We all know that saving money is a good habit. It allows us to pay for large expenses and more accurately plan for future purchases.
And if you’re a parent, you’re constantly aware of the need to set money aside specifically for college. But do you know just how powerful an impact saving for college can have on your future finances?
Take a look at the chart below. Each group of bars represents saving a certain amount per month in a college savings account. Each color represents your child’s year in school during which you start saving. Immediately, you can see the significant amount of money you can amass over the course of several years by consistently saving.
For example, if you start saving just $50 every month while your child is in kindergarten, you’ll have $12,667 by the time your child goes to college (based on a 7% rate of return*). If you’re able to double that monthly investment to $100, you’ll have $25,333 when you child goes to college, a sum that will certainly help pay for a significant amount of college costs.
And what happens if you don’t save for college? You won’t money set aside for college costs when your family receives that college bill. And as a result, you may need to borrow money to pay for college, with interest.
Review our chart below, which illustrates two different ways to finance a $10,000 college cost. The bar on the left represents a family who saved just under $7,000 in a college savings account, which resulted in a $10,000 account, assuming a 7% interest rate over 10 years*. Interest plays a powerful role in helping families save enough funds for college.
The bar on the right represents a family with no savings, who as a result had to pay for college using a loan. Taking a $10,000 loan for college costs will actually cost a family $13,920, based on a loan interest rate of 7% and a repayment term of 10 years. Because this family did not save, they will need to pay $3,920 more in college expenses than the actual $10,000 cost.
Remember, even setting aside a small amount every month can significantly impact what your family will pay for college. If you haven’t yet started saving for college, now’s the time. Visit fidelity.com/Massachusetts-529 to learn about the U.Fund 529 College Investing Plan, an easy and beneficial way for you to save money for college. And if you haven’t yet signed up for the SeedMA program, make sure you do so here. You’ll receive plenty of free college planning guidance and information.
Finally, if you’d like to speak to someone one on one to create a college savings plan for your family, please call us at MEFA at (800) 449-6332. We have college planning experts ready to help you plan for your family’s future.