, you have two factors to consider:
- Time horizon (how many years until your child enrolls), and
- Monthly contribution amount (what you can consistently invest)
Think of it this way: if you start early enough and invest just the cost of a frappuchino per day, you might have enough to pay off a significant chunk of your child’s college tuition by the time they’re taking their SATs:
The chart shows an estimate of how much an investment could grow over time based on the initial deposit, contribution schedule, time horizon, and interest rate specified. Changes in those variables can affect the outcome. Reset the calculator using different figures to show different scenarios. Results do not predict the investment performance of any Finhabits portfolio and do not take into consideration economic or market factors which can impact performance.
Now, let’s look at two concrete examples, matched according to the College Board’s current averages:
Goal A: Cover a meaningful chunk of an in-state public budget in 10 years
Target: $60,000 saved (about half the four-year budget in today’s dollars).
What it takes: Assuming a 7% return, our calculator shows you’ll need to invest roughly $350 per month to hit $60,000 in 10 years.
Goal B: Cover most of tuition/fees at a private nonprofit in 15 years
Target: The current private nonprofit total budget averages $62,990/year; tuition & fees are a subset of that (commonly ~$40k–$45k, though it varies by school). Over four years, total budgets can approach $250k in today’s dollars. Let’s set a goal of $200,000 saved to cover a large share of tuition/fees.
What it takes: At 7%, your monthly investment would be in the neighborhood of $650 per month to reach $200,000 in 15 years.
Remember: college prices vary widely, and scholarships, grants, in-state options, and community-college-to-transfer paths can reduce your out-of-pocket expenses.
Why invest (vs. just parking cash in a savings account)?
A recent survey by Vanguard found that a whopping 69% of parents use traditional bank checking or saving accounts to save for their children’s education-related expenses. Savings accounts are great for emergency funds, but they typically can’t keep up with long-term goals like college. To put it this concrete numbers, consider that the national average rate on an interest-bearing checking account is a mere 0.07%, and only 0.39% on a savings account, per the Federal Deposit Insurance Corporation (FDIC). Now compare that to a personal investment account with a return of 6 or 7% annually. That gap is the “compounding” you want working for you.
CALLOUT: For a 10–15-year savings plan, diversified investing historically compounds faster than leaving the same dollars in basic savings.
What is a 529 Plan, and is it right for you?
529 plans, named after section 529 of the Internal Revenue code, are plans operated by a state or educational institution that offer tax advantages and other incentives to make it easier for parents to save for college and other post-secondary training. You can even use it for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school. Another benefit of these plans is the amount of money you can contribute each year: up to $14,000 per year before you incur a gift tax.
As part of President Trump’s Big Beautiful Bill Act, 529 plans have been expanded to include more eligible expenses for using funds, including
- Credentialing and vocational programs for trades such as welding, HVAC work, or cosmetology.
- Tuition, books, and fees related to professional licensing programs.
- Required continuing education courses to maintain licensing or certification.
- Tutoring, standardized test prep (such as for ACT, SAT or AP exams) and educational therapy for K-12 education.
While the tax incentives and benefits may sound appealing, consider the drawbacks of 529 plans before deciding if this is the right choice for you.
- The 10% penalty – If you use these funds for anything other qualified educational expenses, you incur a 10% withdrawal penalty. California even imposes an additional 2.5% state income tax penalty on those earnings.
- Fees and costs – You will have to pay a management and administration fee which, depending on how much you invest, could be pricey. Some states also charge an account maintenance fee. Finally, if you invest in this plan through a financial advisor, you will have to pay additional sales and distribution charges.
- Limited flexibility – Unlike a personal investment account with Finhabits, which gives you the freedom to use the money as the need arises, a 529 plan is designed exclusively for educational purposes. If you need the flexibility to access these funds without incurring a penalty, this plan may not be right for you.
A simple back-to-school action plan (you can finish in less than 10 minutes)
If you’re ready to start investing in your children’s higher education, or if you need a plan to help you stay on track, we’re here to help. This is your invitation to join over 900,000 people who have invested more than $400 million smartly and securely with Finhabits. Here’s your five-step plan:
- Pick your target (in number of years).
Use our calculator to identify a contribution that matches your goal. - Open a Finhabits Personal Investment Account.
You can start small and increase later; the important thing is to build the habit. - Automate monthly contributions.
Even $50–$200/month builds momentum. Over time, step it up when you get a raise or tax refund. - Make back-to-school your annual check-in.
Each August/September, bump your contribution by a fixed amount (say $25/month). That small tweak can add thousands by year 10 or 15. - Stay invested.
