060 How to Pay For College (UTMA, UGMA, 529, Roth IRA & More)

Hey there. Real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, Grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Hey, there. Let's face it, getting a degree or going to college, that's an expensive endeavor. Do you know that? If we do the math on it, we think about the interest, the income, the lost opportunity costs. Getting a degree can literally, over your lifetime, cost you over $400,000. But it doesn't need to be that way. There's ways to get an education, to do it in a way that is smart and doesn't bury you in debt or. Or costs or fees. All right, in this episode of the affluent Entrepreneur show, we're going to talk about that. I'm going to give you some pathways. I'm going to talk about the different accounts. It's a result of a question that came in on my YouTube channel. So let's get into the episode. Let's talk about the different accounts, the different ways to pay for your education, and let's do it the smart way. I look forward to seeing you in the episode. This is the affluent Entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money, and scale your life while creating a deeper impact and living with complete freedom, because that's what it really means to be an affluent entrepreneur.

All right, welcome to this episode of the Affluent Entrepreneur show. This one's gonna be a fun one, but then again, they all are. I hope you're doing well. This one is actually a result of a question that came in off my YouTube channel. And so we'll get to that question in a second. But here's the thing we're gonna be focusing on. What's the right accounts? How do you get your teens or your kids to start thinking about investing? How do you get them involved? And how do you pay for college? More importantly, get in a way that's responsible because if you don't do this right, literally you could find yourself paying for your college degree for the next two or three decades. There's a story, there's a lot of these stories out there. I mean, if you just search for nightmare student loan nightmare stories, they're plentiful, It's a travesty in our country. But 59 year old student, he's got a student loan of $79,000. Okay, $79,000. Had some issues with his, with his job, downsized, got out of job, couldn't make the income that he had when it went on a income based repayment plan. Now, income based repayment plans may or may not pay the full amount, but his original loan is 7, was 79,000. His current balance is 236,000. He's 59 years old and that's after he paid $190,000.

And I could tell you these types of stories over and over and over again. And this is the thing that I want to avoid. I want you to avoid. I want to make sure that we do this smart, that we do this in a way that makes sense. And the reason that this episode is even being filmed is because a question came in from, from Dan. Let's get to his question so you understand the context of what we're going to be talking about and where this is coming from. And for you, if you've got questions just like Dan, then do me a favor, post them, send them to me. We'll make sure that we keep you moving forward. My job is to keep you moving forward on a financial trajectory that serves you, that sets you up for a new financial destiny. So here's what Dan said. His question was, Mel, I really enjoyed this video. Now, the video he's talking about is what your teens need to do about investing. So. And it's the things that you need to look at. I'll make sure that we hook that video up at the end of this so you can get access to it. Because the things that I teach in that video are also important for you. So he says. I enjoy the video. I'm curious as to your thoughts on the pros and cons of opening a UGMA account, a Uniform Gift to Minors act account, a UTMA account, Uniform Transfer Miners Act Custodial Account. I was thinking it may be a good way to teach our 14 year old how to invest. I'm also curious as to how this impacts when applying for scholarships, grants, and when it comes Time for college. And so. So here's the thing. On this episode, I actually want to focus on this idea of college and how those accounts work, whether you use those accounts for college or you use them for other reasons. And I think that the beautiful thing here is that what Dan's trying to do is figure out how do I empower my children, how do I give them the skills? Remember, I always say for our children that it's more important for us to transfer skill sets than it is to transfer assets. Okay? Too often we transfer assets without the skill sets. The assets get squandered, and the skill sets never grow. And so it's important for us to do it from that perspective. And so that's. That's one side. Now, if you choose to use them for education, great. We'll talk about some other alternatives and some things to avoid. But I want to set the stage from the perspective of education and what things. Things kind of lay. The lay of the land, of the environment that we're in, because it's crazy what has gone on. And I go on a rant on the whole education cost and everything else. Now, let me be clear. I am a believer in education. I mean, heck, I'm an educator. I'm a believer in degrees. I am a believer in college. What I am not a believer in is that in order to do so, we bury ourselves in debt, we bury ourselves in expenses, and we do things that are financially not smart for the long run. And I think that there's some qualitative things that come out of the college experience or the education experience. And one of the biggest things, and this is one of the reasons that, you know, my son had his. He had his business at 16 years old. And it's kind of a funny story, but at the time, it wasn't funny. So 16 years old, but he's going to college. He went to college and to get a marketing degree. And he was in his third year of college. I happened to be out of town, and I'm speaking out of town, and next thing you know, I get a text from him, and he says, hey, dad, you know, I've been thinking about this college thing and going back for this. This last year, and I don't think it's going to help me. My business is doing well. My business is growing. And so I've decided that maybe I'm not going to go back to college.

