How can you figure out how much to save for college expenses? First, get an idea of how much money you're going to need and how long you have until you need it (this link will get you started). Or just check out these stats from the College Board.
Start saving early -- as early as possible. The more time your money has to grow, the more it (likely) will grow. In other words, when shooting for a certain dollar-amount goal, investing earlier will allow you to invest fewer of your own dollars. Here are some scenarios to consider:
- Invest $2,000 per year beginning when your child is 8, and if you earn 10% annually, you'll end up with $40,000 by the time your child is 18.
- Invest $5,000 per year beginning when your child is 10 (earning 10% annually) and you'll have about $75,000 by the time your child is 18.
- Invest $3,000 per year in the stock market, from the time of your child's birth. If it grows at the market's long-term average annual rate of around 10% per year, by the time he or she is ready for college, you'll have around $150,000.
These are just rough guidelines. During the years that you're investing, the market might do significantly better or worse than average. Your average annual return might be significantly higher or lower than 10%. (Since we had such a spate of good years in the last decade or so, dampened expectations are a good idea for the near future.) In addition, if you're investing in carefully selected individual stocks instead of market index funds, you'll fare differently than the market average.
For more info on saving for college, drop by the Fool's Paying for College center.
