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Until I became a father, it was just a cliché: Children grow up fast. But now I get it. It seems like just yesterday my son (11) and daughter (7) were waking me up at all hours of the night crying for food, and then waking me up again at 5 a.m. to watch The Wiggles.  Next thing I know, they will be on their way to college and plans to watch cartoons will be replaced with plans to cover tuition, books, room/board, lab fees, paper, pens, computers, calculators — the list goes on and on. 

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For me, just thinking about it brings a wave of anxiety. If you feel the same way, let’s talk about one of the most important tactics when saving for college: START EARLY!!

How important is starting early? Let’s look at a hypothetical example. In our first scenario, you begin saving when your child is born, socking away $500 each year into a 529 Savings Plan. In our second scenario, you start saving when your child is 5 years old, and in the third scenario, you start saving when your child is 10 years old.

Let’s focus on two outcomes:

  1. Your 529 balance when your child reaches 18
  2. Your earnings as a percentage of your 529 balance (illustrated by the bubbles on the chart)

[1]

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As you can see from the chart, starting earlier and saving consistently usually leads to larger 529 balances due to more contributions and the principal of compounding earnings. The principal of compounding earnings is where you have “earnings on your earnings.”  Additionally, due to the principal of compounding earnings, earnings make up a larger percentage of your overall balance the earlier you start saving. That extra money you get from compounding earnings will lessen the need for student loans. 

If you have not started saving for college expenses — or worry that you started late too — don’t lose hope. To make up for lost time, consider increasing your contributions, and don’t lose sight of the fact that any amount is helpful.

To see how you can begin saving, visit usaa.com/educationandtraining.

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[1] Assumptions: Earning are based on cumulative earning/savings starting at the indicated age.  A return on investment of 6 percent from 0 to 12 years of age; 5 percent from 13 to 15; and 4 percent from 16 to 18.  Examples given are hypothetical illustrations and not necessarily an indication of the benefits or features of a particular product or plan.