And so, first off, you don't do that to your parent in a text. If those kids that are listening here do not send that kind of message in a text to your parents. You have a conversation. So, you know, first off, I came unglued in the sense of I was going, what the heck is he thinking?

But before I responded, I had the conversation with a couple of colleagues and friends that I was with out of town. And so I ended up responding. The, the typical way that a parent might respond says, we'll talk about it when I get home, okay? And when we got, when I got home, I said to him, I said, you're, you are truly welcome to make these adult decisions, but if you're going to make an adult decision, that means that you have to adult the whole of your life, not the half of your life. That means if you choose to not finish school and you want to be adult, you want to focus on it, then at that point you take on all your costs, you take on rent, you take on all your costs. And I'm totally supportive of that journey, if that's what you want to do. And, and he said, now, just so we're clear, I wasn't paying everything, but he was living, we were, he's living in the home. So rent free, I was paying. I do this with all the kids. With all the kids. I only have one son, but I recommend this. I meet him halfway. So I was paying whatever he was paying on his car, I would pay half. He paid his own gas and I paid half his insurance. So he met me halfway. So that meant he was going to take on some additional costs. After he did the math on it, he came back, he says, you know, I'm almost done. I only have a year left, so I might as well just finish it. And so he finished college. Now the important thing about this, and this is where I think that, that we, we don't think about this. We think about the college experience as just an education. But it was important for him. I knew that most likely he wasn't going to use the degree very much because he'd already been successful. He's successful. His business continues to grow. They're doing well. He's 32 years old and they've got their first child, three homes, and a multimillion dollar net worth. He's doing fine. He didn't need the degree to do that. But most kids.

Don'T start something big and finish something big. A degree is a process that allows them to start something big and finish something big. And that's why I wanted them to finish it. So putting that aside because there's a cost to that. So let's just look at kind of the elephant in the room, what we're up against when it comes to.

When it comes to the things that are. That are going on here, and that is this. The first is that average cost of college these days is $35,000 a year, including housing. Okay? Including housing. And when you look at, in state tuition, it's $9,000 a year. Now, mind you, I think it cost me. I was in state. I was a state college. It costs $3,000 a year for me to go 2,500. Okay? So you'll see the increase in cost of college in a graph that I created for you. Out of State College is 25,000. Over $25,000 a year. So you can see that college can be a dramatic expense. If you're going out of state or your child wants to go out of state, you could be staring at a couple hundred thousand dollars. Average, average private tuition, tuition and fees, not room and board, is $35,000. So if they want to go to a private school. Now, mind you, Jeremy, my son initially wanted to go to film school at USC. Private school, that would have cost $250,000. I dodged that bullet because we got him into entrepreneurship. Okay, when you look at it and you say, all right, we'll just do student loans, which is what most people will do. You take the student loan interest, the loss of income during that time, and the loss of earnings on that interest if we were able to invest it, and it'll exceed over $400,000 if you do the math. Okay? So we gotta look at the cost of education because the average interest.

Is about $1,900 a year, and payoff is 20 years. So here's. Think about this. You come into a situation where you're graduating school, you finish four years, five years, three years, whatever you did, and this is the time that you're graduating. Your whole life is ahead of you. And they say it's time for you to go. Soar, kid. But before you soar, let me strap this albatross to your neck. It's called your student loan. You're going to have to start the payments in six months, forgetting all the stalled payments. Now with the pandemic and all that stuff, that's coming to an end. And I truly believe there will not be forgiveness. So for those of you that have student loans, you can hope, you can pray for forgiveness. I don't think that it's going to happen. That means that at some point you have to have a Plan in place to get that paid off. We'll do a whole nother episode on that. But point being is that we don't strap an albatross around someone's neck when we tell them to soar because they can't soar when that happens. And you end up with people like that story of a 59 year old that had a $79,000 loan that, that paid 190 on it and it's now got a balance of 236,000. It's, it's crazy. Now part of the problem is, and this isn't, this isn't all of what this episode is, but I think it's important to set the context of the kind of environment that we're in. Part of the problem is the cost of college. If we look at what's happened with the cost of colleges as a graph, I mean back in the 70s, cost of college was really small. But look at, look at how it increased. Okay, this is private, okay? And this is public. But, but if you look at, I went to college here, in, in this area, okay, but the same college cost five times more, 500% increase. Well, this is, this is the environment that we're in. And the only way to do this, a lot of people believe is student loans. We'll talk about student loans here in a second. But I need to, I need to caution you about using student loans and we'll give you an avenue of how do you do things without student loans or how do you do student loans responsibly so you don't end up with like the guy I was talking about with a paying 190,000, yet he still got a balance of 236 when he started at 79,000. It's ludicrous. So let's just look at where we are on this. We are in a world where there's almost $2 trillion in student loans outstanding. It's crazy, okay? People are graduating with almost $40,000 in debt. Okay? Parent plus loans. Now you parents out there, I want you to hear me, let me get in, let me get in really close on this, okay? I want you to hear me on this. Do not use a Parent plus loan. Do not use a Parent plus loan. Why am I saying that you are co signing a loan. Imagine for a moment that you co signed the loan. You did a parent that the loan for that 59 year old was a parent plus loan. Do you know that they can come after you? You are fully responsible for that loan because it's a Parent plus loan. And so I do not want you to do a Parent plus loan because you are taking on student loan obligation personally. Okay? Average parent plus loan is $37,000. Okay. 11% of loans are in default. Prior to the pandemic, 17% of people are paying and using credit cards or home equity lines. They're putting their house on the line for education. Now, mind you, when we are in an environment where interest rates are going to go up and home equity lines and credit cards are variable, which means that the cost is going to go up, and if you were paying for education on credit cards or home equity lines, it becomes more burdensome for you to carry it during that time. And this one is nuts. We'll talk about it. But 5.6% use their retirement accounts for.

Education funding. They take loans out of the retirement accounts. Okay, we need to watch it. Let's talk about the different accounts and the ways that you can do this. And we'll get to Dan's question now. But I think that this starts to lay the groundwork for us to understand that getting an education is costly. Getting an education.

Can be smart. Getting an educa. It's always smart to be educated and grow. But getting a degree, I should say, can be smart. Depending on how you do it. It can be. I don't want to say dumb, but let's say not advised. If you do it wrong. Getting an education, Getting a degree can be costly and can cost you for the rest of your life. And another situation with a guy who was studying to be a doctor, so he had his undergrad, he had his grad, he had his internship in the med school, and all that stuff he went through. He incurred $300,000 in loans. And then you know what? He didn't pass the boards. So he never made it as a doctor, which meant he never had the income to pay those back. He's buried for the rest of his life. I mean, he'll get out of it, but it's. It's going to be a long slogan. Okay, so let's just talk about the accounts. Now, these accounts can be used for a lot of different purposes. We'll talk about the purposes if there's limitations and everything. And I'm going to give you a chart that compares it. It's a comparison grid that will walk through, and this will answer Dan's question, but it'll also help you understand where you go from here. All right, so let's go to the comparison grid. The first thing that I want to talk about Is I just want to compare this, this idea of, of.

The UTMA and the UGMA account. They're similar accounts, but they have slightly different.

Operational considerations. Now, when we look at it, I'm going to look at it from a variety of different ways. Do they have tax benefits now, in this case, no, they really don't have tax benefits. In other words, when you contribute to an UTMA or UGMA account, you don't. You don't get a tax deduction. Okay? You don't get a tax deduction. Is there tax deferred growth? No. You're going to put it into an account and either a UTMA or a UGMA account, you're going to put it into the account, you're going to invest it, it's going to grow. There is no tax deferred growth. So any growth, income, dividends, transactions, they'll be taxed. So. So you'll have to pay tax on it. Okay? And this is a real key consideration. Who owns the account when you transfer? Okay. When you transfer to either one of these accounts, you have transferred ownership.

