Some families assume they shouldn't save for college because they think it will reduce financial aid. Not a good idea, say planners.

First, the vast majority of financial aid these days is in the form of loans, which you and your student must pay back. It's better from a financial standpoint to save money and earn a return on it rather than borrow that money and pay interest on it later.

Saving also gives you more flexibility. You are less likely to be forced to pick a second-choice school because it has a better financial aid package than your first choice.

Future financial aid might be tighter or unavailable, or current tax breaks may have disappeared. Carefully saved or invested money will be there regardless.

As with any form of investing, time is your ally. The sooner you start to save, the better off you are. Consider cash gifts for your newborn as a great way to jump-start their college fund. If you start early, the power of "compounding" is on your side.

How Much Do I Need to Save Each Month?

As with saving for any goal, you'll need to determine the cost of college, how much time you have to save and what kind of realistic return you can earn on the money you save. Keep in mind, the cost is not just for tuition. Figure in room and board, transportation, books and supplies, and miscellaneous expenses.