Saving for College is Overrated #368

But we do think that saving for college that it might be overrated, that for some folks in particular, there should definitely be other things that take priority over saving for college. But also too, man, just we're gonna talk through some of the different benefits of not saving for

for your kids college. We think that there's a lot that you can gain by taking some other paths, or at least considering those other paths, right, because I think oftentimes it can the mindset is just like, oh, it's a slam dunk decision you gotta say for your kids college, and that in particular, that's what we want to push back against us. Right, We're gonna do that in today's episode. But first, Matt, before we get to that, I wanted

to mention I was messaging with a buddy recently. His name is Jess and we're actually about to have a beer that he made on the show today. But he he told me that his friend especially made his own solo stove, and I'm not I'm not sure if anybody's seen the solo stoves. Are these like really cool stainless steel looking smokeless fire pits, and they're like three D plus dollars. They're they're pretty expensive. They are premium outdoor toys for for those who like to play the fire

in a safe way. And a lot of people got these, you know, fire pits during the pandemic because outdoor hangs, right, And we almost got one ourselves, but instead we opted for the woodburning stove, not the solo stove, which I'll describe it by the way. It's like the stainless steel like you said, But what makes it special is the fact that it's kind of got these It's insulated, so it's double walled, that's got these special holes in it, and that allows the heated air to re enter the

combustion zone. So essentially any unspent I guess fuel like smoke, instead of smoking up and getting in your eyes and causing you to choke, it ignites that smoke and so that's why they're called smokeless fire pits. It's actually a really cool technology. Yeah, it is cool, and and there are a few manufacturers making fire pits like this now. But but apparently you can make your own and you can make it for like thirty bucks, and they don't look quite as cool. I mean, the solo stoves look

really nice. They look really dope. Yeah, they're they're cool. But you can you can make your own out of like a giant stockpot essentially and just kind of making your own fabrications. And so yeah, there's a YouTube video that will help you figure out how you can do this. It looks like it takes a little bit of time, a little bit effort, but it's not impossible to do, and it will save you a ton of money. Five bucks man, that's not bad for having your own smokeless

fire pit. And I know, by the way, that we're talking about this in June and it's hot and most parts of the country, but you know, I don't know, it might take you a few months to get it ready and uh and and then you'll have it ready for the fall. Exactly. I haven't ready for the fall, so I will say, do you feel like it's frugal or cheap to make your own solo stove? Oh? I feel like totally frugal, totally frugal. Just three for a fire pit seems expensive. And I like the idea of

just a fire pit in the ground too. And I don't mind the smoke personally, but for somebody who wants a smokeless firepit experience. And I was like, I love for my eyes to water, Like I I I'm totally down with people making their own. I think it's um, I think it's a great move. Yeah, I mean, here's my thought is that if you are interested in making your own, then by all means, go for it. But like, if you're just looking to not spend the money, I

think that. I mean, you definitely need to have the right tools on hand, and in particular too, like it involves a lot of you know, cutting and drilling metal. I don't know if you've ever drilled metal, dude, or tried to cut metal, but it can be pretty dicey. And by dicey, I mean you can dice up your fingers. Because uh so that's another aspect of the frugler chieve right, certainly, Yeah,

definitely where it gloves. But like if you end up slicing your hand open and you gotta get to the doctor uh to get stitches, well, then it's definitely a cheap move because in the end you've wasted a lot of time and you're bleeding everywhere. I don't want that to happen. No, that's a good point. Yeah, But if you have the tools on hand, and you've got to know how, and it's something in particular that you enjoy doing, right, then by all means, absolutely make your own solo stove.

In my opinion, if it's fun, well, it doesn't even matter like if it costs more money, right like, because if that's something that you enjoy doing, then it would be worth your time. It would be a frugal move. But yeah, I wouldn't say for folks to do this only to save money, because then I don't know, I think a lot of times folks can go through a lot of headache, uh and potentially receive a product that may not be quite as you know, quite as nice

as like a perfectly manufactured solo stove. Yeah. But for those are that that that like going the d I Y route, I think this is a fun option to try, especially if you were like Man, I should have got a nice fire pit, you know, last last fall, last winter, I didn't do it. And now you can make your own if you're up for it. But let's mention the beer that we're having on on this show, Matt. This is again from our friend Jess. This is UH a coconut stout and he brews under the name Easy Chair

Brewing Garage. So yeah, looking forward to having this local beer from from a friend on today's show. And it makes the us too that he would have the stockpot on hand, because when you're doing homebrew, you've you've got lots of metal pots and pans and stuff like that for for all the homebrew. So yeah, I'm looking forward to drinking this one on the show, sharing it with you and sharing our thoughts at the end of the episode. And by the way, thanks Jess for donating this one

to the show. All right, let's move on to the subject at hand, Matt. Today we're talking about why saving for college is overrated, and yeah, it just made me think, Man, as we're preparing for this episode, like, do you remember buying the engagement ring that you got for Kate, do you remember that process totally. Man. I remember doing that obviously.

I remember doing it because I you know, when it's a proposed to gay and marry her, but you know, it almost feels like that it's something that you don't even have a choice over, right, Like it's like, oh, if you wanna get married, like you gotta buy an engagement right, right, And there's like a huge learning curve. I feel like that comes with buying an engagement ring.

I remember learning about like the three c's, the cut, color, clarity, and like diving forces right, like carrot, Oh yeah, carrots too, that's right. See. So yeah, there's four seas I guess, and like diving deep in order to like to buy a nice ring for my wife, one one that she

would love. And some of my friends they were about to get engaged at the same time, and we were basically learning from each other, leaning on each other for advice, you know, so and and help because we're all a little bit lost as we were like trying to buy this ring. And like as I was like, you know a guy, right, and actually someone didn't know someone We all used the same person. But like, yeah, as I was researching the rings, there were some things that were

hard for me to come to grips with. For instance, there was the cultural pressure to get an engagement ring. The costs three times your monthly income. That was the supposed standard, I guess, And yeah, for that scared me because I'm like a frugal, frugal dude, and I was borderline cheap back then, or maybe not even borderline I

was all the way back then. That was the Joel that was asking their friends to pitch in for charcoal when you're inviting them over to to grill out right, Yeah, that was that was definitely a cheap move, not a good friend move. I don't advise it. Those ways are behind you, I hope, so we know they are. You haven't charged me for charcoal in a few years. But yeah, I mean, like that was such a such a thing

to try to try to buy this engagement ring. And I feel like, yeah, I was able to to find something that my wife really loved, like this vintage ring, but I didn't actually have to end up spending an arm and a leg in order to show her that I loved her. And I ended up spending just under a month's income instead of like the three months that that some people were prescribing and and I think matt saving for college seems to have taken on like a

similar culture dynamic in recent years. It puts a lot of pressure on parents to pony up and start saving money that they don't have for their kids future before they're even funding their own. And even though it's summer in school's out, I feel like this is just an important topic for us to be discussing today. Yeah, it's true.

And in a sense too, you can almost be extended as another way of saying that, like, oh, here's how much I love you, this is how much money I've said aside, uh, in a similar way that an engagement ring could be misconstrued that way as well. Right. But yeah, I think a lot of parents are wondering how much they need to save in order to be per forming their parental duty properly. But we're gonna we're gonna get a little countercultural here and ask the questions should you

be saving for college at all? We're all about preparing ahead of time and ensuring that we're properly saving and investing our money. But for a lot of folks, man, the answer is that they shouldn't be putting any money towards their child's future college expenses. And so today we're gonna discuss the benefits of not saving for your kids college when it does make sense to start putting away money for your kids future, and then also how to

actually go about doing it. Yeah. I love that you said the benefits of not saving for your kids college. You're not gonna read that headline anywhere like that. The headlines all push you towards saving more for your kids college and such rebels. But I think that's like such an important, important thing to mention, and so yeah, let's talk about the different reasons that we as parents are

pressured into saving for our kids college. I think knowing why it is that we might feel hounded to set aside massive sums of money for our kids college for our progenese future education is really the first up to overcoming that line of thinking. Yeah, that's right. And one of the first reasons we want to touch on, man, is just marketing and advertising. We we think that plays

a huge role. And so for instance, with the engagement ring example you just mentioned, uh it was, it was actually advertising from the beers back in the thirties that said that you should spend a month's salary, but then over the decades that expanded to three months salary. That's supposed to go towards the engagement ring. And you would think that company would be would be cool. They got

beer in their name, you know that's true. But no, they're trying to pressure us into you know, spending more money than we should. You know, surprised, it's not. It's like gonna be up to six months pretty soon. Right. But similarly, right, it's important to pay attention to the messages that are communicated to us by colleges themselves. So I'm thinking, like, maybe you're you're sitting there, you're watching

some college football or some college basketball and TV. Something as simple as a commercial for the school that's showing the college kids, you know, working in a lab. You know, they've got their lab coats on, with their goggles, pipets, that kind of thing, doing hard work. Yeah, Or maybe they're you know, studying diligently on campus. All of these different types of messages can have a pretty significant impact on us as parents, whether we realize it or not.

