New Year Financial Resolution: Saving to Go Back to School

New Year's is a perfect time to take stock of where you're at and the steps you need to take to reach your goals. Whether you're stuck in a dead-end job where you can't move up without more schooling, or you realize that you are just bored with the status quo, going back to school can offer the promise of a higher salary and more exciting work. By planning ahead to budget for the costs, you can avoid the common pitfall of finding yourself swimming in debt when you get out.

Pad Your Savings

Add to your emergency fund -- or, if you don't have one already, make it your New Year's resolution to create one -- to cover unexpected expenses once you go back to school. After classes start, you'll have little time to earn extra money to pay for surprise costs. If you're going back to school, an emergency fund "of at least a thousand dollars is probably a good idea....above and beyond a traditional emergency fund (that covers) three to six months of expenses," notes P. J. Wallin, founder of Atlas Financial.

Segregating Your Savings

Setting up a separate account for your school money helps you measure your savings progress and reduces the temptation to dip into the money for other purposes. Wallin suggests that you probably shouldn't be investing your back-to-school money. This is especially true if you plan to go back to school in the near future; you won't have time for the market to recover if it takes a dive. But, you can use a 529 plan so that the money grows tax-free and -- assuming you use the money for going back to school -- it comes out tax-free, too. Many 529 plans offer risk-free money market deposit accounts that pay interest on your deposits.

Consider the Value of Going Back

Before you take the plunge, carefully consider your reasons for going back to school, to make sure it's going to be worth it financially. "Look at where current graduates are getting jobs," notes Wallin. "Ask about averages...not top of the class." If the value of going back isn't matching your anticipated costs, consider reducing the amount you need to save to go back to school by exploring other schooling options. For example, if you simply need to learn certain skills, consider taking Massively Open Online Courses. These courses are offered by many top-tier schools and are cheaper than traditional courses. Alternatively, a community college may give you the certifications or knowledge you need at a lower price than a private university.

Alternative Funding

You can make your savings go farther by looking at other sources of money for your education costs. It's a good idea to contact your prospective school's financial aid office to find out about any grants or scholarships for which you might be eligible. In addition, according to the Internal Revenue Service, you can receive up to $5,250 of tax-free tuition assistance from your employer each year, reducing the amount you need to save on your own.

Long-Term Budgeting to Guide Your Savings

To make sure you're saving the right amounts, you need to know how much you're going to need to cover your education expenses. Plan out your cash flow so you can make sure you can afford your rent, food and other necessities after paying school costs each semester, advises Wallin. School costs aren't limited to tuition; you also need to factor in the cost of books and supplies and transportation to and from campus.

Also, Wallin recommends checking the terms of any loans you have to take out, including when you're required to start making payments on the loan and whether they allow income-based repayment. Without income-based repayment, you might be making more after you finish your return to school, but your extra debt could mean you actually have less discretionary income to enjoy.

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