May 1 is looming, so many families are facing some big decisions. I’m trying to centralize tools for the key parts of acceptance in a single post. Below are a set of links to the key financial issues involved. First, though, I want to talk about cash flow planning: how much can you spend out of pocket every year?

Most families use a combination of savings, free cash flow and loans to pay for college. I find that estimating free cash flow is really hard for most families. The problem is, if you just make assumptions, you may overestimate what you can pay and wind up borrowing more than you intended. So you need to really look at your cash flow if it’s a significant part of paying. For example, if you are planning to pay $10,000 per year out of pocket, you are saying that you have an extra $800 every month. Do you?

Here’s a quick exercise to figure out how much you can actually pay out of pocket: Look at the ending balance on your bank statements for the last 6 months. If the balance went up by $600 in that time, that’s about $100 extra per month or $1,200 per year that would be available for college. If it went up by $6,000 in that six month period, then you have $12,000 per year available for college. I’d suggest a reality check: go back to 2019’s statements and do the same exercise. Once we’re back out in the world again, our spending patterns are likely to revert back to pre-pandemic patterns that include things like travel and eating out.

Next, look at specific expenses for your child that will go away once they’re no longer in your home: activity fees, tutoring, sports. Tools like are really helpful for this; your credit card probably provides an annual statement that breaks down your spending by category too. If you spend, say, $1,000 annually on these items, add that to your free cash flow. My own experience has been that spending for things like groceries and utilities haven’t changed that much with kids being away at college– we eat out/get takeout more often, and cooking for two isn’t a whole lot cheaper than cooking for four– so I don’t recommend assuming dramatic decreases in those costs.

Finally, are you eligible for the AOTC (American Opportunity Tax Credit)? If so, add $2,500 to your budget– but make sure that any adjustments to your taxes (either reducing withholding or getting a larger refund) actually end up in your college budget not your fun budget.

Let’s say, for example, that you have a $300 monthly surplus, spent $2,000 on your student last year, and are eligible for the AOTC. That means your cash flow budget for college is $300×12 + $2,000 + $2,500 = $6,300. If you are budgeting $10,000, you need to look hard at where you think the additional $3,700 will come from.

The amount you can actually afford is cash flow + 1/4 of savings + amount you’re willing to borrow.

Here are some additional resources to help navigate this decision: