If you went to college, then you know how expensive it can be. It can even be estimated that about 40% of graduates are still paying off their loans for college five years after they had graduated. For those who are still unaware of the gigantic expense of college, the average tuition fee for four years is $30,000 and that is without the extra expenses which college life entails such as food, laundry, trips, etc.
Now that you have an idea of how expensive paying for college is, you can see that it would make sense to start a college savings account for your toddler. If you research any advice for writing a budget out, there is always a college fund you are supposed to contribute to but so few people do. The reasoning is simple, you just can’t afford it. Then again, that is only because you look at the price you have to pay. Instead, look at the benefits you can reap from it.
There are two forms of compound interest that you are going to get. The first form is how well the money you invest early, continuously and cheaply can grow into a large enough number to get your child through college. By investing in a college savings account, you can watch the money grow as your child does with the commitment to invest at least $15 a month. If there is a 7% annual interest rate, you can end up with roughly $8,000 by the time your child is 18. Now imagine if you could invest at least $100 dollars a month, that would make their college cost paid in full and then some.
The best plan to invest in is a 529 which is an investment account specifically for college funding that is tax-free. Every state offers a certain form of the 529 and it allows you to invest an amount of money much larger than the fee for college would cost. That means that in addition to your monthly contribution, you can have family members, instead of buying gifts, put money into the account for your child’s college fund. As seen from above, you can estimate how greater the outcome would be if a family member also contributed a small dollar amount each month or a couple large amounts throughout the year.
The second form of compound interest is the generation income. The small sacrifice you make for your child to get through college rolls over to help your child save for a college fund for when they have children. It is statistically proven that college graduates make significantly more each year than those without a degree. By implementing the early college saving habit into your child along with their higher income because of your contribution, they will be able to invest more for their children. This in turn creates a generation compound interest for college funding.
Other miscellaneous reasons to start saving for a college fund now is that by the time they go to college, the tuition rates will have been increased by at least 40%. The expenses are on the rise at a quicker rate than inflation. There is also another bright side to saving early and that is if your child ends up getting enough scholarships and grants to pay for college, you have $30,000+ to either put toward retirement or make a major life change or travel. It’s completely up to you.