| Starting
to Save Early for Financial Goals
Postponing saving
for your retirement or a college education for a child is unfortunately
quite easy. There can be hundreds of reasons to delay and only one reason
to start - your financial peace of mind. Weighing the benefits of instant
gratification against your long-term financial security is never easy.
Here are some examples of why saving early is better.
College Costs
Attending college has become expensive. A year's tuition, room, board,
books, fees and other expenses at many private universities can run over
$35,000. For a public university, the costs can be over $15,000. Here
are charts showing how much you would need to save each month starting
when your child is different ages starting from zero and starting with
a balance of $10,000.
Monthly
Savings Needed to Fund College
| Starting
With No Balance |
|
Starting
With a Balance of $10,000 |
|
Starting
when the child is:
|
Private
University
|
Public
University
|
|
Starting
when the child is:
|
Private
University
|
Public
University
|
|
Age
3
|
$1040
|
$446
|
|
Age
3
|
$950
|
$356
|
|
Age
6
|
$1232
|
$528
|
|
Age
6
|
$1129
|
$425
|
|
Age
9
|
$1551
|
$665
|
|
Age
9
|
$1426
|
$540
|
|
Age
12
|
$2189
|
$939
|
|
Age
12
|
$2019
|
$767
|
|
Age
15
|
$4105
|
$1759
|
|
Age
15
|
$3796
|
$1450
|
*
Assumes earnings rate of 7%.
As you can see, it
pays to start early.
Retirement Planning
Calculating how much you will need to live during your retirement can
be a complex process. There are many variables that should be taken into
account. Here is a chart showing how much should be saved each month.
The chart assume the following: female, retiring at age 62, current income
of $60,000, retirement income needs equal to 75% of current income, 3%
inflation, 7% earnings on funds and a 28% income tax bracket.
|
Starting
at:
|
Monthly
savings needed
|
|
Age
30
|
$560
|
|
Age
35
|
$800
|
|
Age
40
|
$1185
|
|
Age
45
|
$1900
|
While these assumptions
may not match your situation, you will see the benefit of starting early.
Accumulating $1,000,000
Here is a chart that just shows what you would need to save each month
to accumulate one million dollars.
|
Years
of Saving
|
Monthly
Savings Needed
|
|
35
|
$555
|
|
30
|
$820
|
|
25
|
$1234
|
|
20
|
$1920
|
|
15
|
$3155
|
Summary
As you think about accumulating funds, there are only a few decisions
you have to make.
- When do you start?
- What rate do you
earn on the funds?
- How much do you
save?
Starting to save early,
regardless of your goal, makes good sense. Remember that compound interest
rewards those that start early. Trying to earn higher rates of return
is usually accomplished only by taking higher risks. Taking advantage
of automatic savings plans at work, participating in your company's 401(k)
plan and taking advantage of any income tax breaks can also make the process
easier.
|