By Jeff Wuorio, MSN MoneyBruce and Stephanie Perry seemed well on their way to providing for their two sons' college educations -- until they had a third.
This was the situation: Ryan and Justin, in elementary school, both had 529 savings plans, with $4,000 in each. Bruce and Stephanie were feeding both funds -- adding a total of $250 a month -- to ensure they continued to grow.
All that is still there -- but so is 4-month-old Evan. 
Video: Not sure what we're going to do
"The one thing we hope above all is that none of the boys get out of college with any sort of crippling debt," says Stephanie.
Today the Scarborough, Maine, family is effectively back where it was 10 years ago -- beginning to save for a newborn's college education. Bruce has a steady income as a marine engineer, and that's a big plus. But, when Bruce and Stephanie look to the future they get a bit anxious -- with good reason.
It's not all uphill -- even if the Perrys were planning to send the kids to Harvard, 18 years or so certainly gives them sufficient time to earmark substantial funds for college.
But time isn't exactly in their corner. College costs continue to climb -- while inflation rose 3.4% in 2005, the average college bill jumped by more than 5.5%.
According to the College Board, average annual tuition and fees at four-year public colleges and universities checked in at $5,836 for the 2006 school year, a one-year increase of 6.3%. Yearly costs at four-year private schools rose to more than $22,000, up 5.9%.
Tack on room and board, and those averages jump to $12,796 and $30,367, respectively. Video: There's no way we can pay
Attending a public college is now 35% more expensive than it was a scant five years ago, while private schools are 11% more costly.
Sobering? Absolutely. Cause for panic? No.
Let's start with an honest look at the likely costs here. For Evan, a rough estimate of the cost of attending a four-year public college puts the overall bill at $159,779 (that number starts with the $12,796 figure above and assumes a 6% increase for 18 years).
Sounds nasty.
But if we break that number down and think in terms of monthly deposits in a savings plan earning a respectable 7% a year, then $350 a month just about reaches the goal. Even $150 a month lops off more than one-third of the projected bill, or $64,608. Chart: An 18-year savings plan
Those numbers show the power of time for a family with a long savings horizon. Although college costs show no signs of ebbing, a newborn's family has a substantial amount of time in which to save and to let those savings compound. The time span lessens the month-to-month savings obligation.
Changes in the time span affect a savings program in surprising ways. To illustrate: The Perrys can pay for one-third of Evan's full public-school tuition if they immediately begin saving $150 every month. But wait just three years to get started, and the same monthly savings at the same rate of return will produce only $47,544 -- some $17,000 less.
Still, where to find the extra money for a regular savings plan? One of the first steps families with young children should take is to analyze cash flow -- carefully examining what they earn and where they spend.
That often identifies unexpected sources of funds that can be earmarked for college savings, says David Emery, a Souderton, Pa., financial planner. By eating one less dinner out a month, waiting for clearance sales and otherwise reducing spending, many families can piece together a surprisingly substantial amount of extra cash.
Where to put the money? Hard to find a more solid choice than 529 savings plans, says Emery. The 529 contribution limits are generous, money grows tax-deferred and -- particularly attractive to families, such as the Perrys, with several kids -- funds can be moved from one 529 to another, depending on which child can best use the money. Video: Is a 529 right for you?
There are a few caveats for families with a long savings horizon.
Emery recommends that families with very young children not max out 529 contributions (in many states, the maximum exceeds $300,000 per child). Should the child decide not to attend college, money withdrawn from a 529 for any purpose other than higher education is subject to a 10% penalty.
The same 10% penalty applies if there's money left over in a 529 that isn't transferred to another beneficiary.
Rather, Emery urges that families focus first on maximizing their retirement savings in employer-sponsored 401(k) plans, Roth IRAs, simplified employee pensions for the self-employed or similar vehicles.
For one thing, should it prove absolutely necessary, money earmarked for retirement can be used to meet college expenses. Funds in a Roth IRA, for example, may be withdrawn tax-free to pay for higher education, and tax law lets you waive the early-withdrawal penalty if you take money from a regular retirement account. You would still have to pay the income taxes on the earnings.
"You can borrow for college, you can't borrow for retirement," Emery says. "No matter how much you want to save for your little guy's college education, be sure to max out your retirement savings." Video: Just do it?
Here are six other strategies to help you get started:
1. Determine how much of the overall bill you can pay. These days, it's the rare family that can pay 100% of college costs. Figure how much of the overall expense you can reasonably afford, then build your savings program around that.
2. Start saving now. Time is your most powerful ally. Even if you can't spare much, compounding will let you make the most of it over the long term. Calculator: How much can you save?
3. Talk to your kids -- early. Granted, it's hard to chat with your son about the cost of attending Pomona with Pokémon in the background. But it's important to help your child understand as early as possible that college is expensive and to acquaint him with the notion that he's going to have to help, be it through work, saving on his own, scholarships or other steps. That can head off shocking revelations later on.
4. Put your savings on autopilot. Rather than trying to write a check every month -- and letting your determination waiver -- set up an automatic-withdrawal program so that money is invested
on a regular basis without your having to lift a finger.
5. Consider Coverdells: If there are adequate funds for savings to go around, it's a good idea to diversify.
If you have 529s in place, have a look at Coverdell Education Savings Accounts. Once known as an education IRA, a Coverdell lets you save as much as $2,000 a year toward college. The money grows tax-free, is advantageous in financial-aid formulas and will likely offer tax-free withdrawal as well. And, unlike 529s, you have complete freedom of choice as to how the money is invested.
6. Weigh your risk tolerance carefully: Logic suggests that a long time frame and the challenging end goal mandate a fairly aggressive investment strategy. You have the time to earn substantial returns and ride out any downturns.
If that's comfortable for you, fine. But don't go against your instincts. If you're more at ease with something a bit more conservative, by all means go with that. When shopping for an investment vehicle -- such as a 529 -- check out average rates of return and risk to gauge how aggressive a particular choice might be.
Produced by Elizabeth Daza/Graphics by Hakan Isik and Joe Farro
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