I Opened a 529 for My Baby at 6 Days Old!

I don’t use this Millennial personal finance blog to brag about anything I do financially, whether it be via investing or my professional career and my salary. However, I do want to take a minute to pat myself (and my wife) on the back because we just opened a 529 college savings account for our newly born daughter, who is less than one week old. To be exact, she wasn’t even six days old actually!

529 college savings plan

I know there may be some naysayers out there, considering you can technically open a 529 college savings plan prior to your child’s physical birth. You can open an account long before you even have a child or the minute you find out you’re expecting. I was fully aware of this option but I just couldn’t bring myself to opening an account for a baby we hadn’t had yet. I know the risks are ultra-low of complications with the baby, but I just felt like it was a possible jinx if I opened a 529 before my baby was born. But I was determined to open a 529 nearly immediately after she blessed us with her presence.

Oddly enough, I actually opened my account for my 6-day old the same way you would if you opened a 529 college savings plan for a child 6 months before birth. I didn’t yet have a social security number for my daughter, which along with a name and birthday is all you need to open a 529 college savings plan. So instead I opened the 529 and assigned myself as the “student”, aka the beneficiary of the plan. Once I have a social security number for her I can then transfer the account over into her name. Any transfer within your family is free of charge. It is no different than the transfer policy from one child to another due to one child receiving a scholarship and deciding not to attend college.

The process for opening my daughters 529 college savings plan could not have been easier. I was able to quickly setup the account and connect it to my bank account via a routing and account number. I easily setup an automatic monthly transfer that begins this April. And then I setup an auto increase on her birthday each year. So beginning in March 2018 I will contribute $25 more each month, and then again in 2019, 2020, etc. I was then able to make a one-time contribution to kick start my daughters 529 college savings plan.

Automate Your 529 Savings Plan

I love automating my savings goals and this 529 plan allowed me to do this effortlessly. I will now be contributing to my daughters 529 at least monthly and that amount will go up each year to ensure I save as much as possible. We hope to receive some “college money” as gifts for her birthdays over the years from grandparents and other family members as well. We can then easily log in and make a contribution to her account when that happens. Its great.

Future Cost of College Calculator

And I am going to need all the help I can get to afford college in 18 years (year 2035). I played with a future cost of college calculator and the projected costs are unreal. Seriously, unreal what the anticipated costs of college would be in 18 years. For an in-state public university in my state, college tuition is expected to range from $92,000-$170,000, depending on the university, in the year 2035. Again, these ranges are only for in-state public school, nothing private, and these costs are only for tuition and fees, no room and board. If I want to pay for all college expenses (tuition, fees, room and board), that will run me anywhere from $111,000-$310,000 for four years of college. Wish me luck…at least I opened her account when she was 6-days old so I now have compound interest on my side.

Public School vs Private School?

Recently I was getting together with some buddies of mine to catch up over a few beers. Funny how much our conversations have changed over the years, considering I am expecting my first child, my other friend is expecting his second daughter, and another already has two kids. So now family and kids dominant the conversation these days, which is great actually, because previously is was more trivial issues like sports, weekend events, golf, and boys’ trips. Boy has life changed for us over the last few years!

I previously wrote about saving for college and deciding between a 529 plan or a Coverdell Education Savings Account (ESA). Well, my friends and I spoke about this a bit as well and the 529 won out across the board, solely because of the contribution limits, which was my conclusion as well.

Public School or Private School?

The talk of saving for college brought up a more philosophical education question for your child; public school or private school? And now that conversation includes not just college but high school and even earlier “private” education. When I looked up the cost of private schooling the results just floored me.

To give you some background and my group of friends and me, we’re all obviously Millennials and we all grew up together in middle to slightly upper-middle class city. We all went to public high school and a state university. The one caveat is one of my really good friends did go out of state for college and went to an Ivy League school, which is a phenomenal feat and probably most parents’ dream. So good for him and his family on accomplishing that. He is the one outlier in the group though as we’re all “public school” educated and doing fairly well in life, both personally and professionally for now being out of college for 10+ years. All of our careers are moving in the right direction.

