There are many savings accounts meant for specific purposes, whether that be savings accounts for retirement, or savings accounts for kids. One expense we all know is rather hefty is college tuition. Many people save for their child’s education years before they are or when they are born. People do this because they understand that saving money as early as possible gives it the greatest opportunity to get high interest, which adds up in the long run. Even saving small amounts of money at a time can take an effective chunk out of an expensive college tuition as long as the savings are consistent.
The rule of 72
Small sums of money saved up from early on can gather to become a substantial amount that can sometimes even pay off a whole tuition by itself. These small sums, if deposited on a monthly basis have the opportunity to become large sums if kept in savings for prolonged periods of time because of the fact that the interest paid on these amounts can be compounded yearly. Eighteen years is long time for money to add up,. This combined with a savings account with a generous interest rate can mean that the task of saving money for college tuition can be easily achieved long before the time comes. The rule of 72 is a helpful rule used for calculating how long it would take for money in a savings account to double in value, simply divide the interest rate by 72 and that will be the number of years it would take for the money in the account to double.
No amount is too small to save
Assuming that we begin by funding little Johnny’s college tuition account by the time he turns five, the year 2015. We start by depositing 500 dollars into his account and then 100 dollars a month for a year. By 2020, he has 6,500 dollars in his account and by 2025 he has 12,500 dollars in that account. By the time 2028 arrives and he has to pay for his college tuition, he has 16100 dollars in his account, not including interest. Simply by consistently depositing 100 dollars a month for eighteen years has allowed 16,100 dollars to add up, this paired with compounding yearly interest can allow for this amount to exceed 20,000 dollars. No amount is too small to save, even to pay for a college tuition, this much saved would take out a significant chunk out of many public colleges and even many private colleges.
Student loans are extremely burdensome for many graduates from college, especially those who need to establish a name in order to fully integrate themselves into a practice. College savings mitigate a large portion of the amount of student loans that need to be taken out in order to attend. With many loans there is even an interest that also compounds adding pressure to pay of the loan as quickly as possible. Saving up will save unnecessary stress that comes as a result of these college loans and give your child a better opportunity to establish their own financial ground instead of forcing them to pay back thousands of dollars in loans. Saving up for your child’s college fund saves a lot more than money, it will save them time and stress in the future that comes as a direct result of college.
Sourced from: Dugout.com
Sourced from: dugoutPosted on May 22, 2023