When Should I Start Saving for My Child's College Education?

If you’ve ever looked at How Much College Actually Costs, you probably wonder just how early you should begin saving for your child’s college education. Here at HESAA, we wanted to help you answer that question. The truth is that the short answer is:

Start Saving for College as Soon as Possible.

That being said, let’s look at the long answer. Your ability to save for your child’s future education has a lot of influencing factors. First, before looking at saving for college, you need to be taking care of your current financial obligations, including all of your livings expenses and your current debt payments.

Next, you need to determine which savings goals matter most to you.

For example, you may want to figure out if you think it is more important for you to save for your child’s college education or for your own retirement. For many, saving for retirement takes precedence over college savings because they don’t want to become a financial burden on their children later in life and there are other financial opportunities that can help pay for college that are not available for retirees. Many financial advisors also suggest that you have a “rainy day” fund with 3-6 months worth of income in it and an emergency fund for large, unexpected occurrences like car repairs or medical bills.

You can, of course, start saving in each of these areas, because saving for one does not preclude saving for the others. However, determining your priorities will help you decide how much you can put into each savings category.

Why Should I Start Saving Early?

It is our opinion, however, that you should begin saving for your child’s education while they are still young. You may not be able to save enough money to pay for college outright, but anything you are able to save doesn’t have to be made up later using Grants, Scholarships, or Expensive Student Loans.

Interest Rates Make a BIG Difference.

Another reason to start saving early is that the length of your investment, coupled with compound interest adds up. Looking at a few savings examples will help illustrate why saving early can pay off.

If you start saving for college when your child is born and save $100 per month in an account that receives 1% compound interest, by the time your child turned 18, you would have invested $21,600, resulting in nearly $23,800 after interest.

On the other hand, if you wait until your child is 5 years old to start saving and put the same $100 per month away with the same 1% interest rate, you will have invested $15,600, resulting in close to $16,800 after interest.

In these examples, saving sooner resulted in much higher investment levels, of course, but the additional interest also resulted in an extra $1,000. If you are able to find a higher yielding investment, that difference grows exponentially. If we look at the same $100 per month investment at a 3% interest rate, it would result in over $28,800 over 18 years or just over $19,200 over 13 years.

As you can see, starting to save for your child’s education early can make a big difference in how much you can help them pay for college. Here at HESAA, we want to help you Plan for Your Child's Future. If you’re ready to start saving for you child’s future, you may want to look into qualified tuition plans like NJBEST, New Jersey’s 529 College Savings Plan.