Now back to our philosophical question of public versus private schooling. My one friend said they are 100% planning on sending their two daughters to private school, and by private school I mean early childhood education. Not just private high school. The yearly tuition rates at the school he will send his two daughters to is astounding. See for yourself.

2016-2017 TUITION

Pre-Kindergarten (full day): $18,820
Kindergarten (full day)-grade 5: $23,510
Grades 6-12: $25,430

I fully understand tuition is different for every child because of grants, financial aid, etc. But either way, those numbers are jaw dropping in my eyes when you consider public schooling, kindergarten throughout high school is free (except for a few minimal annual schooling fees).

Is Private School Really Better Than Public?

I have three “sibling” in-laws, two sisters and one brother, all of which are public educators. My two sister in-laws teach young elementary aged children, while my brother in law teaches high school students. All of them are very passionate and one has a master degree in childhood education. I’ve talked to each of them multiple times about the difference in public versus private and a lot of the variance is purely on curriculum (and funding, obviously). A public school has a set teaching curriculum to follow, whereas a private school can change to emphasize some subjects over others (like science and math).

I think the main misnomer about private school is that the teachers aren’t exactly “more qualified” thank teachers at public schools. In reality, there are actually more requirements and standards for public schools then there are for private. I think people think most teachers at a private high school are equivalent to a professor at a university and their background in the field (formal education and research). That is simply not the case.

Public School is Just Fine

I will get off my soapbox now as being very anti-private schools, because it’s obviously ever families own personal decision to do this. If you have the funds to send your child to private school, by all means go for it. But don’t profess that your child is getting a substantially better education than those of us sending our kids to public school. Your child can still get into a great college when going to public high school (see my great friend who made it to an elite Ivy League school). And they can still be successfully when going to public school all the way through college. Me and my friends are all doing fine and I know tons of people who were “publicly” educated.

I just urge all Millennial parents to really research and think twice about private school. It feels way more of a status symbol than an educational play, in my opinion. At the end of the day, your child is as successful as you want them to be, regardless of public or private. If you are highly involved in your child’s schooling, homework, and lives in general, I think they will be just fine.

Being Involved As a Parent is What Matters Most

That is my humble advice from a soon-to-be parent. I will be sending my child to public school, but I will be as involved as humanly possible with their schooling. I want to push my child to work as hard as possible in their schooling and studying. I know that will guarantee more success in life than which particular school they attend.

529 vs ESA for College Savings Plans?

I am lucky enough to be a newly expecting parent this coming year. My wife and I are thrilled about the joy a baby will bring to us (and the challenges too, of course). We’re less than two months away from the anticipated birth of our child, and it feels like its going to be here any minute now the way time is flying by!

This past summer once we found out we were finally expecting, my first thought was, “wow, a baby is going to be expensive…how are we going to afford this?” We’ve been avid savers and budgeters for some time now so I had to figure out how I’m now fitting two more huge expenses in my month budget; diapers and college savings.

Like most new parents, the thought of college comes to mind fairly quickly, despite it truly being 18+ years away! But I know I want to address the issues ASAP versus delaying our savings plan. My parents did not save any money for me for college. They took on the brunt of student loans (and are still paying on them to this day).

I actually feel like they are miserable because of it too. My parents were never really open about college when I first began applying 15+ years ago. We didn’t really discuss anything about who was paying. I just applied, got accepted and they took control of the rest. Turns out I paid for most of my tuition and they paid for my room and board, as well as some other expenses.

I vow not to do this with my kid when this time rolls around. I was naive and had no idea just how much college cost and who was paying for it. My parents and I never really had those discussions. So here I am now trying to figure out how I can set money aside early and often to hopefully pay for as much college as possible for my soon-to-be child.

What is the best way to save for college?

