on Nov 29th, 2009THE SOONER YOU START SAVING, THE BETTER
The best time to start saving is when that baby you know you want to have is still a gleam in your eye—just a few years can make a tremendous difference. Let’s say you meet someone and you know that within a year or two you’ll be getting married and that shortly after, you’re planning on having a child. If you start putting money away then and there, you’ll have to put away less than if you wait.
Let me show you the difference a few years can make. In the example just described, if you started just three years earlier, you would have to put away only $5,464 a year for twenty years—that’s 26 percent less a year. Even though you’re putting Thoney away for three years longer overall, you really are contributing less.
Let’s say, too, that you put away the money on a monthly basis, starting three years before your baby was born. To save $5,464 annually, you would need to put away $470 a month for 240 months (twenty years), which would mean that you put in $112,800. If you wait the three years until the baby is born to start putting away money, you would have to put in $615 a month for 204 months (17 years), which would mean you had put in a total of $125,460, or $12,660 more than if you had started just three years earlier.
Even if you can’t put in such a large amount, it still makes sense to start sooner and let compounded interest do some of the work for you.