It affects the way we think about things, and especially to if your kids are sitting there. It affects the way that they think about things because you know, they're being told that like, oh, this is what this is what I'm supposed to do, Like I have to go to this this nice college, make sure I get my education, this is an experience worth paying for exactly. Yeah, that's what they're trying to communicate. And besides, like the marketing

and the advertising, there's peer pressure too. I think that's involved in kind of our perception of how much college should cost and how much would we should be saving and putting away towards our kids college future. And it's important to remember that our friends and other parents can have a large impact on us and our attitude towards saving for college. Also, we might think maybe that we're

immune to advertising. We might think that we're immune to peer pressure because you know that was high school of middle school, right, Like, we don't deal with your pressure anymore. We're friends, and so our actions do impact the way that we think about things, and we're not alone. That

goes for everybody. Yeah, yes, So basically, we we should continue to check in on our own attitudes and our opinions towards money and the decisions that we make with it, like where we decide to invest and how we decide to invest, to make sure that we're not blindly adopting the values of other people that run in our social circles,

and including Matt. You know, some of those people might be in a completely different financial situation than where and they might be talking about how much they're setting aside for their kids future, but we don't know if they're neglecting their own retirement, and we don't know if they

make three times as much as we do. Like, some of some of those things are left unsaid in the discussion, um, and we can feel pressured into doing exactly what they're doing because it's construed as loving your kids versus not loving your kids. And I just think that's like a not not an actual Uh, that's a false dichotomy. Yeah, that's true. Man. It takes intentional living for us to

not go down the path of least resistance. Right. If we're not thinking about things that we're not proactively steering, you know what direction our lives are gonna go, and we're likely going to do similar things as those around us. Right. Another reason that I think sometimes we can feel pressured into saving for our kids colleges. I mean, just generally speaking, we do want the best for our kids. Right. The research shows that higher education leads to making more money

over time. But just because that's what the research shows, this doesn't mean that you, as a parent, that you should automatically be footing the bill. And you know, again, like we are fans of college, and so by all means, let's encourage our kids to go to college if they want to, but there and even if they don't want to, you know, like it's probably something that we should encourage, but there are lots of different ways to cover those costs.

And also, man, you know, a part of one of the best opportunities for kids is the desire to protect them from the devastating effects of student loans. Uh. You might feel that it's better for you to take that financial hit. You're thinking, they don't even have a job. Uh, and so you think, Okay, I'm certainly going to be in a better position than they will be. But that

may not be the case. That may not be true. Yeah, I mean, like, you know, if one of my kids needed it, I'd give him my kidney, right, like I do something like that you can live with just one exactly, and so I think like that this is like the same mentality applies, like, well, I don't want him to go through life with just one kidney, don't want to go through life with like just massive amounts of student loans.

And I understand that desire, Like that makes sense, Like I don't want my kids to go through you know, life with a massive debt load either, But there are other ways to come about that. We're gonna talk about that in just a second. So actually, this maye think of another potential reason that I think we feel pressured to maybe pay for our kids college. And that's also because if we were in the situations where our parents did that for us, right, So you know, in your

kidney example, maybe think about that. But like if that was done for you, it kind of makes you and it might encourage you to kind of pay it forward because you think, oh, well, this is how we go about doing things. But again, do you know what your parents financial situation was when they completely flitted the bill

for your Ivy League education. You might be in a very different situation than they were in at the time, that's right, Yeah, And I think especially as tuition prices have risen over the last few decades, and I think for some parents it almost feels like unethical to bring a child into this world and then saddle them with tens or even hundreds of thousands of dollars in student loan debt that they'll likely accrue, you know, in the

in the process of getting a degree. And while I can understand that mindset, it it really just isn't in either or scenario. You can love your child well and you can help them avoid an insane deat burden without hurting your own personal finances in a big way in the process. That's right, dude. Yeah, And all these things that we encounter, right, whether it's like our own beliefs, just the media that we consume, the messaging that is communicated to us, or even the conversations that we have

with with other parents. Maybe you're sitting there at the you know, the ball field or something like that, and they're talking about how you know, they've stalked away like grand already and their kids like three, and you're like, wait, what that sounds like too much. I'm way behind. But you know, peer pressure, right, Like, all these things have an effect on us. All these things unite to create

the cultural pressure to pay for your kids college. Uh. And you know this is assuming that you're in the financial position that you're even able to pay. But like we we often stay here on the show just because you can do something, that doesn't mean that you should. So after the break, we're gonna make an argument for why you shouldn't be saving fe your kids college. We'll get to that right after this all we're back, Matt,

let's keep hating on college. M not actually hating on college, just hating on saving up way too much money and hurting your own personal finances in the process to pay for your kids college, especially when that's just the default way of thinking, when you haven't given it the thought that you need to. We always want to challenge the

status quo. That's right, and I think, like, yeah, the most important reason that we would say that you should avoid saving for college, why it's overrated, is that scholarships in financial aid don't exist when it comes to your retirement for your kids. There are a lot of different options till lower the cost of college. There are a million ways to skin that cat. They go to a cheaper school, they can hunt for more scholarships, they can

work part time or even full time. Oh gasp, don't say it ain't so, you know, while while they're in school, Uh, they can become a resident assistant, right to help pay and let send some of the costs for for lodging. I mean, there's just so many ways to go about lowering the cost of college. They can even join the military, like if that's something they're interested in, Uh, in order to pursue that higher education at minimal cost. There are also just a lot of smart ways to score more money,

more financial aid from universities in the application process. We talked about that in more detail with Ron Lieber from The New York Times on episode three seven, and then Matt's on top of that, even after your child graduates, some employers will help pay down those student loans, and public service loan forgiveness is an option for those willing

to work in public service sector for a decade. So I feel like with all those things, when it comes to saving for the decades that you're not gonna be working for your own retirement, you can't count on Social Security alone to get you through that. Right, there are much fewer options than all the options that are available to kids. Right, It's basically up to you to save an invest in your four own k in your I ra A. There aren't really other options, Like there is

no scholarship or financial aid for quitning work someday. But yeah, with all of those resources, all those different ways that you can lower or completely even eliminate the cost of college, to me, that's the number one reason to make saving for college almost like a last priority in your financial life. Yeah, there are so many different avenues that your kids can explore when it comes to, you know, finding creative ways

to pay for college. And especially if your finances aren't up to enough, then we would recommend that you definitely don't save for college. If say, you've got it quite a bit of debts. Uh, you have no business saving for your kids higher education. Uh, you gotta take care of your own credit card debt. You need to take care of your own car loan and even your own student loans first, right, Like, you don't need to start saving for your kids college when you haven't even paid

off your own college exactly. Also, if your retirement savings have barely begun, or maybe they're just paltry, well, don't save for your kids educational future. You need to make sure that you're saving for your own future. It's wise to operate from a position of financial strength when you're

looking to help others with their money. Joel, This is this example is often used, but they always talk about, you know, making sure that you've got your own oxygen mask on your face in case of flight difficulties or something like that before you help those around you. And the same thing is true when it comes to your

own finances. Yeah, and you have the idea that you can help your kid through school, you know, without taking on much debt by saving for their college, But then they're gonna have to help you out with your retirement. That's a worst position to put your kid in. I think better to have them have to figure out the college thing than them have to figure out your retirement thing. But but it's also important I think to point out that the less you're able to save for your kids,

the more trade offs you're gonna have to make. But we actually think that can be better for your kids to have to make sacrifices and think long and hard about those trade offs. I know, we want to give our kids the moon, right. We want our kids to have everything that they need. And lots of things that they want to but that usually isn't the best move

for them. All you gotta do, matt Is, watch one of my favorite movies of all time, Willy Wonka and the Chocolate Factory, and you can see what happens to spoil kids. You know you like the original one too, right, you're not a huge fan of the new Johnny deppin,

I just pretend that one doesn't exist. Well, it's true though, dude, Like if you always hand everything to your kids, kids on a platter, Uh, they don't value the things that they're given, right Like, And it makes sense to that this applies to college because for twelve years, kids essentially go to school for free, right. I mean, we pay taxes, but we don't directly pay and so therefore I don't think we value it, probably nearly as much as if we had to pay for it out of pocket. Right.

In some instances, I bet we actually as parents signal that, oh, school is not that important. You know, It's like, oh, we can kick off, you know for a few days, and you know, take a trip, take a family trip. I'm not saying that the family trip isn't important. All I'm saying is that it can be difficult for kids to fully appreciate and value higher education. Yeah, so I think, yeah, life, life is this continual series of trade offs, right, And we don't want to hand everything to our kids just

because they want it. Just because they want to go to the most expensive school out there doesn't mean that that should be our goal to and that that's what's best for the family. So yeah, why why not instead be there with them as they encounter some of these really important trade offs, some of these really important decisions early on in their adult life. Your kids can graduate college without debt, just by being intentional and with some

help from you. I feel like Matt. Sometimes parents believe that student loans are the only option that then if they don't say for their kids college, the only other outcome is just a huge amount of student debt for their kids. But there are so many other potential outcomes in the middle that it doesn't have to be all one or all the other. Yeah, man. And another reason

that that we think saving for college is overrated. Traditionally, you save for college in a five twenty nine plan, and these plans are specifically tailored for higher education costs. But the problem is that college doesn't make sense for all kids out there, And if you don't use the funds in your five plan for college, then you're stuck paying a hefty penalty in order to rescue that money

