College, Car, and Home Costs for Our Kids

[Gator]

BTW I’m always blown away at the number of people that tell me they cant afford to max their 401k. I always respond the same and tell them they can’t afford not to or enjoy working until they croak.


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[sureshot]

I recently found some of my old tuition bills. I think this was a fall semester 99 and fall semester 2000, UM Rolla and out of state tuition.

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[Nutterbuster]

BTW I’m always blown away at the number of people that tell me they cant afford to max their 401k. I always respond the same and tell them they can’t afford not to or enjoy working until they croak.


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Max as in take all the employer match or max as in hit the 2024 $23k employee contribution limit?

The median household income is 75k. You'd have to contribute 30% of your income to max it, which is way above the 15-20% range most pundits advise. And then afford every single other expense on 50k. Kinda hard to do that when, in my home county in Alabama, MITs living wage calculator estimates you need 70k to be making a "living wage" with 2 working adults and a kid.

If you don't see why people don't hit that number, I wanna be friends with your friends.

But yeah, we've always taken all the "free" money, even when we were just starting out and freaking out over weekly expenses.

 

[TNSTAAFL]

Max as in take all the employer match or max as in hit the 2024 $23k employee contribution limit?

The median household income is 75k. You'd have to contribute 30% of your income to max it, which is way above the 15-20% range most pundits advise. And then afford every single other expense on 50k. Kinda hard to do that when, in my home county in Alabama, MITs living wage calculator estimates you need 70k to be making a "living wage" with 2 working adults and a kid.

If you don't see why people don't hit that number, I wanna be friends with your friends.

But yeah, we've always taken all the "free" money, even when we were just starting out and freaking out over weekly expenses.

Match money is a must at any income. Foolish to leave it on the table.

Max withholding is hard when you are young, but gets easier with time/age. Your median statistic is not very useful in that regard since a large chunk of the half below that value are young/new. Of course they have a hard time getting to max.

As a not young saver I got to max (plus catchup) by increasing every year. As I got each annual raise, half or more went to 403b increases, until I hit max. Didn't feel the pain that way. My take home income is still pretty low due to all this.

Somewhat similar is that when daycare payments stopped at age 5/Kindergarten that monthly money got immediately converted to 529 so we never had access to it as spending money. Didn't notice the hit (beyond the initial hit of having a kid!).

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[MattMan81]

Im not a numbers guys. So I can't speak to that stuff. But guys have mentioned Fidelity accounts. Get the Fidelity credit card and you can use your "cash back" rebates to direct deposit it into the college saving account. My brother set it up for me for the kids. I think its the 529.
Also didn't you say you use to work at a University? Did they offer any kinda discount for your kids to go there?

 

[Nutterbuster]

Max withholding is hard when you are young, but gets easier with time/age. Your median statistic is not very useful in that regard since a large chunk of the half below that value are young/new. Of course they have a hard time getting to max.

Median household income is still just shy of 100k at 45-55. That means that for half the country, you've only got about a decade of peak earning during which timeframe you could max a 401k if you were saving just over 20% of your income. You'd also be smack in the middle of taking care of kids, so that's the most expensive time of your life.

But I feel you. It's easier for us to save now than it was to do so a decade ago.

Also, for the folks downplaying the value of college, scroll down to "average income by education level." https://www.bankrate.com/personal-finance/median-salary-by-age/#race

Especially given that high-earning women are predominately in "pink collar" industries that still require degrees, I'd encourage folks to plan on it for their daughters.

 

[TNSTAAFL]

Median household income is still just shy of 100k at 45-55. That means that for half the country, you've only got about a decade of peak earning during which timeframe you could max a 401k if you were saving just over 20% of your income.

It's been a great decade so far for us. Never really had anything saved up that I was excited about until this decade, despite starting early. Now I can finally see how this is going to work out.

Especially given that high-earning women are predominately in "pink collar" industries that still require degrees, I'd encourage folks to plan on it for their daughters.

Totally agree.



