Let’s say you have a child today. You’re estimating that their
college education will cost $25K a year, so that child is going
to need $100K in eighteen years in order to pay for college.
Let’s also say you can earn a steady 6% return on that money you
save. If you wait until the child is ten years old to start
paying for college, you’re going to have to save $917 a month to
reach that goal. If you wait until the child is five years old,
you’re going to have to save $442 a month to reach that goal.
That’s a lot cheaper. If you start when the child is born, you
only have to save $271 a month. In fact, if you start as soon as
you discover the pregnancy by starting a college savings plan
for yourself and transferring it to your child, you only have to
save $250 a month. For a lot of people, $917 a month is either
impossible or seriously challenging, while $250 a month is well
within reason. That’s the difference between starting now and
starting later. Obviously, this same phenomenon works for any
long-term goal