that's stashed there. So if your if your child chooses a different plan of action then going to college, it's going to be financially frustrating if you've prioritized college savings too highly. But it's important to point out that you know, if your kids opt to forego college, it might be in their their own best interests. There are tons of

alternatives to four year college degrees out there. Yeah, foregoing college might be in their best interest as a human being and in their best interest financially, right, because there are a lot of lucrative opportunities for people who don't go to college if it's done in the right way, I think, and I think blue collar work is one of those ways. Matt like, the cool thing about the skilled trades is that a lot of folks working with their hands have little to no school debt and they

start generating income sooner. And since there's just like this massive dearth of blue collar workers out there, pay rates have gone up in a big way too, and the blue collar route makes more and more sense for lots of kids that are inclined in that direction. And so, yeah, if people want to learn more about that, we we talked with Ken Rusk about blue collar work and how you can make more money doing it in episode two

seventies seven. But I think sometimes, uh, you know, in this country, we've been so brainwashed to believe that college is the only route for so many kids, that a lot of kids go there they accrued, they accrued debt that they don't need to, They waste years that they don't need to getting an education they're not interested in, when they would have been far better served going you know,

the blue collar direction from the get go. Yeah, not only are there great blue collar jobs out there, but there are plenty of non manual labor options for for folks, like just different technology jobs right that that don't require a four year degree. Like I'm thinking, maybe there's a kid who's like just really into video games. Well, instead of starting to to study for the s A T during the summers in high school, maybe try taking a

a C plus plus course or another coding course. But consider some of these alternatives to just solely focusing on college because I think not only can you find uh lucrative page well like you mentioned too, but like you can just find a lot of fulfillment in these professions. And it only makes even more sense if you already have an interest in those specific topics. Yeah, entrepreneurship is

another route. You can be a blue collar entrepreneur. You can mix mix both, right, You can kind of start your own business on the side, or you can start another business. Do you believe meets a problem that needs solving. So like, with all the information I think to Matt that's available to our kids these days, they don't necessarily have to go to a liberal arts college in order

to begin to experience all that's out there. It's not that the internet replaces the need for higher education, but I feel like it does allow the opportunity for kids to discover some of the things that they might be passionate about a little bit cheaper in an earlier age too, without having to pay a ton for for that college degree.

I feel like the first couple of years of college for at least our generation, right, that's when we kind of started to figure out what courses were being offered what other people were pursuing, and we kind of started

to get that idea for ourselves. But kids these days, there's so much at their fingertips that they can kind of like scratch the itch on some of their curiosities even earlier in life than ever before, and that can actually, I think, lead them down the direction of entrepreneurship even sooner before they even have to set foot on a college campus. That's right, man. And so another reason too that we we think that saving for college is overrated.

Who knows how far a college degree will get a student after they graduate, right, Like, we don't know the future per se. And to be honest, like that could be an excuse to avoid doing lots of different things because you can just say, well, like, who knows what the stock market's gonna do. I don't know, I don't I shouldn't invest. Who knows what the future holds. I'm just gonna see here, I'm a bomb exactly. But it's true that college might not be as an attractive of

a choice in ten the fifteen years. Right now, the math still works for lots of kids to get a college degree, but as the cost of college continues to rise, Uh, we we feel that it's not as much of a slam dunk because it used to be. It used to be to work, getting a degree that meant pretty much by default, you're gonna get a you know, pretty nice, high paying job. But these days, getting a degree doesn't automatically mean that you're gonna get a higher income like

it used to. Yeah, college degree used to equal ticket to the middle class, right at least, and now it doesn't in the same way that it used to. Although you know, the stats still reveal, like you said, Matt, that you do make more money when you have a college degree, there are still a lot of other pockets that make sense for kids to explore because college isn't

quite as worthwhile as it used to be. Another thing too, to remember when it comes to saving for college, is that we can get too caught up in saving for the future that we neglect to invest in our kids in important ways. Now, like saving for college I think can become this like myopic goal, and it's easy to forget the real goal, which is to raise kids that are going to thrive in the real world. Right, So maybe instead of like fully funding that five account or

even putting any money towards it. Consider spending more money during the years that your kids live under your roof to help grow their skills and their awareness. It's not that saving for your kids college is the worst thing in the world. I think it's just that people oftentimes focus so hard on that they neglect some of the experiences and places that they could be spending money now on their kids that are going to actually have a bigger impact on their ability to be productive citizens of

the world. That's right, Yeah, I mean you've got to be balanced, right, And in a similar way that we value craft beer, right, I mean, that's that's part of why we have a craft beer on every episode, because we want to demonstrate that we're trying to seek after balance when it comes to saving for retirement, because if you're only focused on retirement, right, like that magical fifty nine and a half, you might get to that point in your life and realize that like, oh, I guess