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[kyler1945]

Also, for the folks downplaying the value of college, scroll down to "average income by education level." https://www.bankrate.com/personal-finance/median-salary-by-age/#race

You’re inferring a causal relationship here.

There’s none.

It’s also a huge stretch to project forward when we now know that a college degree has lost its signal strength and sorting capability.

If your kid is dumb as rocks, sending her to college won’t make a material impact on her earning potential.

If your kid is smart as a whip, certain college paths may impact her earning potential. But the real causal relationship is the career choice that drives the college choice, and the non shared environmental factors you cannot control.


Slight tangent here, as we’re talking financial strategy.

But I do think it’s important to point out in these conversations that:

- the kid in question matters. You might be saving money to buy them a boat, or a house, or college, or bail money, or tools, or paying for their kid’s expenses. Save the money, the spend will become clear later.

- the one thing that no one explained to me when I was young, that would have been incredibly helpful, is what it costs to live certain ways, and then show me the list of jobs and careers that will afford those lifestyles. This would probably have been more valuable to me than a car or 30k in college money. Sounds stupid, but it would’ve really helped me see things more clearly when deciding what to do for a living.

- employers hired people with college degrees as a prerequisite until now because college was a multi year IQ test. If you graduated college, an employer could make money all day betting on you over any applicant who didn’t. So why bother, there’s enough college grads. Now that the signal has completely lost its standalone value, it will become increasingly difficult to justify the cost for kids, and the assumption by employers that they’re getting a rockstar.

 

[kyler1945]

Over the past 50 years, college tuition has increased at a 10.8% average annual rate. Median household income has increased at 6.1%. New car price has increased at 8.3%.

A "basic calculation" assuming the same rate of inflation on everything across the board leaves you screwed from what I see.

I am very specifically trying to make sure that I have enough set aside to buy a thing when I need the thing. I understand that "anything could happen." I'm looking for a general price range, so that I can target it and encourage my siblings to target it.

I have 4 pages and counting of general financial advice.

Again, if anybody can give me their best estimates of what college tuitions, new cars, home prices, and median income will look like in 17-26 years, that'd be cool.

The point is to save more than the best guess, to cover your margin of error. You ran the numbers well enough.

College is a dumb thing to attempt to guess at cost in 20 years, for two reasons. A college degree no longer carries a strong sorting signal. And because kids know this, the cost continuing to increase beyond the expected return will make the whole enterprise insolvent. If we don’t have a civil war over canceling all the current student debt in the mean time.

Here’s the easy math.

Make 100k before taxes. Save 15% pretax for your retirement. Save 10% pretax for your kids future. Live on the rest. Move to a place that you can do this happily. Have the 100k earnings increase at the same rate as inflation.

You should be able to buy your kid a car and a down payment and closing costs on a house, and hand them a pile of money for whatever they want to do with themselves. Call it college if ya like.

Edit - “save” 15% means investing in things that will compound interest, and appreciate in value.

 

[Bogle]

I'll give the dissenting opinion - LOL I have two kids in college as we speak, one about to go to law school and one that is at the University of Alabama (I went to Auburn), so I pay out of state education fees. I did the Florida Pre-Paid education fund and both kids qualified for Brighfutres. However, based on what occurred in the economy during 2004-2008 I never wanted to leave anything to chance. Not to mention, I wanted my kids to have an education if something were to happen to me and my wife. That's tough to do if no one is making contributions to their investment accounts on their behalf. With that said. I would encourage you to first put in place a "will", then worry about their education later. I cant tell you the number of times I talk to people where both spouses passed away, and the kids become the responsibility of someone else, unintentionally. I would also caution you about "Athletic Scholarships". Our daughter qualified for several, but then came to us during her junior year and said " I want to go the college I want to go to, not because they offered me a scholarship". In addition, she was also blessed to play with about 20 D1 scholarship athletes, of which only 3 are still playing.