529 College Savings Plan

529 plans are tax-advantaged savings vehicles that let you save money for the college expenses of a named beneficiary, such as a child or grandchild.

529 Contribution Limits

One of the primary benefits of 529 plans is its large contribution limits. Each state operates its own 529 plan and makes its own rules for the plan, so maximum contribution levels vary across plans. Generally speaking, contribution limits are high enough that most investors will never have to worry about hitting the ceiling.

Coverdell Education Savings Account

A Coverdell ESA is a tax-advantaged savings vehicle that lets you save money for the qualified education expenses of a named beneficiary, such as a child or grandchild. Qualified education expenses include college expenses and certain elementary and secondary school expenses.

ESA Contribution Limits

The annual contribution limit for Coverdell ESAs is $2,000 per beneficiary until age 18.

529 Plan vs Coverdell ESA

After doing my research on the two college saving vehicles, I lean much more heavily on the 529 plan. My main reason for choosing the 529 plan is because it has significantly more potential for future savings. If you maxed out an ESA account, which is $2,000/annually or $166/month, and earned an annual return of 7% annually, your savings would reach $67,726 after 18 years. That is still a nice chunk of change for college.

However, don’t you think during that 18 year span you can challenge yourself to save more than $167/month? Maybe not in the first few yeas but certainly shortly after you can find a way to scrape together $200-300 each month for your child’s college fund. With the same assumptions as above (7% annual return), your investment could be worth $122,396 after 18 years if you managed to save $300/month. That makes expensive college look a lot more affordable.

What if you had $300,000 of student loan debt?

I was recently listening to a Dave Ramsey Show podcast where a young couple called in with a debt problem. If you’ve ever listened to Dave Ramsey, and I encourage you to do so, you know he affectionately refers to himself as “get-out-of-debt-Dave”. Well, he certainly had his hands full with one couple from the South…

A young woman called in to Ramsey’s show and explained their mountain of debt. They had, wait for it, $300,000 in student loan debt! That’s obviously an exorbitant amount of debt for any college graduate. Dave immediately asked who the doctor or lawyer was because you would assume the only way to accumulate that much debt is with 8+ years of schooling. The caller quickly replied with “neither of us”. It was all accumulated getting their undergraduate degrees!

Now neither the caller nor Dave Ramsey went into their schooling and just how two undergrads could rack up that much debt. They were more focused and the game plan of getting rid of it as soon as possible. I checked and the average cost of a private college education is $33,480 (for 2016/2017). And that is only tuition and fees and does not include room and board. This means to get a degree from a private university it would cost you $133,920 if you complete your undergraduate in four years. Let’s double that tuition number for this couple since there are obviously two of them, which brings their grand total for tuition to $267,840. That final bill is still a bit shy of $300K. But let’s assume the remaining $33,000 was used on room and board.

On top of their student loan debt they also had a $300,000 mortgage and approximately $40,000 in car loans. Their joint income was rather solid though coming in at $140,000. Either way, they have a really, really long way to go. Their scenario is very daunting. I would assume their putting out about $4,500/month toward their debts (student loans, mortgage, and car). That’s remarkable.

All of us Millennials are dealing with the current student loan crisis with our own piles of debt. But this is just ridiculous to have $150,000 of student loan debt coming out of college. No college degree is worth that. This couple will be paying back their student loans for 20+ years more than likely. I believe they have no one to blame but themselves. Well, maybe their parents too for allowing them to make this college decision. As noted above, the average cost of private college is $33,480. The average cost of a state university is $9,650, which is less than one-third of the cost of private. A business degree is a business degree. An engineering degree is an engineering degree. Your degree is what you make of it. You personally are your biggest professional asset, not necessarily your degree and where you went to school.

I hope this story and your own personally story opens up your eyes for the future. I am a soon-to-be parent and I will open a 529 college savings plan for my child. This is something my parents did not do for me. I did however go to an in-state public university and my child will as well (or perhaps a trade school if they so choose). Millennials, I urge you to help curb this student debt issue. Save for your child’s education now via an ESA or 529 account and make them choose an in-state, public university.