I should find some hobbies, Like, like, I don't really have a life, I don't have many relationships in my life, And so that's what we want to try to avoid when it comes to our kids as well. And so I'm just thinking of like family trips like learning an instrument, you know, playing sports like these are all examples of spending money that can help your kids become more well rounded. And if you neglect those things in favor of building a nine nest egg like that might be more of

a short sighted move. So chances are, if you're listening to this episode, like you're into personal finance, right and as you know, self professing personal finance nerds ourselves like I can admit that it can be tempting to focus on the money, the dollar amount in that nest egg, rather than the intangible benefits that come with intentional and

quality time that we can spend with our kids. Money isn't the fix for every single problem out there, and so look to other ways to expand your kids horizons beyond just assuming that a college degree is going to be key for them to grow up into a happy,

functioning adults. So, all that being said, saving for college, though it does make sense for some folks, it might make sense for a lot of folks, and so we're gonna talk about when that is, when it actually does make sense free to save for your kids college, and then how to go about it. Right after this, all right, we're back and Matt. Of course, we do believe that saving for college is overrated. We wouldn't put it on

the tireless episode if we didn't believe that. But we've also relegated saving for your kids college to money get number seven. Like literally, we did an episode at the beginning of this year, episode three or two. We talked about the seven money gears and you know when to do what with your money and money gear number seven is the last year and only if you're there, should you even be considering, uh, say, being any money for your kids college. We would say, that's how that's how

overrated it is. It should be the last thing that you consider. Exactly. Yeah, it's it's in that like I want to travel more and I want to say for my kids college, Like those two things go together. I think you know that those two things are in the same money gear. But if you are crushing it, if your finances are checking along, you've done a great job investing for your own retirement, you don't have any of that nasty credit card or student loan debt hanging around.

Then let's talk about how to go about saving for your kids college in the most effective ways. Because Yeah, there are some people, Matt who are doing a great job with their personal finances. They want to start investing for their kids college future. I understand that five plans, we would say, are the best vehicle for doing so. They aren't the only way. We're gonna talk about other methods in a second too, but we should at least start with five to nine plans first because they were

created for this very purpose. So yeah, kind of kick us off. We'll talk about the pros and cons of opening a five plan for your kids. Yeah, so plans, I mean, the biggest reason that folks are opening these is because of the tax break that you receive. Right, All five twenty nine plans offer tax breaks on the

earnings that happened to be invested inside of that plan. So, for example, if you invest ten thousand dollars and then it grows to forty dollars over the years, you will never pay tax on your earnings if you use those funds for qualified expenses. And uh. In some states that have state income taxes actually offered the additional incentive of a tax break on the contributions that you make, and so that's the case in the state of Georgia. As

well as more than thirty other states. So there are a lot of states that have five twenty nine plans. And so while you don't receive a federal deduction on the amount of money that you invest into five uh yeah, for a lot of states, you do get a state benefit if you reside within the states. Yeah, And so I think that that's the main reason. I think if you're if you're doing well financially, to open a five twenty nine account. It's like my kids in all likelihood

going to go to college. Most of the people in our family did, and so we're gonna start saving now, and we're gonna get the tax break. And I think that's a reasonable reason to open a five twenty nine plan and start that process. You can even use a site like backer dot com to solicit contributions from your friends and family, And so I think, Matt, this is like perfect for a lot of people who maybe you're tired of getting a bunch of gifts they create clutter

around like birthdays and holidays. Um, you're talking to the right guy, the guy who hates clutter in pieces of junk and plastic in his home. Oh my gosh. Yeah. So so yeah, we're we're right now in the process of downsizing our kids toy collection because it's just gotten out of hand and and like that hang quickly. And I know, like my parents are gonna want to get them some sort of toy for the birthday this summer,

but I'm gonna be like one toy limit. And and maybe if you want to give them more, maybe contribute to their five account. Right, that's a perfect way like it to destructure this is to say, ask your loved ones maybe too to contribute to the five twenty nine plan that you've started in lieu of additional presence. But you're probably gonna need to let them give them one

or they're not gonna be not gonna be happy. But yeah, five nine plans I think make a whole lot more sense when you have other people, other loved ones who are able to contribute. We'll put a link to that in the show notes. But that's an easy way to allow them to to contribute on your kid's behalf. Yeah, So that's the biggest advantage of a five twenty nine plan is that those earnings grow tax free, but you do pay tax, you know, on the on the front end.

