13 Dec Balancing college savings and a car

Q. My son just started a part-time job and he wants to save some of his money for a long-term goal, like a car. I think he should save for college instead. How do we agree?
— Mom

A. Best of luck to your son in his new job and it’s great to hear that he would like to start saving some of his hard-earned cash.

Aside from learning how to be a responsible employee this is the perfect time for him to become familiar with budgeting and setting goals, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

“Throughout life we have to constantly reassess our savings needs and how best to achieve them whether it is for retirement, a new home, college savings or a great vacation,” she said.

Regardless of how his earnings are to be used, Mott said, you and your son should review his paychecks to determine what he has available and what expenses he has that need to be met first such as his meals at work or his gas to get there. This will introduce him to the concept of budgeting and knowing the available “cash flow” that can be used to meet savings goals.

Mott said he may want to use an app on his phone or computer that links to his bank account to help him understand where he spends his money. There is no time like the present to become a responsible and knowledgeable spender, she said.

Often the decision of how to allocate between goals requires prioritizing and compromise and both your goals are worthwhile.

“The decision of how he should set aside his extra earnings is a perfect opportunity for you to discuss college and how it will be funded,” Mott said. “This is an important conversation to have early on so that your son knows what you are going to be able to provide in terms of support, whether he will qualify for financial aid and what expenses he may need to be responsible for.”

Every family handles college costs differently and together you need to decide what you expect his contribution to be so that he has a savings goal to work towards, she said.

Your son’s desire to save for a car is another important conversation.

He may be more motivated to set aside some of his earnings for a goal that he has come up with himself so striking a balance between the two could enable you to come to an agreement more easily, Mott said.

“If the car is something that isn’t going to be purchased until after he graduates college, then perhaps a lesser amount of his paycheck could be put towards this goal,” she said.

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This post was first published in December 2016.