While I love Dave Ramsey, and think he gives great advice, Its tough to save your way to financial freedom by saving a $1.60 on a coffee. Its much easier to sell another product, work over time, or work on the weekend to make up the difference. You also have to consider the "time value of money"". I can change my own oil, but I am in sales, and own my own company, its much more profitable for me to make another sale during that same time frame. Vice versa, its even better to have someone else make a sale for me during that same time frame, while I spend time with my family . I provide a 401K for my employees but I don't participate, I get a bigger return on my money by reinvesting in myself and my business. Not to mention the write offs I get along the way. Every person that I know that has been successful in life from a financial perspective has the ability to control their income. Whether it is through real estate. owning a plumbing company,. or being a preacher and speaking at different events, they all have the ability to increase their income.

As the world becomes more connected, what can be outsourced for a lower amount will be. You either have to be the owner of the company outsourcing, or you have to be the person who cant be outsourced,

 

[HuskerInIowa]

Median household income is still just shy of 100k at 45-55. That means that for half the country, you've only got about a decade of peak earning during which timeframe you could max a 401k if you were saving just over 20% of your income. You'd also be smack in the middle of taking care of kids, so that's the most expensive time of your life.

But I feel you. It's easier for us to save now than it was to do so a decade ago.

Also, for the folks downplaying the value of college, scroll down to "average income by education level." https://www.bankrate.com/personal-finance/median-salary-by-age/#race

Especially given that high-earning women are predominately in "pink collar" industries that still require degrees, I'd encourage folks to plan on it for their daughters.

I’ll preface this to the best of my ability by stating I don’t disagree with any of @Nutterbuster points and feel they are valid. This thread grew exponentially and I doubt he imagined the scope when he started it, I can only imagine the various stages of life readers are in. I’m only meaning to add a tiny voice in the back of folks minds so that when plans change, and they will, you don’t get too down on yourself or your kids.

Don’t count on things getting easier when you stop paying a daycare bill. I was really excited for that. My daycare had a giant camper, cool boat, and the truck I’d dreamed of to pull them with by the time my second child was done there. Not mad about it, she was fantastic, wouldn’t change that time for my kids. But my bills were about to get cut way down and that was exciting. We chose to go to a private school. Emphasis on chose, no one to blame but me, but that bill didn’t lessen now.

As to college it’s my goal to save what I can for my kids to make that choice because I don’t know what the landscape will look like when they get there and I’d like it to be their choice without a large portion of that being the debt they’d accrue. That’s just me, everyone is different and in the end they’ll all be ok.

 

[Nutterbuster]

Make 100k before taxes. Save 15% pretax for your retirement. Save 10% pretax for your kids future. Live on the rest. Move to a place that you can do this happily. Have the 100k earnings increase at the same rate as inflation.

Deleted my whole response because I did calculations and then realized I forgot to compound hypothetical income at long term inflation rate. I hate being tired.

 

[HuumanCreed]

So I feel it's hard to focus on one aspect of life when you are trying to plan your whole life. That initial quality of life investment might not seem like a good use of money for one person but it is to another. Example, beside saving, we also budget for each kids to have a hobby/activity/class. This can be anything they want to do whether it is ballet, soccer, jujitsu, etc. What we can put in their saving/529/etc can be a lot better if we live a more frugal life and find less expensive hobbies.

Fact is that we make decision for their futures that they can't make themselves. I'm going to have 3 girls in high school at the same time in 10 years. We have a saving aside for them to share ONE car. In exchange for each not having their own car, they have ballet classes, soccer games, and swimming classes. I don't know if they'll find a passion that will stay with them for their whole life, but I want to expose them to as much of what life has to offers. I want them to experience everything. I don't want them as adult thinking to themselves "I wish I had the chance to learn how to *whatever* as a kid." Because I'm pretty sure I'll be listening to a bunch of teens telling me " I would of rather have my own car instead of learning how to swim" in the future. I'm perfectly fine with the decision I made for them.

Anyway, my point is we have to nurture the soul too. That while saving as much as possible for our kids future is the right thing to do as parents, I would not neglect their present either. Money sent now with a purpose is not money wasted.