So essentially it's kind of like a roth ira a where uh you get that tax break on the back end, you don't ever have to worry about, you know, paying tax on that money as long as you use it for the right thing. That's the strongest argument four five nine plan. But the biggest reason to avoid these plans is something that we've already touched on. But if you have kids who don't end up going to college and you want to use those funds for other reasons, then

you're gonna have to pay for it. And so non qualified distributions get hit with income tax plus an extra ten percent penalty on those earnings. And so that means that median households right now in the U S could be paying between twenty two uh tot Like that is a big bite out of that five twenty nine nest egg.

If your kids happen to not go to college. There is some good news though, right if if your child gets a full scholarship to college, then you you actually won't have to pay the penalty at least that you can avoid that ten percent, but you will still have to pay income tax on that money, and that's also up to that scholarship dollar amount. But you know, in general, we we we do feel that the tax benefits of

five twenty nine plans are often oversold. For instance, let's say you instead invested that money in a brokerage account, you would be subject to a fifteen percent capital you know, gains rate for most folks. Uh. And while you know that's more than zero, it's also not the end of

the world. I guess what I'm saying is that if you're not sure what it is that your kids are gonna do, like maybe you don't have a history of your family members going to college, maybe you have a strong history of skilled labors or or artists, you know, different folks who have maybe started their own businesses, then maybe investing that money in a brokerage account might be a smarter move for you. You You know, we we do

feel that avoiding taxes is smart. Right. Anytime you can do that and you know that you're gonna come out ahead, we would recommend that. But this is an instance where you know you don't want to have the tail wag the dog. In this case, you don't want to walk a way those funds within the five twenty nine plan uh and then be forced to pay a lot of money in taxes or penalties because your kids don't actually

end up going to college. Yeah, that's like the worst possible scenario that you don't want to find yourself in or not, I mean not the worst like that could be like trapped in a cave alone or something like that. That That would be much much worse. That specifically would be probably the worst thing for you. Probably actually come up with a with a laundry list of things over your words. But yeah, that is like when it comes to a tax and money perspective, that's that's a bad thing, right.

You don't want to contribute a bunch of money to the five nine account that you're not going to be able to use, and that is I think Matt, you're right that it's one of the biggest downsides. Let's talk about two other ways that you can save for your kids college. It doesn't have to be a five twenty nine plan. There are other methods that are more flexible.

We're gonna talk about now. Are not accounts specifically created to help you, say for your kids college, and that's the five account, But there are other methods that you can use that are going to crush you if those funds don't end up going to to help pay for your kids college. The roth Ira is such a great vehicle. We're big fans of it saving for your own retirement, and it offers more flexibility than the five plan two.

And that's a check mark in favor of going in that direction over the plan direction, and a checkmark over rowerdge accounts. Yeah, I mean I just mentioned that, just like taxable brokerage accounts. But like if you have access to a rath I mean, and you're not already maxing it out, like yeah, yeah, then that should come first,

definitely before a brokerage account. Yeah, and before and if you're under the age of fifty nine and a half when you're gonna need some of that money to help pay for your kids schooling, you can pull out contributions without paying any tax or penalty. You can also pull any earnings too. You will have to pay income tax on that money, but if it's used for college, you get to avoid the temper cent roth Ira early withdraw penalty.

It's still important to tread carefully when you're using the roth ira uh money in your roth Ira for this purpose, because you're likely going to need a big chunk of that money to fund your own retirement. So it's not one of those things where it's like you're you're hoping to use that for your kids college. You're still hoping that they're able to go to school cheaply enough, right, and that you can find enough financial aid to lower the burden and that you can hold onto your ira

A money for your own retirement. Um, but it is, I would say for almost everyone, it's a better account to be filling up before you even open the five Yeah. Uh and then do Let's let's mention one avenue that you and I are partial to. Real estate investing can can be another route to help pay for college. You know, you don't have to go the conventional route necessarily like

roth iras E accounts. They're great. But you know what, if you love real estate investing like we do, dude, I love the idea of building up a steady stream of income over time via rental properties. That money can help you increase your current income and it can be used as a way to fund bigger lump some costs like college down the road. You can either use the recurring cash flow to help pay for your kids college expenses, or you can even sell a property to pay a

tuition bill in full. Real estate investing isn't necessarily going to be for everyone out there, but for those of you who do have an interest in real estate, this could be another way of thinking about paying for college down the road. Look at a specific property, maybe assigned that property to do a kid boom, you got college

taken care of us, right, Yeah. Especially, let's say your kids three years old, they're going to college in fifteen years, and if you if you really want to pay for it in one lump sum, what you can say is like, all right, I'm gonna get a fifteen year mortgage and I'm gonna, you know, make a little bit of money every month on the spread. And then in fifteen years, I'm gonna sell this house and I'm going to use

