Life has changed a lot for me and my family since we had a baby earlier this year. Besides the obvious day-to-day changes that have happened, adding a baby into our life has also meant a significant change to our overall future financial plans. Retirement and financial independence isn’t the only thing we have to think about anymore.
Probably the biggest thing that we’re going to have to budget into our overall savings strategy is the cost of college. It’s hard to even think about something so far out into the future when you’re so busy with simply figuring out how to live life with a baby, but make no mistake about it – college is something that has the potential to be so expensive that you have to start saving for it from the day your child is born.
That’s because the numbers you have to save in order to fully fund your child’s college education are astounding. Take a look at the following video from CNBC, which details exactly how much you’d have to save if you want to send your kid to an elite private university like Stanford 18 years from now.
The cost? In 2038, it’s estimated that a year at Stanford will cost a little over $133,000. Over the course of four years, you’re looking at paying over $550,000 in education costs. In order to reach that amount in 18 years, you’d need to save $1,765 per month or $21,183 per year!
Holy crap. Obviously, I don’t know what the future will hold, but my wife and I both went to in-state flagship state schools and we have the idea in our minds that we’d be willing to pay for either our in-state school or possibly pay for a really elite school (think a Harvard or Stanford type school). It’s very unlikely we’d be willing to pay for an out-of-state school or an expensive liberal arts type school.
Still, no matter what we do, college is something that we have to plan for now, rather than later. Fortunately, this is a topic that I’ve thought about, so I have some ideas about how we can cover this massive cost in the future. In today’s post, I want to go over some of the college savings strategies we plan to use.
College Savings Strategy #1: The 529 Plan
When it comes to college savings strategies, our first option is to take advantage of a 529 plan. As a quick primer, a 529 plan is a tax-advantaged account in which you invest post-tax money that can then be withdrawn tax-free so long as the contributions are used for qualified education expenses. It’s easiest to think of a 529 plan as similar to a Roth IRA, but for educational purposes only.
Here’s a diagram to help you visualize how a 529 plan works with respect to taxes:
529 plans are administered by each individual state, but it’s important to note that you’re not limited to opening a 529 plan in the state that you live in. Rather, you can open a 529 plan in any state that you want and use those funds to go to any college that you want. Because almost every state has its own 529 plan, things can get a little bit confusing since you have a lot of different choices when it comes to which plan you choose.
To keep things simple, you can use the following two-step process when deciding which 529 Plan you should use:
- If your home state offers a tax deduction for 529 plan contributions, use your home state’s 529 plan.
- If your home state does not offer a tax deduction for 529 plan contributions, then go with the New York 529 plan.
*Note that some states give you a tax deduction if you contribute to any state’s 529 plan, so in that situation, you can choose to contribute to whichever 529 plan you’d like.
The reason why I recommend using your home state’s 529 plan if your state offers a tax deduction is that, obviously, you get a tax deduction for something that you’re already going to be doing anyway (e.g. saving money for college). About half of the states offer some sort of tax deduction, so check your state to see if this is the case.
In the absence of a tax deduction (or if you’re in a state like my home state of Minnesota, which gives you a tax deduction if you contribute to any 529 plan), then I recommend the New York 529 plan. I think the New York 529 plan is the best one for two main reasons:
- They use Vanguard funds, which I think are the best funds to invest in; and
- They charge a 0.15% management fee, which is about as low as it gets in the world of 529 plans.
I currently have my son’s 529 plan fully invested in the New York 529 plan’s Aggressive Growth Portfolio, which invests 70% into a Vanguard Total Stock Market Index Fund and 30% into a Vanguard Total International Index Fund. You really can’t go wrong with this type of investment over a period of a decade or two.
In an ideal world, it’d make sense to front-load my son’s 529 plan, since that would give it the benefit of more time to grow. Remember that saving for college has a shorter time horizon compared to investing for retirement – generally, 18-22 years when it comes to saving for college vs. a lifetime when saving for retirement, so it’s important to get as much money as you can in there earlier, rather than later.
Unfortunately, my wife and I aren’t in a position to heavily invest in my son’s 529 right now given our many competing interests – saving for a house, paying for daycare, paying off student loans, etc. My guess is that most people with young children are in a similar position. It’s sort of the bummer when it comes to saving for college – at the time we’d want to be super aggressive with our college savings, most of us simply don’t have the income or resources to be that aggressive early on.
Currently, we’re contributing enough to max out our state’s tax deduction for 529 plan contributions, which is $3,000 per year as of 2020. We’re funding our son’s 529 plan via the bank account bonuses that we’ve been earning this year, so it’s one way that taking advantage of bank account bonuses can really help us right now.
For more information, check out this post I wrote a few years ago: What Is The Best 529 Plan – A Guide To Choosing Your College Savings Plan. I walk through my thought process in much more detail in that post.
College Savings Strategy #2: Selling A House
A second potential college savings strategy works (or might work, anyway) because of our specific situation, but it’s one that I think could work for a lot of young families as well. In my experience, most young families tend to buy their first house, then ultimately sell that house to upgrade to a bigger house or upgrade to a house in a better neighborhood. I’ve rarely seen a family buy their first house and then live there forever.
That’s our current situation. We live in a house that isn’t going to be our forever home and at some point, we are going to move to a bigger house. The plan, however, is not to sell this house, but rather to keep it as a rental property. It’s located in a neighborhood that makes it perfect to rent and it’ll cash flow very well.
Recently, we took advantage of the huge drop in rates and refinanced our mortgage to a 15-year with a 2.75% interest rate. With a rate that low, I’m in no hurry to pay off this mortgage.
What this 15-year mortgage does mean is that, by the time our son is ready to head off to college, we’d have a fully paid off property that, in theory, we could sell. This house probably wouldn’t cover the cost of an elite private school, but it would definitely cover the cost of a state school.
Taxes are something we’d have to think about if we went this route, which is why the 529 plan makes more sense, but it’s a potential option that comes about almost by accident.
Final Thoughts
There are other options we can use to save for college as well. Roth IRAs can be a vehicle to save for college, providing more flexibility compared to a 529 plan. We could also just use our regular savings and income, which is what most people likely do when paying for college.
The important thing to remember is that saving for college isn’t the same as saving for retirement. Your time horizon to save for college is simply way shorter. So, if your plan is to pay for your kid’s college, you really have no choice but to get started from the second your child is born.
The goal is to eventually increase our contributions once we can get ourselves more settled financially. I don’t think we’re going to save over $1,700 per month like that video said we’d need to do, but we still have to save a significant amount if we want to fully cover what we expect the cost of a college education will be in 18 years.
To new parents out there, what are you doing to save for college? Were you able to start saving right away or did it take some time?
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More Recommended Ebike/Scooters
Check out these other ebikes and scooters I've reviewed:
- Urban Arrow Ebike – Last year, I made one of the largest purchases I’ve ever made – I bought a $9,000 electric cargo bike from Urban Arrow. In my Urban Arrow review, I will discuss what it is and why I decided to buy this bike, as well as discuss how impactful a bike like this can be on your journey to financial independence.
- Troxus Explorer Step-Thru Ebike – The Troxus Explorer Step-Thru is a fat-tire ebike that I’ve had the pleasure of riding for a while now. It has amazing power, great looks, and awesome range. If you’re looking for a great fat-tire ebike that offers a lot for the price, the Troxus Explorer Step-Thru is definitely one for you to consider. Check out my Troxus Explorer Step-Thru Review.
- Hovsco HovBeta Ebike – The HovBeta is a folding ebike with great specs and a lot of interesting features, and importantly, it’s sold at a good price point. I’ve had a blast commuting with it and using it to do deliveries with DoorDash, Uber Eats, and Grubhub. Check out my Hovsco HovBeta Ebike Review.
- Vanpowers Manidae Ebike – The Vanpowers Manidae is a fat tire ebike that I’ve been riding as my primary winter commuting bike and have also been using it to do food delivery with apps like DoorDash, Uber Eats, and Grubhub. After clocking in a decent number of miles with this ebike, I wanted to write a post sharing what my experience with the Vanpowers Manidae ebike has been like. Check out my Vanpowers Manidae Review.