 

[kyler1945]

I'll give the dissenting opinion - LOL I have two kids in college as we speak, one about to go to law school and one that is at the University of Alabama (I went to Auburn), so I pay out of state education fees. I did the Florida Pre-Paid education fund and both kids qualified for Brighfutres. However, based on what occurred in the economy during 2004-2008 I never wanted to leave anything to chance. Not to mention, I wanted my kids to have an education if something were to happen to me and my wife. That's tough to do if no one is making contributions to their investment accounts on their behalf. With that said. I would encourage you to first put in place a "will", then worry about their education later. I cant tell you the number of times I talk to people where both spouses passed away, and the kids become the responsibility of someone else, unintentionally. I would also caution you about "Athletic Scholarships". Our daughter qualified for several, but then came to us during her junior year and said " I want to go the college I want to go to, not because they offered me a scholarship". In addition, she was also blessed to play with about 20 D1 scholarship athletes, of which only 3 are still playing.

While I love Dave Ramsey, and think he gives great advice, Its tough to save your way to financial freedom by saving a $1.60 on a coffee. Its much easier to sell another product, work over time, or work on the weekend to make up the difference. You also have to consider the "time value of money"". I can change my own oil, but I am in sales, and own my own company, its much more profitable for me to make another sale during that same time frame. Vice versa, its even better to have someone else make a sale for me during that same time frame, while I spend time with my family . I provide a 401K for my employees but I don't participate, I get a bigger return on my money by reinvesting in myself and my business. Not to mention the write offs I get along the way. Every person that I know that has been successful in life from a financial perspective has the ability to control their income. Whether it is through real estate. owning a plumbing company,. or being a preacher and speaking at different events, they all have the ability to increase their income.

As the world becomes more connected, what can be outsourced for a lower amount will be. You either have to be the owner of the company outsourcing, or you have to be the person who cant be outsourced,

I don’t think you’re giving a dissenting opinion.

On college - law school is one of the few exceptions to a college degree being useless. Having said that - for a kid to make it through 7-8 years of school and pass the bar - they’ve got to be smarter and more focused than the average bear - literally. Their IQ will have a bigger impact on their income than deciding to go to law school or business school.

This goes to what I said in my last post - the career choice dictates the value of “a college education”. And how smart a kid is dictates whether any of that even matters. And getting this information to kids at 12-18 years old pragmatically is where we’re really suffering these days.



On 401k and other standard investment vehicles - of course they’re not as good of a choice for you because your time and money can be better invested in your own company. If the advice you’re giving here is “own your own company” or “control your income potential” - sure that’s sound advice for people blessed with large amounts of cognitive horsepower, discipline, work ethic, and risk tolerance. For the majority of the population that doesn’t possess the requisite skill set and circumstances to take that path - pretax max of savings with any available matches is the best option they’ve got.

It’s not a dissenting opinion to say that someone will be better off with more control of their financial security, and a good way to do that is to own your own business. It’s also a way for a sucker to go bankrupt and his life off the rails if he’s not cut from the right cloth.

We’re in similar circumstances in regards to career choice, and the way we view the time/money dynamic. I agree generally with you on probably everything. But it’s a prescription for a very small percentage of folks.

I’ve worked off of my couch for 20 years selling and servicing industrial equipment. Some for myself but mostly for someone else’s company. Most people can’t do what I do. That’s not because I’m responsible for the random circumstances that led to me discovering this path. Or for the way I’m wired to be able to stay motivated to do what needs doing every day when I can go huntjng or fishing or skiing or play with my kid - and the only thing standing between me and doing those things every day is myself.


The self help books and gurus on finances seem annoying or wrong to people who are fortunate to have more tools to manage their financial security. I’ve come around on the whole thing as I’ve gotten older. Some people are better off with this type of guidance. Not because it’s the best advice or options in a vacuum. But because some people simply can’t do what you do.

 

[kyler1945]

Deleted my whole response because I did calculations and then realized I forgot to compound hypothetical income at long term inflation rate. I hate being tired.

