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Start Saving for Baby’s College Now

If you are pregnant now or your baby is still in diapers, congratulations. This is the very best time to realize that you should start saving for your baby’s eventual college education. You have many years before your Little Genius starts comparing different options for college and you also have one magical component on your side: compound interest.

When you put money in an interest-bearing savings account you earn interest at a certain percentage depending on how much money you have in the account and what the rate of return is on the interest. In simple terms, compound interest is what happens when you earn interest on the interest you have already earned. You’re earning money on money you’ve already earned. This is how even the most modest savings account can grow exponentially over the years.

Suppose you only put $30 a month away in your baby’s college savings account, but you do it from the month your child is born. $30 is an amount that most people can manage easily and without really missing the money at all. That $30 per month over a period of eighteen years will grow to an impressive amount, even at a modest rate of return. For example, at an interest rate of 4%, the $30 a month will grow to nearly $9500 in eighteen years. That’s an impressive amount of money for a monthly deposit that you probably won’t even notice being gone from your expendable income.

Of course, your child will probably need more than $9500 to complete a college education, but this is certainly a respectable amount of money to help your child along. Don’t forget that there are school loans, scholarships, financial aid programs, and part-time jobs to help your child pay for the rest of her education. You can always bump up your monthly contribution to your child’s college fund as your income allows. Increase the $30 to $100 a month and you’re child’s college fund will be close to $32,000 by the time he graduates from high school.

Be sure that you put the money into an account that is specifically designed for college savings because there are tax advantages to these accounts. You have plenty of options available to you – such as educational IRAs and state-sponsored prepaid tuition programs – so be sure to do some research and speak to a representative at your financial institution to find out which option is best for your situation.

If the thought of eventually paying for your child’s college education seems daunting, don’t worry. Start putting a modest amount into an account monthly now, and add more as your finances allow. Remember that you have time (and compound interest) on your side right now, so take advantage of it.

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[…] that I don’t want my daughter to be a leader and to be academically brilliant (can you say college¬†scholarship?) but I don’t want her to be this way because I forced her into it. I want her to be who she […]

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