- Sohamo S3 Step-Thru Folding EBike Review – A Great Value Folding Ebike – The Sohamo S3 Step-Thru Folding Ebike is an entry-level folding ebike that offers a lot of value for the price point. I’ve been riding the Sohamo S3 for a while now, putting the bike through its paces, and I have to say, this bike has exceeded all of my expectations. Check out my Sohamo Review.
- KBO Flip Ebike – The KBO Flip is an excellent bike. I’ve had a great time riding it and think it’s a versatile bike that can be used for a lot of purposes and can fit a variety of lifestyles. It’s worked out great for me as a general commuter bike and as a food delivery bike. Check out my KBO Flip Review.
- Hiboy P7 Commuter Ebike – The Hiboy P7 is an excellent electric commuter bike that’s offered at an affordable price point. The range and speed of this bike are both very good, so you won’t have any trouble getting anywhere you need to go with it. As a food delivery vehicle, this is also good – with how much range it offers, you’ll be able to work all day on a single charge. Check out my Hiboy P7 Commuter Electric Bike Review.
- Himiway Escape Ebike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Ebike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Varla Falcon Scooter – The Varla Falcon is an excellent scooter that offers a good amount of power at a lower price point compared to more powerful scooters. It’s not exactly an entry-level scooter, nor is it a high-powered scooter. I think it fits somewhere in-between those two categories – an intermediate scooter if I had to give it a category. Check out my Varla Falcon Review.
- Hiboy S2 Scooter – The Hiboy S2 is an excellent entry-level commuter scooter that's perfect for someone looking to save some money in transportation costs and improve their commute. Check out my Hiboy S2 Review.
- Hiboy S2R Scooter – The Hiboy S2R is one of the more interesting electric scooters I’ve been able to test out. It’s not a high-powered scooter, but for an everyday transport option, it’s very useful, especially given some of the unique features that it has. Indeed, for the price, the Hiboy S2R might be the best value scooter I’ve used. Check out my Hiboy S2R Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($100) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $100 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- Webull (20 free stock shares) – Webull's current promotion gives you 20 free shares valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free shares using Webull.
- Moomoo (15 free stocks) – Moomoo is a free investing app currently offering 2 different referral bonuses if you open an account using a referral link. Read my Moomoo referral bonus guide for more information.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with just $10 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- SoFi Money ($325) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $300 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Fairwinds Credit Union ($175) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
- Upgrade ($150) – Upgrade is a free checking account that’s currently offering a $150 referral bonus if you open an account and complete a direct deposit. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Here’s a post I wrote with more details: Upgrade $150 Referral Bonus – Step By Step Directions.
- Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- US Bank Business ($800) – This is a fairly easy bank bonus to earn, since there are no direct deposit requirements. In addition, you can open the Silver Business Checking account, which comes with no monthly fees. Check out how to earn this big bonus here.
- Fifth Third Bank ($325) – This offer is limited to customers in the following states:Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, West Virginia, and South Carolina. If you don’t live in one of those states, you won’t be able to open an account onlinebut you can still open an account in-branch if you happen to be visiting a city that has a branch. This is a fairly easy bank bonus to earn, especially since there are plenty of data points showing what will trigger the direct deposit requirement. In addition, you can open the Fifth Third Momentum Checking bank account, which comes with no monthly fees or minimum balance requirements.Read my guide on this bonus here.
- GO2Bank ($75) - GO2Bank is an easy bank bonus that I recommend people take advantage of if they have an easy way of meeting the direct deposit requirement. I like that it’s easy to open the account and that the bonus pays out quickly. Check out my step-by-step guide on how to earn your GO2Bank $75 referral bonus.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link. Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- Varo ($30) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $30 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
- 5% Savings Accounts. I'm currently getting 5.32% interest on my savings through a company called Raisin. Opening a Raisin account takes minutes to complete, it's free, and all of your funds are FDIC-insured. I explain how it works, why I'm now using it to store my emergency fund and any other cash savings I have, and why I recommend everyone check it out in this review.
- US Bank Business. US Bank is currently offering new business customers a $800 signup bonus after opening a new account and meeting certain requirements.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $250 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
