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.


This information has been provided by Financial Wisdom Marketing Services, Inc. and is for educational purposes only.  Content from Financial Wisdom and/or Redwood Credit Union is not, in any way, intended to provide legal, tax, or financial advice.