When Should You Start Saving for College?

As parents, our first priority is helping our children to reach their fullest potential. We worry about their nutrition, sleep habits, and who they are consorting with. And, of course, education is high on the list of priorities. So, when should you start saving for your child’s college fund?

Like every issue involving personal finance, this one relies on your individual circumstances. However, there are certain principles that are relevant for all.

Why You Should Save Early for Your Child’s Education

There is a simple answer for the best time to start saving money for your child’s education: as soon as possible. The more time you have to devote to your child’s savings, the more you will be able to accrue funds.

While this answer is glib, it also contains some timeless truths. Putting in budgeting systems is the key to being consistent and intentional with your finances, which includes your various savings goals. The earlier you begin this practice, the more you will be able to put aside for when it is time for your child to matriculate.

Time is one of your greatest allies supporting your investing aspirations, thanks to the power of compound interest. As your money accumulates, it begins to earn more and more interest. This can make a meaningful difference over the years.

For instance, let’s say that you make an initial contribution of $1,000 into an investment account when your daughter is born. You contribute $100 per month to this account, with annual returns of 7%. By the time your daughter goes off to college 18 years later, this fund will be worth $44,179.

However, perhaps you decided to wait until your daughter started kindergarten at the age of five to open this same account. Even if you were to make the same monthly contributions over the next 13 years, the account would have a value of $26,579. Waiting until your daughter turns 13 would leave you with even less time, making your account worth $8,303 when she enters college.

You can use the TipRanks’ compound interest calculator to experiment with different time horizons, values, and rates of return to better understand how these variables all impact your overall investment.

The above example is a tangible demonstration of how time can work in your favor. The sooner you are able to begin saving, therefore, the more you will have at your disposal to help cover the costs of college.

Learning to Prioritize

While putting aside money for future college needs is a wise move, life does not occur in a vacuum. There will always be other expenses and numerous other priorities that influence our decisions.

Beyond the current bills and demands on our lives in the present day, there are other savings and investment objectives that can be more acute than future college costs.

This brings us to the second part of the answer for the best time to start saving for college: understanding your other needs.

Before beginning to put aside money for your children’s college, most financial advisors would counsel their clients to make sure that they are not carrying high-interest credit card debt. If left unaddressed, debt can destroy your financial future by making it impossible to squirrel money away. Unless the circumstances are exceptional, paying off credit card debt should generally be at the top of your priorities.

However, there are other savings goals that can also take precedence over creating college accounts. This includes saving for retirement and building an emergency fund. Your ability to take care of others relies upon being in good standing yourself, and these are both critical steps to take to ensure your future financial security.

Design a Budget

When it comes to financial planning, there is no better method than building a budget. This will require you to understand your income, your expenses, and the balance between these two competing forces.

It will also allow you to be intentional with your finances, focusing on the trade-offs in your spending and savings choices. As you run the numbers, you will hopefully be able to create systems that will enable you to pursue multiple objectives simultaneously.

While you can and should prioritize getting out of debt, saving for retirement, and building an emergency fund, perhaps you can find room in your monthly plans to put a few dollars aside for your children’s education by decreasing your spending.

Opening up a dedicated account–such as a 529 savings plan–can make it easier to channel regular contributions toward future educational costs. Here’s another perk: your family can also make contributions.

Instead of bringing birthday presents, you can ask your family to help support your daughter’s college fund by making contributions to her 529. (This is especially useful when your daughter turns one, and will not even be aware that she is supposed to be receiving presents at her birthday party.) Even if you are not able to make monthly contributions as part of your budget, an open account will both grow over time and be a worthwhile destination for those who want to offer meaningful assistance to you and your children.

Conclusion: Understand Your Circumstances

Most would agree that our greatest role as parents is to help our children pursue their passions. Studying in college is a cornerstone for many, and saving up for these costs before they come due can help turn this dream into a reality.

The earlier you can begin this process, the better. However, saving for college probably should not be at the very top of your financial priorities. If putting money aside for college now would significantly impact either your ability to meet your day-to-day obligations or other savings needs, it probably should wait until you are on firmer financial footing.

So, when is the best time to save for college? The earliest that you are financially able to.

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