Aggressively Pay Down Your Student Loan Debt

I regularly listen to Dave Ramsey’s podcast, who affectionately refers to himself as “Get-out-debt-Dave“. I’m blown away at the number of Millennials who call in with mounds and mounds of student loan debt. Most Millennials have tens of thousands, if not well into the hundred of thousands. Its absolutely absurd.

Student Loan Debt is Not a Pet

Back to Dave Ramsey, who constantly barks are his callers telling them not to treat their student loans like a pet and keep them around for as long as possible. I’m a Millennial and I’m guilty of this as well. For years I never paid more than my monthly requirement. I really had no reasoning for this either. I regret it to this day that it took me as long as it did to payoff my student loan.

The Tax Deduction Is NOT Worth It At All

Like I mentioned, I really had no reasoning for not making extra payments towards my student loan. However, I constantly read and hear Millennials saying that there is no reason to make extra payments because the interest is tax deductible. That is utterly ridiculous.

The average Millennial coming out of college now has $25,000 of student loan debt. To pay that back over a 10-year period at $280/month with a 6.8% interest rate means you end up paying $33,600 or in $8,600 in interest. All of that roughly translate to $900 of interest per year, all of which is tax deductible. However, your actual tax benefit equals $225. Not really worth it to keep paying the minimums on your student loan is it?

One Big Tax Benefit from a Roth 401(k)

Below is a list of some of my favorite money/personal finance articles from this past week. I’ve sifted through boat loads of articles on money, retirement, personal fiance, budgeting, paying off debt, and buying a home.

All of the below articles are highly relevant to the Millennial generation (Gen Y) and their money. Knowledge is power, and you are your single greatest investment, so continue to educate yourself on money and personal finances right here on this very blog so you can one day become financially independent.

This week’s best articles on money and personal finances, specifically for Millennials

One Big Tax Benefit from a Roth 401(k)

Although some 60% of company 401(k) plans offer the Roth option, less than 20% put any money into it. Employer education could be at fault. Nevertheless, the Roth should be an important piece of your retirement plan. (Forbes)

Retirement-Planning Assumptions: Yes, You Can Be Too Conservative

Of course, I realize that it seems ridiculous to discuss being too conservative about retirement planning in an era in which the median 401(k) balance, per Vanguard’s How America Saves report, was just shy of $30,000 in 2015. But there’s also a segment of the population that could be playing it too safe with their retirement planning assumptions, and those too-conservative assumptions carry costs. Accumulators who are too conservative in their retirement-planning assumptions might short-shrift other pre-retirement goals because they’re trying to swing a gargantuan savings rate, while overly parsimonious retirees might fail to enjoy the fruits of their labors or simply worry about running out of money more than they need to. (Morningstar)

Many Millennials Want to Become Homeowners, But Believe It’s Impossible

But a new NerdWallet analysis that examined a number of surveys and data from government agencies and private organizations found many of these perceptions to be false. Our research showed that a majority of millennials would prefer owning to renting, but they appear to be postponing home-ownership because of real and perceived difficulties in affording it. In fact, our analysis found that millennials, those born from 1981 to 1997, look upon owning a home just as favorably as previous generations. (NerdWallet)

3 Reasons to Pay Off Debt Using the Snowball Method

For debt repayment, there are two popular ways to go about achieving your goal. Those include the “debt avalanche” and “debt snowball” methods. The debt avalanche is when you start off by aggressively repaying your debt with the highest interest rate first. Then you move on to your debt with the next highest interest rate and so on until you’re debt free. The logic behind this method is that debt with high interest is costing you the most money, so you want to get rid of it first. The second method is the debt snowball. Instead of focusing on interest rates, you focus on your debt balances. You pay off debt from the smallest to largest balance, regardless of interest rate. (US News Money)

