Wyatt Yates Host 00:00 Money doesn't have to be complicated. You can achieve financial independence. This podcast gets to the truth behind the money mess you hear from your grandma, your broke uncle, the latest social media influencers and the so-called money experts. Welcome to Money Myths with your host, wyatt Yates. 00:23 This week's myth is you need to save right away for your kids' education. So with this myth, we're talking about, typically, your college education for your kids and the fact that you should start saving as soon as you have kids. You need to start saving right away for their education, for their college education. So that's what this myth is referring to, and this thought process is not necessarily a bad thing. There's a ton of benefits on saving earlier for your kids' college education. The one thing that is out of your control is whether or not your kids are actually going to go to college. But now the nice thing is there are some changes that have been made to a lot of the tax advantage college education plans that now allow you to use those for K through 12 education as well. There are certain limitations and stuff, but the tax the Trump tax code or tax act that was passed or that people commonly refer to as the Trump tax cuts in 2017, expanded what these accounts could be used for. So that is a benefit and a positive with those, in case your kid decides maybe college education isn't something that interests them. So, as far as this myth goes, when you start earlier, you get the benefits of compounding your savings and your investments. The earnings compound on top of each other. So year one you maybe put $1,000 in, say, you earn 10%, so you have $1,100 in earning 10% the second year and it just compounds and it will build up. You'll hear a lot of times people call it compounding interest. Now, technically it's not interest You're earning. Your investments in these types of accounts can earn money. It's not necessarily interest bearing type investments, but you do have the benefits of the compounding of your investment in these education accounts when you start earlier. So you will ultimately have to contribute less than if you waited 10 years to start contributing. So that is definitely one reason why this myth does make sense In the earlier start, the better. 03:01 There are also limitations as far as how much you can contribute in some of these tax advantage accounts. So there's a couple of ways that you could say for your kids education you can just put money aside in a just a regular investment account that's not structured as a tax advantage plan for education, so just a typical investment account that's maybe not inside a investment vehicle of a 529 plan or an education savings account. Those are the two main type of accounts that have tax advantages associated with saving for education. So if you're looking at the tax advantage plans, whether it be the education savings account or a 529 plan, there are limits on what you can contribute. Specifically, the education savings account limits $2,000 per year per account. So if you have three kids, you could have three accounts. You could throw $6,000 in, but there are limits. So if you want to grow that account over time and you're limited annually what you can put into it, the earlier you start the better. Now the limits with the 529 plans are much larger and really typically look at over the life your contributions over the life of that plan. So there's not as big of a deal with the 529 plan versus if you had an education savings account you were contributing to. There are limits there. So these annual limits into these types of tax advantage accounts make it better for you or you're gonna be able to contribute more if you start earlier into that account. So that's another reason why you this myth makes sense. So there's not necessarily this myth is wrong. It is. There are definitely benefits to starting earlier. 05:06 Where I have a problem with this myth is it doesn't take an account where you're at financially, what your current financial circumstances are like. So if you're struggling to pay your bills and provide housing in food for your kids, you don't need to be worried about saving for their education. You got to worry about making sure you have a roof over your head and you have food on the table. So where you're at financially is gonna depend on when you attack this. Yes, the sooner you can save for your kids education, the better it is, because you get your money working for you sooner. 05:51 But you have to look at where you're at currently, and what happens to a lot of people and I see it with my clients is a lot of times you're trying to do a lot of different things at one time. So you're budgeting, you're maybe saving a little bit for retirement, you're maybe applying a little bit extra to pay off some of those debts that you want to get paid off, and then you are putting a little bit away for your kids education. So you spread your resources. You spread your money across a variety of different things and what happens is you don't get much traction in any one area. You don't see that debt just getting paid off it. You're just seeing little incremental progress. You maybe don't see that retirement account go way up or that kids education. You're just seeing small incremental progress and what happens is you end up giving up or you completely stop and you quit because you're not making any progress in one area. You are spreading your resources way too thin because you're not focused on one objective at a time. 07:03 So when you have debt or you're not able to save as much as what you need to be for retirement and you throw in saving for your kids education on top of that, you just add to the problem of your resources aren't really pushing you towards your goals. So I like to say you need to do it in the right order. So if you have debt, you don't need to be concerned about your kids education. You need to get out of debt because it's going to rob your income from you in the future. So if you have debt, you should be attacking that debt and then, once you get out of debt which typically you can do in less than two years. I don't care who you are and how much you have. Most of the time you're gonna be able to do it in two or three years or less, no matter how bad your situation is. It may vary a little bit depending on how much medical debt you have or maybe student loan debt, but typically you're gonna be able to get out in two or three years, which isn't gonna make that much of an impact If you really get laser focused on that. It's not gonna make that much of an impact on what you're losing in those two years in terms of contributions to retirement accounts or kids education. So you first you're getting rid of that debt, so it's not robbing your future income, so all your future income can come to you. And then you're attacking your retirement before you save for your kids. And once you're able to adequately fund your retirement savings and investing, then you can look at your kids. So if you do it in that order, you're gonna be much better off. 08:44 As you look to do this, you're gonna see progress. You're gonna see progress on those get out of debt goals. You're gonna see progress on really throwing a lot of money at retirement and you're gonna be able to max out those education savings for your kids. And what account you choose to do really depends on your circumstance. Don't beat yourself up for not being able to do it right away. Maybe you have a bunch of debt when you first have a kid and you can't afford to save for their education. That is fine. But attack those debts and get to where you can save. But you've got to be laser focused on one goal at a time so you can get across the finish line and actually start making progress on those goals. So as far as this myth goes, it's not bad thought process. The sooner you can save, the better. But make sure you're getting your financial house in order first before you're concerned about your kids' education. You've got to take care of yourself first and then you can save for your kids' education. 09:57 As far as for the action step this week, so let's say, hypothetically, you have, you know you've paid off your debts, you're saving for retirement, you're good there and you're looking for how can I save for my kids' education? So the two main tax advantage plans you can do this through are a 529 plan or an educational savings account. Now, the educational savings account has some income limitations. So if you're a high income earner you're probably going to be you're not going to be able to contribute to the education savings account, so your 529 plan is going to be your option there, and these are all state specific. So but look at setting up an education savings account for each kid or a 529 plan for each kid and start contributing to it. I really like tax advantage plans like this because I like minimizing how much you're paying in income taxes. So these tax advantage plans, with the education savings account or the 529 plan, can be a great option to be able to reduce your tax liability while being able to save money for your kids' education. So look at a 529 plan or education savings account for your kids if you're ready to make that leap and start saving for them. 11:20 Thanks for listening. Please do me a favor and, if you found this episode interesting, subscribe to the podcast so you can make sure you get all the future episodes. Also, leave a rating and review so you can help us grow this podcast, so we can leave more people to financial independence. And, lastly, please take a screenshot of the episode, share it on your social media channels and tag us using at rugged financial. We will see you later.