What does your overall savings plan look like? Are you maxing out your 401(k)? Do you have at least six months of current expenses in liquid form as an emergency fund? Do you have easily reloadable savings for the random things that happen in life like new tires for a car or the co-pay on dental work?
Helping your child pay for college is just one part of your total financial picture. If everything else is in good order, shave off what extra you can and add it to the 529 account or put it into a different savings vehcile that works well for you but that you earmark for college expenses. If your kid were in college right now, what would you be able to pay out-of-pocket? Aim to save that much this year.
Starting soon, let your daughter know that when she applies to college, she can dream big, but that affordability will be the final deciding factor. Just like now. The two of you can’t do everything you’d like to, because some things are out of your budget. If she is used to seeing you make wise budgeting decisions, choosing the affordable college won’t be freakisly aberrant behavior for her. It will just be the sensible thing to do.