Saving for Our Kids

Having our third child, I’ve been thinking about how we are going to save for him.  We had saved for our first two kids, but with three kids expenses have gone up.  Rather than think about how am I going to do this in a short time, I started thinking, what would it take to do it over his life?  I know so many people who never save anything for their kids.  Or, when their kids get in high school they start to panic about how to save for college.  So, I thought I would share my conclusions with everyone.

Just like many other things, if we plan ahead and make a little bit of sacrifice, we can achieve great things.  I thought I would give you the math to show you what you could realistically accomplish.  

If you save $1,000 per year (per kid), until they are 18.  At 7% interest, which is even fairly conservative historically, they will have about $36,000 at age 18.  That could be a nice chunk toward college (some may think that’s not enough, but it could get them through if they start at community college).  Or, if college gets paid for some other way, like a scholarship, it’s a very nice savings start, for emergency fund, even retirement.

Let’s say they don’t have to use that money on college, and they never save again.  At 7% interest, they will have almost one million dollars at age 65.  At 9% interest, which is more in line with historical investment returns, that $36,000 would be almost 2.5 million dollars at age 65.  Wow.

If your not starting from their birth, you will obviously need to save more each year, if you want the same outcome.  But, better to start now than many years from now.

I think this makes saving for our kids seem doable.  Of course it takes some sacrifice, but I can make some lifestyle adjustments to save $1,000 per kid, per year.  If you don’t think you can manage that, what can you manage?  Something is better than nothing.  Maybe you can save $1,000 this first year, divide it among the kids, and next year try to up the goal.

Put the money into an account under their name, so you are not as tempted to dig into what you have saved for them.