Ah, the married life.
Honestly, things haven’t been much different between my wife and I since we’ve been married for the past three weeks. We were together for a long time before we got married. Like…9 years before, so this whole thing wasn’t much of a surprise to anyone (no judging). If anything, she may like me a little bit more now that I’m legally tied to her and that I also like money.
$$$ Those things bode well for her future. $$$
As a Millennial, I am pretty much right in the middle of the time in life where people start getting married. A bunch of my friends were married right out of high school or college, and I have some other friends that I’m not sure will ever get married. It’s a big deal, and a really freaking cool experience when all of those people come out to eat at your expensive dinner party. However, immediately after you get hitched you will notice that those people start casually and politely asking (especially grandparents and your mother):
WHEN ARE YOU HAVING A CHILD?! WE WANT GRANDCHILDREN. WE NEED THEM. DO IT NOW.
The correct answer is to awkwardly laugh and say “not yet”…and hope that they don’t kill you for not making their baby wishes come true. In all seriousness though, it’s a tough proposition for young people in this time of expensive purchases and hard decision making. Nobody tells you that your life will blow up around your mid-20’s.
When people ask me when we are having kids, I ALWAYS start thinking about the financial side of children. Sure, they are cute and all of that stuff. But…do you have any idea how much those things cost on average from birth to 18 according to CNNMoney? Let me educate you before you go do something foolish. Ready?
Yeah. Take it all in. While I’m at it though, we should probably add on the cost of public college for funsies!
Oh, you think your kids are going to be smarter than everyone else’s and needs a private college instead?
That’s what you get for thinking that your kid is the greatest thing since the last kid that was born.
Mom and grandma might stop asking you about children all the time if they knew how much their babysitting candidate was going to cost over the next 22 years. Now, while I can’t do much to help the cost of the child up to 18 (unless you want to cut back on their food or something…which I can’t officially endorse) I CAN tell you the best options on making sure that you don’t have to finance those college costs later down the road.
Here are my favorite college savings strategies for my friends that already messed up and had one of these little monsters:
1) “Have a kid, buy a condo”. – Greg Rand
I know – not what you would normally think when you are talking about college savings plans. A few years ago when I started getting interested in real estate I picked up a book called Crash Boom by Greg Rand. He tells a story about buying a condo valued at $200,000 when his daughter was born. He intends to sell it 18 years later for around $400,000 and use the proceeds to pay for his daughters college education.
To reap similar profits with the plans that I am about to discuss below you would need to contribute $1,000 per month to whatever fund you choose to invest in…which can range from tough to impossible. In his case, he rents out the condo to cover the monthly costs. If you’re into other creative real estate investment strategies check his book out here.
My favorite thing about the condo plan? If one of your kids gives you the sweet gift of not going to college you have an awesome vacation condo or a BUNCH of money in the form of a real estate investment. Win-win.
2) 529 College Savings Plan
This is easily the most common college funding plan, and for good reason: the tax benefits are awesome. Your money grows tax deferred, AND the funds can be used tax free towards your child’s education expenses. In addition, you can contribute a LOT of money towards the fund annually (up to $300,000).
The downsides? Distributions that are not used for education are penalized at a rate of 10%. Also, you could be limited in the types of investments you can make within the account. Here is a really detailed breakdown of 529 plans.
My favorite thing about 529 plans? If you have multiple kids, you can also name them the beneficiary of the fund and avoid the penalties on what’s leftover in the account. Also, those little money grubbers (kids) don’t have access to the cash and you don’t have to give it to them after they grow up.
They can have your money when you’re dead.
Honorable Mention: Coverdale Education Savings Account (ESA)
You’re probably thinking…huh? Basically, a Coverdale ESA works very similarly to a ROTH IRA. You can contribute money, grow it tax-deferred, and have no taxes taken out when the funds are distributed for education expenses. It’s low on the list and an honorable mention because the contribution limits are low ($2,000 annually) and the funds are distributed to the kids if they aren’t used for education expenses.
My favorite thing about the Coverdale ESA? You have more investment options within the portfolio than a 529 account. Go here to find out more about Coverdale Education Savings Accounts.
If you are newly married like me and are thinking about kids in the future, make sure you plan for their college costs so you don’t have to finance them later. The only people that can break the student loan debt cycle are the Millennials at this point..and it’s not like we are doing a great job. Don’t assume your kid is going to be smart, get scholarships, or become LeBron James and make you rich. It’s not happening people.
Live differently, your bank accounts will thank me later. ~M$M
Child Cost Sources: