529 Accounts: Three Things That Are More Important
15:19 Share

If you don't put money in one of those accounts, let's just be real. Your kid can still go to college. It might take some more planning, but it's absolutely possible for your child to go to college if you never put money in a college savings account.

Welcome to Stay Wealthy San Diego, a show for successful professionals doing all the right things with their money and are ready to take their financial plan to the next level. I'm certified financial planner, Taylor Schulte, and I'm here to teach you advanced financial planning strategies in plain English.

Welcome to the Stay Wealthy Podcast. Today on the show, I am doing something really, really different. If you can't tell in my voice, it's currently about 5.30 in the morning. I'm at home having my first of many cups of coffee for the day. And get ready for this. My wife and I are having a baby today.

Yeah, today's a big day. If all goes as planned, in just a few hours, we will be checking into the hospital and they're going to start the induction process. So big day for me over here. And I just, I don't know, I just felt inspired to get up early and start my day and get a podcast done. I don't know why, but...

But anyhow, this is number two for us. It's a boy and we are really excited. And maybe by excited, I mean I'm completely terrified. Our first, who is a year and a half years old, he didn't sleep for the first eight months. So I'm officially scarred for life. But I

Fingers crossed. I'm hoping this one goes easy on us. And of course, in all seriousness, I am really excited. I'm excited to meet him. I'm excited to watch my older son become a big brother. I'm excited for my wife not to be pregnant anymore and be able to enjoy a few glasses of wine with me. And I'm really excited for how

close in age the two boys will be again my first is 18 months old so they'll be 18 months apart and they'll be going to school together and it'll just be really fun so yeah

naturally knowing that another child was going to be coming into our life, I've been working or my wife and I have been working on the financial side of things for our family for the last few months, just to be sure everything is in order. And usually when people think baby, they immediately think college planning. Oh, you're having a baby. You better open up a 529 college savings account and you better start saving. And while

While that's great and super important, it's not the most important thing. Sometimes people neglect the most important things. And so today I wanted to share, in light of everything going on, I wanted to share with you three things that are more important to me than opening up a college savings account when becoming a parent.

So first, really, really quickly, I want to ask for a big favor. If you're liking the show and you want to support us, it would be really, really, really helpful to us if you just quickly left us an honest review on iTunes.

It helps other people find the show. It gives us good feedback. It's just a really easy way to support us. So you can do it right from the podcast app. It's super quick and easy. Should be painless. Thank you for the support so far. Please keep the emails coming, ideas, feedback, questions. We are open to it all.

So with that out of the way, let's dive in. I want to first preface things by quickly explaining why the college savings account isn't at the top of my list. So if you don't put money in a 529 account, a 529 account is a type of college savings account. If you don't put money in one of those accounts, let's just be real. Your kid can still go to college.

It might take some more planning, but it's absolutely possible for your child to go to college if you never put money in a college savings account.

For one, they could get student loans. I'm well aware of the student loan problem in this country. There's more student loan debt than credit card debt, which is just scary. So student loans aren't ideal, but they're certainly possible. And again, with the right planning, they could be even more possible. So one, your child could get student loans and there's plenty of people that have gotten them and paid them off and it's worked out just fine. Two,

Two, your child could join a work-study program. They could work part-time during school while they get their college degree. And some parents that we meet with say, hey, I worked my way through school and my kids are going to work their way through school. So that's a possibility.

Three, they might be eligible for a scholarship or multiple scholarships. People don't know this sometimes, but there are millions of scholarships out there available that offer billions of dollars. Sometimes it just takes some work to go out there and search and find them and do the hard work to apply. But there's a lot of money and support out there for college. So maybe your kid doesn't have that natural athletic talent that gets them that scholarship.

there's still tons of opportunities out there. Also, for all we know, and this is a whole other podcast we don't need to go into today, but college could be wildly different in 18 years. And college, frankly, it could be free or very cheap. So we just don't know what the future holds and what college is going to look like. And

And then lastly, your child may not want to go to college. We have a lot of entrepreneur clients and business owner clients and they say, hey, I never went to college. I started my business and look where I'm at today. Or they want their child to follow in their footsteps and college just isn't necessary. Your child might want to pursue a career where college really isn't important or it's not even a requirement. So you just don't know. But again, let's just reiterate, if

if you never saved money for college ever, your kid can still find a way to get a college degree. I think we can all agree with that. So with that out of the way, let's talk about these three things that I think are more important than college savings accounts. And I'll try to keep it short and sweet because I've got to pack my hospital bag and get out of here shortly. But

So the first thing that I think is more important than a college savings account is a will. And I'll say a will slash estate planning. But let's start with a will. So while no one really likes to think about their death, this is really, really important.

I'm not an attorney, but parents of minor children definitely need a will. In the will, you're going to outline who the godparents are. This is the most important part, who the godparents are. God forbid something happens to you and your spouse.

Since John's not with us today, I thought maybe I'd share his worst case scenario that he likes to spell out, which is if you don't have a 529 account, your kids might have to take out some student loans. If you don't have a will, your kid may end up in a state-run orphanage.

Now, that may be extreme. It's a very extreme example, but it's possible. That could happen. But it's also possible that your children end up with the wrong family member or someone you don't fully trust. So, out of these two scenarios, your kid having to take out some student loans or ending up in the wrong hands, what's most traumatic? Which issue should you prioritize as a parent? And I think

we can all agree that a will and outlining who the godparents are

is probably the most important. I know for my wife and I, we chose multiple people. We have three sets of godparents written out in our will and kind of an order of operations thing. Maybe the first set of parents, if something were to happen, it just wasn't the right time. We have a second set of parents and a third that we'd like to take over. So you can craft it however it's appropriate for you.

The last thing I want to mention is a will is really basic, super easy. There's actually some really cool startup companies that allow you to craft your will through an iPhone app or quickly online for a really low cost. So a will is really easy. But if you've got more complexity in your financial life, you may need some additional estate planning as well. So be sure to meet with an estate attorney. It might cost you a couple thousand dollars, but it's well, well worth it.

Okay. Enough with the morbidity conversation. Let's move on to the second thing that I think is more important than a 529 account when becoming a new parent, which is disability insurance. And really disability insurance is important for everybody. So even if you're not a new parent or you're never going to be a new parent, still disability insurance is really, really important on the financial planning checklist. Okay.

So for this scenario, no one is going to die. You're alive. Your spouse is alive. Your children are living happily with you and not in John's state-run orphanage. But that doesn't mean that bad stuff can't happen. The good news is that you can plan for the bad stuff.

So contrary to what most people think, your biggest asset, it's not your home, it's not your retirement accounts, it's not your investments, it's not all of your stock options that you have. Your biggest asset as a working professional is your future income, which is the money that you're going to make over the next 10, 20, or 30 years. That's your biggest asset. And

And as you can imagine, we need to protect your biggest asset. And that's what disability insurance does. That's where it comes in. Disability insurance replaces a portion of your income should you no longer be able to work. And since kids cost a lot of money over their lifetime, I think we can all agree that keeping money coming in the door is going to be really important.

Because this is so important, because it's your biggest asset, disability insurance can be a little expensive. Sometimes people have sticker shock when we show them how much their policy is going to cost. It costs a lot because it's really important. So be sure to shop around. Make sure to get the best policy at the best price. There's a lot of levers that you can pull with disability insurance to get the price to a point that you're comfortable with. Something is better than nothing.

So put something in place. So a will, estate planning, disability insurance. Lastly, one of the most important things more so than planning for college is life insurance. As I just noted, kids cost a lot of money. The average cost of raising a kid in the United States is around $1,000.

$250,000. And that doesn't even include the cost of college. So if you throw the cost of college in there, it could be closer to half a million or even closer to a million, depending on where things are at in 18 years from now. So kids cost a lot of money. So we're going to go back to the morbidity stuff here. What happens if you or your spouse are no longer in the picture? And for the purposes of this conversation, the surviving spouse is

is left to fund the cost of raising your kid without your income. So if you're no longer in the picture and your spouse is, she or he is left to raise your child. And again, take college out of the picture. Your kid still needs money to eat and live. Just the basic essentials.

I don't think you need me to tell you that leaving your surviving spouse or godparents, if that's the situation, leaving them without a replacement for your income is not part of a good financial plan.

Unless your surviving spouse or the godparents have an extra quarter million dollars just lying around to take care of a child unexpectedly, it's going to be really, really important to have a life insurance policy in place. And again, this life insurance policy should be in place well before you open up that 529 account.

We have talked in length on this podcast about term life insurance versus whole life insurance. I will just go out. I'll just tell you right now, there's 100% no need for a whole life insurance policy in this scenario. You don't even need to consider it. You don't even need to shop it around. Just go get a cheap term insurance policy and don't look back.

There are some hoops to jump through in buying term insurance. It could take you a couple weeks or up to a month. So start the process early, but it's really, really, really important.

So in summary, again, the three things more important than a 529 account, a will, estate planning, disability insurance, and then life insurance. And I think maybe part of the reason that people neglect these three things is they take time and they take money. Opening up a 529 account is easy. You can go online really quickly and get that open in five minutes. It doesn't usually cost any money and you can start funding it. And so it's kind of the path of least resistance. And these three really important things are

they take a little bit of time. They take some legwork and you might have to spend a little bit of money to

put them in place. And so because of that, I just find that a lot of people neglect these things and they just jump right to the college savings conversation. So please take this seriously. If you know somebody in your life, maybe it's your child or a grandchild that is going to be coming a new parent soon, please share these three things with them. We do have a blog post on this as well that I'll link to. So if you'd rather share it in that format, just go to the show notes, which you can find at staywealthysandiego.com slash

podcast. And that is it for today. I'm keeping it short and sweet because again, we're having a baby today. So I'm really excited again. Thank you guys for all the support questions. Keep the emails coming in and hopefully we'll be back to our normal schedule with John on the microphone in two weeks. And until then enjoy the rest of your week. And I'll look forward to sharing some, some pictures and stuff soon on the new baby.

All right. Talk to you in a couple of weeks. This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial or other professional services.