Saving for College: It’s Never Too Early to Start (A Beginner’s Guide)

 

When you are buying diapers and paying for daycare, college feels like a lifetime away. It is easy to say, "I'll start saving when they are in high school."

But the math tells a scary story: By the time your newborn is 18, a four-year degree could cost over $200,000. If you wait until they are 15 to start saving, you will need to put away thousands of dollars a month to catch up.

The secret isn't to be rich; the secret is Compound Interest. Here is why starting with just $50 a month right now is better than saving $500 a month later.

1. The "Time" Advantage

Compound interest is when your interest earns more interest. It needs time to work its magic.

  • Scenario A: You invest $100 a month starting when your baby is born. By age 18 (assuming a 7% return), you will have roughly $40,000.

  • Scenario B: You wait until they are 10 years old. To get that same $40,000, you would have to save nearly $350 a month.

The Lesson: Start small, but start today. Even $25 a month makes a difference if you give it 18 years to grow.

2. Where Should You Put the Money?

Sticking cash under the mattress won't work due to inflation. You need an account that grows.

  • 529 Plans (USA): This is the gold standard. It is a tax-advantaged investment account specifically for education. The money grows tax-free, and you don't pay taxes when you withdraw it for qualified expenses (tuition, books, room and board).

  • High-Yield Savings Accounts: These are safe and insured, but the returns are lower (usually 4-5%). This is good for short-term goals but might not beat inflation over 18 years.

  • Custodial Accounts (UTMA/UGMA): This is a brokerage account in the child's name. It offers more flexibility (the money can be used for anything, not just school), but it counts heavily against them when applying for financial aid later.

3. The "No-Toys" First Birthday

Let’s be honest: Your one-year-old does not need 20 stuffed animals. They will play with the box more than the toy.

  • The Strategy: For the first few birthdays, ask grandparents and aunts to contribute to the education fund instead of buying plastic toys. A $50 check today is worth $200 in the future!

Frequently Asked Questions

  • What if my child doesn't go to college? Most 529 plans allow you to change the beneficiary to another sibling or even yourself. New laws also allow you to roll some of that money into a retirement account (Roth IRA) for the child.

  • Is it too late to start? No! Even if your child is 10 or 15, saving something is better than saving nothing. Every dollar you save now is a dollar they won't have to borrow with interest later.

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