7 Ways To Save On Back-To-School Expenses

Unfortunately, many families feel the heat of these rising costs, struggling to keep up when wage increases don’t make up for the difference. Huntington Bank Director of Economics, George Mokrzan, says, “With the ongoing slow growth in wages, it is difficult for many families to meet the rising costs of sending children to school. For a family of 5 living at the poverty level guideline of $28,410, the cost of sending three children to school would consume as much as 10% of their income.” (Personal Capital)

How Four 20-Somethings With Student Loan Debt Spend Their Money

There’s no shortage of talk about how the burden of student debt is forcing the nation’s young people to put off life’s big milestones such as buying a home, saving for retirement or starting a family. Survey after survey attempts to draw conclusions about how Millennials are dealing with their money and why. (Forbes)

Happy reading, my fellow Millennials.

Why you need to get on a monthly budget

I remember being at my wits end back in late 2014 around the holidays. We had just upgraded homes earlier in the year and were on our second home. Our final home though. Something we could grow into and live in forever.

Problem is we over spent on it and went a bit over our budget, which was something we often did, well, because we were never on a written monthly budget. So that was par for the course for us.

We made decent money, probably middle class to upper middle class income. But we never really tracked what we brought in monthly for income and what we paid out monthly in expenses.

We knew the general expenses that come with home ownership; mortgage, water, utilities, cable, plus our car payments and insurance. The typical regular monthly recurring bills we all have. It was the extra items we paid no attention to at all; shopping, eating out, entertainment, coffee, travel, etc.

Always Stressed About Money

Back to late 2014. My wife and I were always stressed out about money because we constantly felt like we were in debt. It never really felt like we had much liquid money in checking and/or savings. We had a mortgage. Her car was paid for but mine was not. I had student loan debt. We constantly had a credit card balance between $1,000 and $4,000. The credit card debt was always there. We’d throw $500+ at it with each bi-weekly paycheck, but as soon as it got low we seemed to figure out a way to rack up more. It was never going away.

The two of us were always stressing out because it felt like we always had a bill to pay and nothing left over for us. We would pay the card nearly every week. Cut back on going out. Then feel like we were burnt out because it was like we never went out and did anything and just paid bills. A credit card could solve all your worries.

Dave Ramsey Budget

I randomly heard someone talk about Dave Ramsey and his Total Money Makeover book. I started listening to his podcast daily and picking up on his “baby steps” and debt payoff strategies. Turns out, the first thing you have to do is get on a written budget! Well, duh. Seems easy enough. Why didn’t we think of that?

That is when I signed up with Mint.com, a free online personal budgeting software. I began tracking ALL of our expenses via this tool. Turns out my wife and I were spending way more than we made each month. We were spending nearly $400 more than we made each month in 2014. Pretty hard to climb out a of a hole that is sinking faster than you can dig, right?

We cut our spending dramatically in 2015 and did a complete 180. We were cutting virtually every expense we could in half. We were spending close to $900/month at the grocery store. Cut that back to $400. Scaled back our cable bill and cell phone plans. Cut back on going out and gave ourselves a budget we had to stick with monthly. It still allowed us to go out but we had to stay within our budget if we did go out once a week. In 2015 we saved nearly $1,000 more than we made each month!

Budgeting is Hard Work, But Worth the Effort

It wasn’t easy at first but once we got used to budgeting and sticking to it, it became seamless. Sure there were hiccups along the way but we got better over time. As time goes on we’re getting even better and therefor saving more money. Luckily our incomes continue to rise as well, so that obviously helps tremendously. So far in 2016 we’re averaging a monthly savings amount of about $1,400. And that is after we’ve put about 20% into retirement savings.

Its Simple, Increase Your Income with a Budget

Moral of the story…you would be shocked at how much money you can save monthly and how much quicker you can move through debt if you just get on a monthly budget. Stick with it for a few months though because it is challenging at first. Most new things are for anyone. But you begin to develop a “budgeting” skill and get really good at it before you know it.