This is why I said make it simple - earn and spend inflate at the same rate(it’s the best guess for long term planning). Invest and expect a 5% compounding return on those investments.

One exception - I plan for real estate appreciating at the average rate of inflation(2-3%). Too many people go with the average rate of return on real estate since the country was founded or something. That’s unrealistic - your time scale on any house you’ll own is 5-30 years. Plan for the middle on this. You’ll manage your expectations and money better.

If you want to be really conservative, you can apply the same to any other investment. It doesn’t hurt to plan for your egg growing slower and contributing more to cover the gap


I’m not saying 100k is the number. I’m just setting up the equation. Too many people think the job options they have, and where they live, are too limited. It’s a big country, with lots of places and opportunities for people. A slight tweak in employment and location could have tremendous impact long term on your happiness and financial well being.

Here’s another piece of unsolicited advice. Seeing parents of my friends start to die - a huge gift to your kids - don’t leave them with your debt, or your mess of a life to unravel. Put another way - it would have been nice to get 200k from my parents when I turned 20 to have houses and cars paid for and what not. But I’m glad they didn’t. Their lives are tight, and they’ll meet their maker with a little pile left over. We can enjoy each others company, rather than dwell on the impending suffering. This is why i and other say just over save and don’t plan for a specific spend or goal. Getting there with plenty of reserves for whatever is coming is most important on the financial front.

You’re really smart. Appreciate that, and take advantage of it.

 

[LAKY]

If a kid can't get a full academic scholarship to college, then they should either not go or pay for it themselves. As parents, we can push and make sure kids get those full academic scholarships. Helping with homework, making sure they keep up with homework, helping with studying, tutoring if they need it; those are the things we need to invest in. That's what I did, and that's what my kids have done and are doing. Handing kids money that they don't value the work needed to get it is a bad idea.

 

[kyler1945]

If a kid can't get a full academic scholarship to college, then they should either not go or pay for it themselves. As parents, we can push and make sure kids get those full academic scholarships. Helping with homework, making sure they keep up with homework, helping with studying, tutoring if they need it; those are the things we need to invest in. That's what I did, and that's what my kids have done and are doing. Handing kids money that they don't value the work needed to get it is a bad idea.

I don’t think he plans to neglect teaching his kid for 20 years and then hand her a check and say good luck. Haha poor nutter just wanted someone to check his math homework. I’ve seen a video of his kid getting taught tough life lessons already, and she’s barely mobile.

 

[LAKY]

I don’t think he plans to neglect teaching his kid for 20 years and then hand her a check and say good luck. Haha poor nutter just wanted someone to check his math homework. I’ve seen a video of his kid getting taught tough life lessons already, and she’s barely mobile.

I didn't mean it to come off accusatory. I just don't get the whole "saving for kid's college" deal.

 

[bodark]

I know 529’s are generally looked at favorably as vehicles to save for children’s college but really consider your options. Kids can always borrow money for college if that’s the path they choose…you on the other hand can’t borrow money for retirement. I still plan to help my kid out with college if that is her plan 16 years from now. I have a pretty substantial chunk set aside in a vanguard brokerage account that I have access too should mine and my wife’s financial situation change sometime in the next 20 years.

You never know what will happen with your ability to earn a living. I know that firsthand when my dad was forced to take an early retirement after a mishap on a routine medial procedure and my mother passing away (who also worked) within a two year span. Not saying 529’s are bad they just may not be the best option.

For me, the tax savings were not worth the risk of tying up what could be a couple hundred thousand dollars of money to draw on for me and/or my wife should things go sideways. If they go as planned then my daughter will get that money for school. If things don’t go as planned then she at least won’t have the burden of helping me and her mother financially.

 

[GreginPA]

As a side note, I've recently been learning a lot about the FASFA since I have a sophomore in High School.

For what it's worth - your primary home's equity is not counted as an asset, neither are retirement savings or vehicles. Additionally 529 plans owned by anyone other than a parent are also not counted as assets.