Calculating How Much To Save For College: Changing Your Perspective

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Saving for any purpose, whether for college, retirement, a new home, or that dream vacation of a lifetime, isn't a punishment, nor does it need to be a deferral of pleasure. Some people (and you all know someone like this) squeeze every penny until it squeals and never seem to have any fun. Who can forget Ebenezer Scrooge, after all? He began to live only after he stopped clutching his money quite so tightly. And he is, of course, the epitome of the saver — the miser.

Well, he's a fictional character, and plenty of savers out there still know how to have a good time. And maybe they even have a better time, because at the end of the evening, they know they have the money to pay the bill.

Saving money can and should be neither painful nor pleasurable; it should just be, and you should view putting cash into your savings plans and accounts in the same way as you view paying your other bills. I don't particularly like paying bills, but I do get great satisfaction from knowing that my bills are paid.

Paying Yourself First

You've probably heard this advice more than once but never put it into practice: Pay yourself first. As you look at your income, you should carve a portion of that income out and earmark it for savings.

That money needs to be physically segregated from the rest of your income (so you're not tempted to dip into it, even a little, for that extra something you've been wanting to buy). Only after you've subtracted it and put it elsewhere should you figure out how much money you have available for all your other expenses, which need to fit into this smaller amount. If, after putting aside your savings amount, you can't pay the rest of your monthly bills, you need to change something — find a cheaper mortgage, eat out less frequently, or buy fewer books. The choice is yours. The only item that isn't on the table for negotiation is your savings amount.

Systematically Saving

You can successfully save if you put the same amount of money into some sort of savings account each and every week or month (depending on when your income is paid to you). Even if the periodic amounts may seem small to you, Table 4-2 illustrates how those savings can add up to considerable nest eggs at the end of one, five, ten, or twenty years.

Table 4.2: Systematic Savings (at 5% Interest Compounded Weekly)

Earmarking Certain Pieces Of Income For Savings

Most people not only receive their normal income, paid at regular intervals, but they also have periodic injections of additional cash, whether it's in the form of overtime wages, significant salary increases, holiday bonuses, gifts and/or inheritances, or even income tax refunds. (I can't begin to tell you the number of times people have told me that they use additional withholdings on their pay as a way to save money.)