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Money Smarts
Chapter 2 Money Smarts: Saving for School
How much does it cost to go to college?
Tuition and expenses may range anywhere from $2,000 to $40,000
per year, depending on whether you go to a two-year college
close to home or a private four-year college miles away. You
can develop a plan for financing your education by estimating
your costs and exploring alternatives.
Go to the BusinessWeek Online
Personal
Finance Planning calculators. Scroll down to the Savings
Calculators and click on “What will it take to save
for a college education?”
Input the following values:
| Tuition and expenses in today’s
dollars |
$6,000 |
(per year) |
| Years of college |
4 |
|
| Years until college |
3 |
|
| College savings to date |
$3,000 |
|
| Amount you can save monthly |
$100 |
|
| Your savings rate |
4.25% |
(APY) |
| Inflation rate |
2.50% |
|
| Your federal tax rate |
15.00% |
|
| Your state tax rate |
6.80% |
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Click on the “get your results”
button and answer the following questions.
- How much will your total cost be for four years of college?
- Based on your inputs, what will your savings be? Will
you have enough saved for four years of college? In order
to meet your goal, what changes would you need to make to
your savings program?
- If you put your money in an account that was not subject
to income taxes, what would your savings be?
- Suppose your rich aunt gives you $5,000. Add this amount
to your current savings. How much will you have saved when
you start college? Assume the account is not subject to
income taxes.
- Why does the calculator ask you for the inflation rate?
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