Saving early matters
Do not underestimate the value of time. The longer you keep your money invested, the more time it has to add up and potentially grow.
Let us say you set aside $1,200 a year—that is just $100 a month—in a tax-free account such as a 529 college savings plan,* for a total investment of $21,600 over 18 years. If this investment earns 5% a year, you will have about $35,400 at the end of 18 years.
But if you wait 9 years before you start saving, you will have accumulated about $13,900, factoring in that same 5% return.
In other words, you will only have earned about $3,000 in that 9-year span—as opposed to nearly $14,000 over 18 years!
That is the beauty of compounding—earning money on your investment and then earning money on those earnings. And over time, it only grows more powerful.
Starting to save earlier could mean you will have more saved
These hypothetical examples do not represent the performance of any particular investment. The assumed 5% rate of return is for illustrative purposes only. Actual market returns will fluctuate annually and are not guaranteed. The ending balance does not take into account any taxes or penalties that may be due upon distribution.