Mint.com Budgeting Review

Mint.com is a free budgeting software that assists you in managing your money and getting your personal finances in order. The online software and/or app allows you to log in to one place (Mint.com) to track all your accounts, transactions and expenses.

I personally have been using Mint.com for my family’s budgeting and personal finance management since 2013. In a nutshell the software has saved my family right around $400 a month.

How does Mint.com work?

Once you create an account on Mint.com you simply connect all of your personal accounts such as banking, credit cards, student loans, car loans, and your mortgage. You may also connect to your brokerage or other savings accounts such as retirement, stocks and HSA accounts.

You then add your assets, which for most everyone is their car and house (in addition to your retirement, brokerages and savings accounts). It then pulls each assets value from a reputable third party source; your home property estimate is pulled via Zillow and your cars appraised value from Kelly Blue Book (KBB.com)

You’ll want to be sure to add any account where you have debts/loans and money because the software will then process all of your debts and subtract those from your assets to give you a personal ‘Net Worth’.

What does Mint.com track?

Once you’ve input ALL of your accounts, the software begins to pull all of your transaction history. All of it. This allows you and Mint.com to categorize where all of your spending habits are. Just how much do you spend per month at the grocery store, or dinning out, on coffee, shopping, at Home Depot, at the bars, etc. The results are probably going to be shocking! You will get a monthly average for you as well as nationally to see how you compare. You’re not ready for budget cuts just yet. Sit tight, more on that later.

One thing to note, at first the transactions need a bit of TLC that gets better over time. For example, you may have a restaurant transaction that appears under sporting goods simply because of the merchant account from that restaurant. So you have to re-categorize it now and store that for all future transactions. So you do have to monitor your transactions periodically, as you should anyways.

You also track your income. So you can flag/categorize all your work checks/deposits as ‘Income’ as well as personal checks if you’re self employed and cash checks virtually every other day. This allows you to track and compare all debits (transactions) vs credits (income) to see where you are each month. Obviously you ought to be in the black and spending well less than you make! That’s the ultimate goal we all strive for which leads to building wealth.

What is so great about Mint.com?

The single greatest feature about Mint.com has to be the ‘Net Income’ feature. As just stated in the above section, all of your debits (transactions) and credits (income) are tracked. Once you have that on cruise control you have a laser accurate breakdown of your monthly spending vs what you’re actually making and bringing in. It’s very eye opening.

You may be thinking to yourself that you do fairly well and make decent money, and feel as if your spending is under control. But for some reason your just not making up ground fast enough on your goals, whether that be paying off debt or saving for something really important like a house or retirement. The Net Income graph is what breaks it down for you very easily. What did I spend last month and how much did I earn? You may find out you are spending more, possibly A LOT more than you actually make. This is when you find out where in your monthly budget and spending you have to make cuts. Some may be more drastic than others but they are all for the betterment of your personal finances.

Is Mint.com safe and secure?

Yes, to answer that in its simplest form. I’ve been using Mint.com for years with zero issues thus far. All of your account info is stored in a separate database using multi-layered hardware and software encryption. I shouldn’t have to tell you that nothing is bulletproof, I mean Target has been hacked before so anything is possible in the interwebs.

Is Mint.com free?

Mint.com is a free service with zero charges. They will market to relevant money offers from third parties, which is how they make their money, e.g. a commission from each sign up. For example a low or no interest credit card add may appear for you or a IRA retirement rollover account option. The ads really aren’t as inconvenient as they may sound. They are actually light in quantity and not a deterrent at all.

Would you recommend Mint.com?

Overall I would give Mint.com a 4 out of 5 and I would absolutely refer it to a friend (hey, that’s what I’m doing right here with this blog post!). After all the single greatest endorsement a company can ask for is an unsolicited endorsement, which is exactly what I am doing because I do like and recommend you all use Mint.com for your budgeting and personal finances. It’s worked wonders for me and my family.