You Really Shouldn't Save For Your Kid's College

There is a such a thing as over parenting. Especially if you are prioritizing your kid’s college education over your own financial security.

While conventional wisdom and years of evolution say to put it all on the line for your kids; it didn’t include Tuition nor Room & Board. There is nothing worse for a kid than being debt-free, trying to establish a family with a broke parent or two to take care of.

Conversely, there is likely nothing more humiliating than begging your own kids for money.

Table of Contents

A Broke Parent is a Liability

Investing In Yourself Has The Greatest ROI

It’s 2021- the prior year should have spoken wisdom into your wallet.

Being wealth poor is not the best idea going forward. No matter the cost of tuition tomorrow, the worst thing you can do is to sacrifice the value of today.

Investing in yourself provides the best Return on Investment – ROI for your family. Not having a family plan got you here. The only way to get out of it, is to do the inverse.

For this example going forward, we will have to give ourselves the given parameters.

Sandy is a single mom, living in North Carolina making $68,500 as a HR representative for a university. Her son is 3-yrs old and she wants to plan ahead.

With that said, her tax rate is 12% so her after-tax is $60,280. We aren’t going to adjust for inflation, instead we will assume that her pay raises kept up the entire time. She is also a homeowner, so she is in this for the long run. No moving around shenanigans.

Her average expenses per year is $48,000. This leaves Sandy with $12,280 to play with. With a 15-yr window until her son goes to college, what’s her best strategy going forward?

1. While Still Investing in Your Kid’s Future

It’s fairly simple.

Sandy needs to invest $12,000 annually or $1,000 monthly. She can do so using the employer sponsored plan i.e. 401k, 403b, or 457b. The 2021 contribution limit for 401(k) plans is $19,500, with people age 50 and older allowed an extra $6,500 as a “catch-up” contribution for a total of $26,000.

What you have to remember here is that you can still invest in your kid through quality time and formative education. It’s not enough to drop your kids off to school and hope for the best. Leaving them in front of a computer won’t suffice either.

They are going to need the best resources of all in college, tenacity. Check out the result of investing $1,000 per month for 15 years at 9% average rate of return in Table #1.

Year	Total Contributions	Total Interest Earned	Ending Balance
1	$12,000	$487	$12,487
5	$60,000	$14,733	$74,733
10	$120,000	$69,719	$189,719
15	$180,000.00	$186,639	$366,639

We aren’t even talking about the tax break each year. It’s deferred but it boosts your return.

2. So Double Down on the Benefits of Investing

Bonus, Sandy is in luck; her employer matches up to 4% of her salary in the plan.

That’s an extra $2,740 per year!

A boost of $228.33 per month can go a long way. After 15 years at 9% rate of return, it is equivalent to $83,714.58. That’s a lot of free money if she didn’t take the match. 1 in 4 employees with a qualifying match at work don’t. That’s insane.

Never Leave Free Money on the Table.

So let’s put all the math together, Sandy invested $1,000 plus the match of $228.33 per month into her employer plan, at 9% for 15 years. Here’s how it looks, check out Table #2:

Year	Total Contributions	Total Interest Earned	Ending Balance
1	$14,740	$599	$15,339
5	$73,700	$18,097	$91,797
10	$147,400	$85,638	$233,038
15	$221,100	$229,254	$450,354

Do you see the difference in ending value with table #1?

3. Understanding What Wealth Means for a Family

Real wealth goes to the people who truly understand how to manage money.

Wealth equals Contribution multiplied by the Rate of Return of what you are invested in, multiply by the Time you need to let it grow. If you wait until your kid is going to college, you will have less time to have your health do the heavy lifting for you.

This is why you need to rethink how you process your family’s wealth. Understand that the kid will be more than OK with a parent who is financial secure and confident over time. Having even $450,000 in savings/investments is different from retiring broke. This is exactly why I’m investing like crazy.

Even if you stopped investing while junior is in college and forked over $1,000 per month, you will be richer for it. Check out Table #3:

Year	Total Contributions	Total Interest Earned	Ending Balance
16	$0	$40,500	$490,500
17	$0	$84,645	$534,645
18	$0	$132,763	$582,763
19	$0	$185,212	$635,212

During the time Junior went to school, you gained over $180,000

4. Let’s Look at the Results of a Family College Plan

Here’s the summary, Sandy decide she wasn’t going to focus her time trying to plan for her kid. Instead she maximize her options at work and let her money, do more work for her.

After 15-years, she contributed $180,000 (see table #1), to the tune of $12,000 per year. She pick ups the match from her employer and let her money grow while her son was in college. She used $12,000 to support her son with $1,000 per month (see new results table #2).

He graduated and mom know has over $600,000 for her retirement (see table #3).

Her investments grew by 233%, a cash value of $420,000. While the average American is struggling to ensure that they aren’t the broke parent, Sandy put her mask on first and walked away a champion. As for her son, he has to put in the work himself in college and learning financial principles.

RETHINK Everything that You Were Taught To Forge Further Ahead

Bonus Opportunity to Help Reduce Student Loans

In year 20, Sandy decides to help your kid for one more year and give her son an additional $10,000. You really have to rethink what’s possible so you can do something bolder. I even heard of a parent who helped her daughter purchase a home out of state so that they could qualify for in State tuition. That home is now a rental property.

Only when you let go of what you think you knew, is when you can start being really creative again. When people say rich people do this and that, they likely don’t know rich people. Rich people are a product of crafty people in their past that laid the foundation for the future. Most never even went to college.

Go ahead.