In the last episode of Money Mile, you met Harry and Jenny–two hard-working triathletes working toward living a good life both now and in the future. Now that Harry and Jenny have built their money machine, they are ready to start planning for their kids’ college education.
Today you’ll learn 6 tips that can help ensure that you get your kids off to the best start in life by helping them afford their college education. College is notoriously expensive, but using these tips can ensure that you and your kids will be ready when the time comes.
You will want to hear this episode if you are interested in…
- Pro tip #1 [1:22]
- Pro tip #2 [2:55]
- Pro tip #3 [4:29]
- Pro tip #4 [5:51]
- Pro tip #5 [8:10]
- Pro tip #6 [9:06]
- Your homework [9:37]
Pro tip #1: Be a knowledgeable consumer of higher education
Both parents and students need to understand that they are consumers of education. Higher education can be a commodity that is either very expensive or quite affordable. Unless your child has huge goals, a college degree is simply proof that a person can learn. That means that not everyone needs an Ivy League education.
Pro tip #2: Look at what you are already spending
Harry and Jenny are spending about $300 per month feeding their firstborn son, James. When he goes off to school they can redirect the money from their food budget to help cover the expense of college. That combined with the $500 per month that they spend on his extracurricular activities means that they can reallocate $800 per month from their existing budget before they ever have to use an extra penny.
Pro tip #3: 529 plans can be great, sometimes
529 plans can be a great way to save money for college education, however, they are not the end-all-be-all for college expenses. I try to ensure that my clients only put about ⅓ of their anticipated college expenses into a 529 account. The rest of the money can come from cash flow, other assets, or student loans. To learn more about my feelings about student loans, check out episode 13.
Pro tip #4: The most expensive part of a 4-year college degree is the fifth year
Make sure that your kids complete their 4-year degree in 4 years and you’ll save a bundle.
Pro tip #5: Look at your existing assets
Your existing assets could present interesting opportunities to redistribute your resources. Harry and Jenny are considering selling their vacation home so that they can use the equity to buy a rental property for their son to live in while away at college. By managing the house with a few roommates, he’ll not only have a place to live, but he’ll also graduate with life lessons he’ll use long after he graduates.
Pro tip #6: Give yourself flexibility and options
By using a taxable brokerage account to save for their kids’ education, Harry and Jenny can allocate the funds to any of their three children in any way they wish.
For your homework consider where you are in planning for your kids’ college needs. Which one of these pro tips could you implement to ensure that your child gets the best start in life?
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