Of the amount you contribute to the child. Okay? In other words, it is irrevocable. Okay? That means that if I put $1,000 in there, it's child's. It's not mine to use. I don't have the ability to. I can't take it out. It belongs to the beneficiary, but I will control it on behalf of the beneficiary. So I'm the funder. I'm going to control it, invest in everything. But I cannot use it for my stuff. I cannot draw it out and use it for my stuff. It is for the best interest of the beneficiary. I have to manage it for the beneficiary. And once the beneficiary becomes an age of majority in that state or 18 years old, they get the account. Now, here's the thing. They get the account and they can do whatever they want with it. So if you put in.

Over time, $20,000 that you want them to spend for their college, for their education in a UTMA account or UGMA account, when they get possession of that account, you can't dictate what they use it for. They can go buy a car with it, they can go splurge and go on vacation and there's nothing you can do, okay? So the point is that you lose control of it. You can use it like Dan wants to use it to help teach them how to invest. You can do that. Just understand that when they become majority, it's completely theirs. They can use it for anything and you have no say in it. It's gone. Okay, now a couple things to consider. Is there a limit? There is no limit. However, it can be deemed a gift to the child. Now you can transfer, currently you can transfer $16,000 per annual, annual gifts without paying a gift tax. But if you decide to transfer more than that, you have potentially gift tax issues or you just need to get advice, depending on your situation, what kind of gifting you've done and everything, because it might go against what we call the lifetime exclusion. Too much detail for this, but just know that there's a possible gift tax situation in there. Now, the question that Dan asked was how does it impact when they go to college? This is looked at as the child's assets. So what happens with the FAFSA application is that.

They use this weighting of the assets and the income, and the income that is directly the students, the soon to be students, the child or the assets get a heavier weighting. So because this UTMA or UGMA account is transferred to the child that is their asset, they waited at a higher rate of 20% instead of at the parents rate of 5.6%. So it has a more material impact on.

The FAFSA application and getting into college with respect to what kind of financial aid you can get. So you need to be aware of, of how that that plays into it. Now, what are the investment options? You have a bunch of investment options. With the Up My account, you can put it in real estate, you can put in a lot of different things. It's much more flexible. But with the UGMA account, it's much more traditional. It's going to be mostly retirement options like stocks, like bonds, like the things that ETFs and index funds, you know, target date funds, those kinds of things. So you're going to have limitations there. And can you transfer it? And the answer is no. Remember I said it's irrevocable. Once it's in there, it's for the benefit of the child that this account was set up for. You know, you can control it for the perspective and the benefit of the child, but you cannot transfer it to someone else and you cannot take it back. Okay, so that's the UTMA and UGMA account. And understand this, this, this is something that comes into play and I don't have it on the chart here. Is this that one benefit, one of the other benefits of having a UTMA or UGMA account is actually, it protects the amount in that account from creditors. So if you get into any kind of financial distress and creditors are going to come after you, those accounts are untouchable because they're really not yours anymore. Okay? However, let's say the account grows. If the account grows a lot, what ends up happening is you have income on the account. Now, the first, there's this idea, this element of the tax code called the kiddie tax. That's with D's not T. So it's not the kitty. It, the kiddie tax. The first eleven hundred dollars.

