Financial education

Start small and increase gradually

Don’t let big numbers scare you. It’s not unusual to see costs for a college degree of $50,000 and up or retirement savings needs of $500,000 and more. It’s easy to get discouraged by numbers that big.

Don’t panic. Start small and gradually increase your savings rate each year. Here’s an example for education savings.

Doug and Sherry were ecstatic over the birth of Alicia, their first child. They carefully planned for the birth, including thinking about how to set up an education fund. They decided they could afford to put $40 a month into a savings account that earned 2 percent interest. After two years, they had accumulated $981. They decided to move the money into a mutual fund where they could earn an average of 8 percent a year. After three more years, the account had grown to $2,880. At that point, they could afford to increase their savings to $60. After five more years, their savings had grown to $8,743. They then increased their savings again to $80 per week. When Alicia went off to college at age 18, Doug and Sherry were able to give their daughter $27,398 toward her education expenses.

As you can see, big things can grow from small seeds. Starting small may seem like you are doing very little at first, but small incremental increases plus patience can yield big returns.