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.