Of unearned income. Here's what I mean by that. Dividends, interest, capital gains, it's unearned. If it's wages, that doesn't count. The first eleven hundred dollars, there is no tax. So your child or the UTMA account can earn $1,100 tax free. But once it gets above the $1100, the next $1100 is taxed at 10%. So if they earn $2,000. Here, I'll pencil this out. Let me just draw it out. So if they earn $2,000 earned. Now, when I say earned, I mean portfolio. Okay? So, so it's, it's, it's not wages, it's not for work done. It's, it's interest, it's dividends, it's cap gains, okay? That kind of thing. So the $2,000, 1100, 1100 of it is zero tax. Okay, 1100 is zero tax. That leaves 900, that leaves $900. That $900 is going to be taxed at 10%. Now, what happens if instead of $2,000, they earn $5,000 because it's grown tremendously, you invested it properly and they, they earned $5,000? Well, $1,100 is at 0%. Okay? That leaves you $3,900. Okay? The next $1,100, and these are current right now, they'll change is pays tax at 10%. That leaves you $2,800. Well, how is this taxed? This is taxed at the parent's rate. So now, and the reason they're doing this is they're trying to avoid you transferring assets and income to the child at the rate. So effectively, anything above the $2,200 is going to be taxed at your rate. Okay? So just know that that's, that's something that comes into play with this little complexity. But, but it is what it is. Okay? And so that's, that's the UTMA and the UGMA accounts The next account I want to talk about, which we see or we hear talked about a lot, is this idea of a 529. Okay, we'll look at it from the same perspective that we looked at the other ones. And in the 529 are there tax benefits? Yes, because what happens is that the money in the 529 will go tax deferred, possibly tax free. Okay, we can put money into the account for purposes of education. If we use the money for qualified education, it comes out tax free. Now do we get a tax deduction for it? You don't get a tax deduction for it on federal, but you might get it for state because some states allow a tax deduction for the 529. You got to look at your state. Okay, you got tax free growth. And if we take it out, like I said, for qualified expenses, we don't, we don't necessarily pay any tax on it. Okay, now who controls it or owns it? Well, the funder controls it and owns it. When the child is a majority, do they get the access to the account? And the answer is no, you still own it, you still control it. Okay. Now as long as you use it for education, there is no penalty or tax. But if you don't and use it for something else, that could be a penalty and tax. The one thing is, this is originally these 529 plans were used solely for higher education, secondary education, that kind of thing. But in, in the recent acts they changed it so it can actually be used for K through 12. So it can be helpful for young parents to use a529 type of account for K12 and do it that way. Okay. And so is there a contribution limits? No, not really. But there is possible gift tax just like before in there. Now how does it impact the fafsa, the OR financial aid application? Remember I said this is parents. So they only look at it from a. They weight it by 5.64% instead of the 20% that they do with the UTMA and the UGMA account and everything. Now what are the investment options? They're limited. And they're limited because it's a state run plan. And so they're going to, just like your 401, they're going to going to say here's the investment options that you get and you can choose from those investment options. So they're going to be limited. You're not required to do it in your specific state. So you might want to look at the provisions in different states. 529 plans, what are the options, what are the investment options and all that. And then what happens, and this is an important thing to consider is that, can I transfer it? I can change the beneficiary. So if I have two children, okay, if I have two children and one I've got a 529 plan for each of them, I can actually transfer the beneficiary to one, to the other child, or I can transfer to a grandchild so I can change where the money is going to go. So for instance, if I have a child that doesn't go to college or doesn't need the money for college because he gets scholarships, I can then use it for other education for another child or grandchild or something like that, okay? So it has some transferability.

In doing that. Okay? So this is one of the things that you can do with a 529 plan. Now let me be clear on this, okay? I would not fund a 529 plan if you are not fully funding your retirement. First you want to make sure that you, you make as a priority your retirement. I have a, I have a video training that we did, did on, you know, what to do with your cash. I'll make sure that we hook it up here also, because it'll give you the priorities. Here's why I say this too often. You forsake your future for the purposes of paying for an education for your child. But we don't even know if the child is going to go to college. We don't even know if the child's going to get through it. We don't know any of that. So that's an uncertain outcome. But what is certain is you're going to get older. What is certain is you're going to need to retire. What is certain is you haven't going to have costs in the later years of your life. So what we need to make certain is that we fund that before we fund the education, which is uncertain.

And so it's important for us to look at it and say, let's make sure that my financial future is taken care of first before I think about funding my children's college that may never happen or might be able to be paid for by scholarships or other means. Okay? And some people might go, well, that's selfish. I said, no, it's not. Actually, think about this. Think about this. If you don't take care of your financial future, who's going to take care of you in your later years if you need it? Are you going to move back in with your kids and become a burden on them.