that to fund their college. Like that's the one way of thinking about it, right, There's a million ways to skin this cat, Like assuming that they go to the most expensive college of all times, right, because the way real estate properties are going these days, that should be

more than enough to pay for college. But then again, who knows what college is going to cost, uh eighteen years and so so, man, I think you know infammation, save me for college can be a nice thing to do for your kids, But you don't have to save for your child's college education to be a good parents. And I think that's what a lot of people feel innately right now, is like if I don't, I'm not a great parent, or I'm not doing what other people are doing for for their kids, and so I'm not

sacrificing enough, not feeling the pain. I'm like a B minus or a C plus on the parenting scale. And that's just not true. And of course it's hard to reach all of the financial goals that we want to achieve. It'd be nice, right if we could max out our four O one k I RA playing nhs A like that would be that would be like a perfect ideal world, right, if you can do all the above, But it's important to not let your financial priorities get out of order.

If you can take that all the above approach, more power do you like if you're if you've got that kind of income and that kind of frugality level, like congratulations,

But you are the anomaly in this conversation. And there are a lot of reasons that saving for college isn't all it's cracked up to be, even though it's a worthwhile goal to have in the future, as your personal financial situation continues to get stronger as you build wealth, maybe down the road you can start to put away little dribs and drabs, you know, open up a five account maybe. But it's a really low priority in in

the scheme of things, that's right, man. Yes, hopefully we have adequately convinced you that saving for college is overrated. That's something that, uh, you can do, but it's not something that you have to do, all right, Joel, Let's get back to the beer that you and I enjoyed on this episode. This beer is technically a homebrew from our friend Jess and and he brews under the Moniker easy Chair brewing garage. Uh, and this is what he calls his bass stout recipe that went through a second

fermentation with coconut shavings. Joel, what were your thoughts on this beer? So I think he was actually gonna name this beer Matt is my favorite how to Money house, but he didn't want to make me feel bad, and so I appreciate that. Jess, but that would have been a good name for this one. But I thought this was really good. Dude. One should have just been called Matt and then we're actually gonna have another one by him, and he could have just called that one. Joel, that's

that's the peach Sheltzer. I feel like you kind of got this peach summertime vibes going on, Joel. I appreciate that. I don't know if that's a compliment or not. Yeah, uh, it's probably both at once, and I'll like it. I'm fine with that. But man, I really like this one because it had an adjunct, which is just anything else you put into a stout, like you know, like coconut

and coffee. Sometimes it's a popular adjunct when it comes to stouts, but sometimes breweries overdo it, and I feel like the pastry stouts are a prime example of that. Sometimes it's like I'm actually eating a doughnut and it it feels like too much. It's overwhelming, and I'm like, man, I actually want to taste the beer. I actually want to taste the stout, not just the sprinkles it Like, I didn't want to actually have to chew my beer this time. But but yeah, you're saying that that's not

the case. This time, but sometimes we do have stouts that are like that where it's just seriously too thick this is on beer. But yeah, I agree, man, it's got like the perfect amount of coconut going on. He was light on the touch with the coconut, but yeah, it's like it's there, it's present, it's adding something lovely. But the stout the base itself is just really delicious too. So man, I think Jess is getting his game together

seriously on the homebrewnk. A lot of times when it comes to homebrews, like there's a different scale in my mind because like it's always like no for for homebrew, this is pretty good, but this, like this is like for a beer, this is good, Like I would pay

for this. Uh. This actually reminds me Creature Comforts that they released a bunch of kind of special stouts there in there at the brewery that they don't ever release or bottle or can or anything like that, And this reminds me of one that I had actually there in the brewery. But like it almost has a milky quality to it. It's just really smooth, almost almost creamy, like you said, the coconuts just right. I feel like it

tastes kind of like their their cocoa bunny porter. Oh maybe maybe that's it, like I was, I think I was picturing like I can't remember, like the tree that owns itself or something like that. They've got all these different stouts there, but it does. It kind of has that cocoa bunny action going on. This is a really great stout and it deserves a name. Uh we should. Yeah, we gotta convince Jess to name his beers. This one he just labeled number one since since he gave his

two beers. But uh, yeah, this one's really good. I'm glad that he donated this one to the show. And again even though he donated it, like I would by this beer in the store. Totally Yeah, I feel like we already named it for him. Matt is my favorite and how the Money House, and I'm gonna agree with him, You're you're my favorite. How the Money House? Too sweet? All right, Well, that's gonna do it for the love

fest and in this episode. But for folks that want show notes and some of the resources that we we mentioned on this episode, just go to our website at how to money dot com. They'll be up there for you. That is true. And something else that is true is that when you leave us a review, it helps the show positive and Angel gets its wins every time the bell already, it really does help others to find the show.

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