Markets wiggle. Your goal is long-term. Historically, disciplined, diversified investing over many years has been the driver of results — not market timing.
Additional Back-to-School Saving Tips for College
Many parents don’t save for their children’s college education for one simple reason: they don’t have the financial means to do so. Between bills, expenses, and basic necessities, there often isn’t much left in the bank account at the end of the month. But this reasoning is precisely why it’s so important to build the financial habit of investing. With Finhabits, you can start with as little as $10 or $20 a month. The idea is to automate your investing so that it becomes a “set-it-and-forget it” practice that builds your wealth over time.
Here are 5 simple ways to start saving money and freeing up extra dollars to invest and grow your children’s college fund.
- College gifting: Birthdays? Quinceañeras? Christmas? Whatever the occasion, if your loved ones are going to shop for gifts for you or your family members, ask them to contribute to their college fund instead. It’s the gift that, quite literally, keeps on giving.
- Meal planning: Eating out can be a budget-killer. By meal planning, you can save both time and money. This mom of three saved $500 a month by spending one hour a week planning her family’s meals. Putting that money to work for you in a personal investment account could yield a potential return of close to $90,000 in 10 years or $150,000 in 15 years at a 7% return, according to our calculator.
- Make saving a family activity: Are the kids old enough to help contribute to their future? Whether it’s a part-time job or organizing family activities like garage sales or car washes, saving for college can be a family affair.
- Shop smart: Why pay full price when you don’t have to? Use coupons, take advantage of sales tax holidays (especially for those big purchases), and use that student ID to score discounts whenever you can.
- Carpool: Whether you’re driving the kids to school or commuting to work, save gas by carpooling. Not only does this save drivers $450 per year on gas, but it can also add years to the life to your car and reduce maintenance costs.
Lesson Learned
Back to school is an annual reset for the whole family, and a milestone of growth for your children. Make it a pivotal moment in their development by introducing the “finhabit” of investing. If you already have an investment account, make back to school your annual check-in to see if you can increase your monthly contribution. It’s money that will go to work for you in arguably the most important job in your household: securing your children’s educational needs.
Frequently asked questions (FAQ)
Q: Should I try to save the entire four-year cost?
A: Not necessarily. Many families target a portion (e.g., tuition & fees only, or the first two years). The College Board’s averages help you benchmark: $29,910 (in-state public four-year total budget) vs. $62,990 (private nonprofit total budget) per year in 2024–25.
Q: What average return should I assume?
A: There’s no single “right” number. Long-term history for U.S. stocks suggests nominal returns of around 10% and a range of estimates for long-run real returns (~3.8%–7%). For planning, many families use 5%–7% nominal as a conservative-to-moderate assumption. Our tables allow you to estimate using 5%, 7%, and 10%, so you can sanity-check across scenarios.
Q: Tuition keeps rising — how do I account for that?
A: Keep in mind the full budget and revisit your plan annually. College prices vary by state and school, and published tuition increases have recently been near or below inflation for many public institutions — still rising, but not spiking. Check the latest College Board “Trends in College Pricing” each year and adjust accordingly.
Q: Why do I need a Personal Investment Account vs. a savings account?
A: Savings accounts are great for short-term cash but typically earn far less than long-term market returns. Over time, diversified investing has historically compounded faster, which helps your contributions keep pace with rising costs.
Sources:
Investopedia: S&P 500 Average Returns and Historical Performance
College Board: Published Tuition Prices at Public Institutions Increase Less Than Inflation
Nerdwallet: What is the average stock market return
Vanguard: A Savings SOS: Parents Struggle with Savings Inertia, According to Vanguard Survey
IRS: 529 Plans: Questions and answers
Saving for College: What is the Penalty on 529 Plan Withdrawals for Non-Qualified Expenses?
Saving for College: Understanding the 4 Key 529 Plan Fees and Expenses
Saving for College: Pros and Cons of 529 Plans: Is a 529 Right for Your Education Savings?
DriversEd.com: Is Carpooling the Future? Why It’s Good to Hitch a Ride
This material has been provided for informational purposes only, and is not intended to provide investment, legal or tax advice. Check with your tax advisor to determine what tax credits and tax deductions may be available for your business. Finhabits does not provide tax, legal or accounting advice. Investment advisory services offered through Finhabits Advisors LLC, an SEC registered investment adviser. Registration does not imply a certain level of skill or training. Past performance is no guarantee of future returns. There are risks involved with investing. Insurance services offered through Finhabits Insurance Services LLC, a licensed producer in certain states. Finhabits Advisors LLC is not a fiduciary to insurance products or services.
