How We Saved for My Daughter’s College Fund

Many people were wondering, or at least I think many were wondering, how would I handle the expenses of a newborn and still be so aggressive with purchasing properties.

I must admit, I’m a planner by nature so, I thought of this long before we had a child.

My wife and I structured our current life/budget with the end game in mind.

As many of you know my wife and I live on 50/30/20 ratios of our net W2 income.

This is harder than it seems. We purchased a house at 1.5x our income, work feverishly to increase our total income and take a few relatively modest vacations per year. Typical American stuff but with a twist. Instead of living for now, we are living to change our family tree.

Our goal is generational wealth… So my daugther’s, kids, kids, kids don’t have to grow up like I did.. I touch on that here and here quite a bit.

I say that to say this.. it’s all about balance.

So when my daughter was born…

Olivia

Olivia Madison Brown

Actually around 2 months prior to her birth when we knew medically, she was going to be here, we did something very simple.

We transferred $33,000 into a taxable account and called it “Olivia’s college fund”

That’s it!

Why $33,000?

Well the way I see it, $33,000 growing on average by 8% over 19 years equals

Screen Shot 2013-04-06 at 4.46.29 AM

Now I know 8% isn’t guaranteed and I know 150k may not be enough, but that’s not the point. The point was to make a decision and stick with it. We simply passed up on another rental house or 2, due to what we felt was a more important priority.

This was a complete behavioral finance move, and this decision makes us feel good. Just like in my last article how people would rather pay off 1% APR debt rather than gain 15%+ in real estate gains per year. This is the same exact decision but with a different outcome.

Also, we know we can add more it if we wanted to to add more, point blank, period.

Why didn’t you use an IRA or 529 etc etc…

It amounted to restrictions and rules of the various “save for college education plans” that I didn’t like for our particular situation. One size doesn’t fit all when it comes to personal finance decisions and this is especially true for “high income earners.”

What did you invest the money in?

Very simple again… 80/20 split between S&P500 index fund and total bond market fund. I find (stock market) investing very boring and don’t care for looking up various stocks to chase yield.

Unlike other places in life, I don’t care about squeeze out the most bang for my buck (like real estate). I wanted simplicity and that’s what we have. As we get closer to her using the funds I will change the asset allocation from “risky” to ultra conservative principal protecting assets.

So that’s it.. I know it’s not glamorous. I know it’s not the average story of putting $500 bucks way a month to achieve a result. Frankly, that’s not our style, and we work better by attacking goals in lump sumps instead of the drip approach.

Right now we know she will have something, so now we are focusing our efforts on bringing in more money (stuff we like) so, if shit does hit the fan and her college fund gets wiped out due to a dip in the market we have the capital to just pay for school out right.

This means we keep buying more income producing properties. Oh.. and we are saving enough to send her to any college she wants to attend (preferably Ivy league, so she can milk those elite connections).

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