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The Cost of Waiting To Save For College


When your child is still learning how to crawl, it can seem almost absurd to imagine him or her moving out and starting college. Nevertheless, the power of compounding, along with a higher capacity for risk the further your child is from college, means that now is the time to start investing for your child’s college education.

The sooner you start saving, the better off you will be in the long run, and even modest savings can grow into significant investments by the time your child is ready to head off to school. All in all, it is far less expensive to save ahead of time than it is to borrow money, since you’ll be earning interest instead of paying it. The proper planning and saving can put the cost of any college within your reach. Here’s how to get started saving:

1. Start saving the day your child is born, and save as much as you can. Save money on a consistent basis rather than on a random schedule. Consider setting up an automatic payroll deduction or have your bank automatically move money from your checking account to a college savings account. ?

2. Establish a savings goal to measure how well you are doing, and modify that goal as your salary increases.?

3. Increase the amount you save by 5 percent each year to keep up with the college tuition inflation rate.?

4. Invite relatives to contribute to the savings account in lieu of gifts.

5. Teach your children about saving and investing by getting them involved in the financial preparation for their education.

 One of the best ways to save for your child’s education is a 529 Plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions. 

There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. 

Time and consistency are your greatest Allies.  Getting started now will be an immense advantage to you and your family. 

Use this graph to see how much more you’re able to sock away for college by starting early,  assuming you make an initial contribution of $5,000 and monthly contributions of $200.

cost of waiting for college - saving for college

Assumes a 6 percent rate of return from birth to age 5, a 5 percent rate of return from age 5 to age 10, a 4 percent rate of return from age 10 to age 15 and a 3 percent rate of return from age 15 to age 18, compounded annually. 

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Comment   |  4 years ago from Salt Lake City, UT