This is a gift to them that they never have to worry about taking care of you because you've taken care of you. We'll figure out the education separately. Hopefully that makes sense. Okay, so that's 529. Let's look at the next thing. And that is this idea of a Roth account. You can actually put money in your Roth, and it's not tax deductible. You can put up to $6,000 a year if you have earned income, $7,000 if you are over age 50 currently. Okay. There is no tax deduction for it. It grows tax free, and the money can come out tax free after age 59 and a half. Now, if you take the money out prior to age 59 and a half, there will be a penalty on it. So you, you cannot draw it out, but you can draw out your contribution. So if I put $100,000 in, over time, those hundred thousand dollars could come out, but the earnings and the growth can't. So you could use a Roth as a vehicle to fund education. Know that it's still owned by you. It's still controlled by you. You can invest it or use it for anything. You have limitations, like I said, 6,000, 7,000. But you have to have earned income to be able to contribute. And if your income is too high, you may not be eligible to do a direct contribution to a Roth. You might have to do what's called a backdoor Roth. It is on the, on the fafsa, it actually is counted in the income. So you've got to be careful about the distributions coming out out of it. And what is better is if you don't use the Roth to pay for education in the first couple years because they look at an average, and so then they won't consider the Roth. In doing that, you have a wide range of investments. So you have a lot more flexibility on the investment side. And you can change the beneficiary. So when you set up a retirement account, whether It's a Roth IRA, 401k, you have beneficiaries that typically it's your spouse, but you can change that beneficiary. Some states or some places, they require the acknowledgment of the spouse if you're going to move it from the spouse. But you can change the beneficiary. You don't transfer the account, but the beneficiary, upon your.

Death, can be changed throughout your life. Okay, now that's one type of Roth. There's a second type of Roth that's called a custodial Roth, which means that you're setting it up in the child's name, just like an Utmore or GMA account, but it's a Roth account. Okay. And again, it's got the same criteria. There's no tax, there's no tax deduction. But you do get the benefits of tax. Tax free growth. Okay, there's.

Tax free growth. It is owned by the funder, which is the child. But the child must have earned Inc. So if the child's not working, then.

They can't use a Roth. They don't qualify for Roth. The max is six to $7,000. It's counted in income. Just like I said before, you've got the wide range and they can change the beneficiary. Here's the thing that I would look at. Remember, I say that I meet my son halfway. Let's say he earned seven. Let's just, I'll make it bigger. Let's say he earned $10,000, okay? And he wanted to contribute to a Roth, but I have him using the $10,000 to do other things like pay for his, his lunches, his clothes, his car. So he says, I can't really afford to put 7,000 in a Roth or 6,000 in a Roth. So what do we do? I say I'll meet you halfway. Put 3,000 in a Roth.

Okay, I'll give you 3,000 to go into the Roth. So you fully fund the Roth. And I'm meeting them halfway and I'm teaching them the investing process in the process of doing that. So hopefully this, this makes sense. Hopefully you start to see the value in doing this. Because now I want them to have skin in the game. I want them to, to understand that their financial future when they, when they move out of high school, they need to start looking at and say, how do I skill up? How do I step up financially? Not that they're financially responsible, but I'm talking about their knowledge, their understanding, their.

Ability to navigate it. And one of the ways to do it is to share the responsibility with them and to guide them through the process.

And so these are the five accounts that you can use for education. I mean, you can use just your general account, which I don't have on here, but you can use a general account where you've just put it in a brokerage account and everything, and it's your money and you, you post it in. But, but the key with this is that if we can get things invested early, if we can get things built early. It starts to fund itself. So what are the rules for education? And hopefully this will bring this full circle for you. Here's the things that I want you to follow. These are the rules that I think that are truly important. When you're looking at how do I fund education, we gave you six rules to follow to keep you out of trouble. And the first is this. Enroll the child in the process. Let them know that they actually have input. Let them know that they have the ability to affect it. If they want to go to a school that is a private school and they, and they love school, then they have responsibility to do their part. This isn't sit back and mom and dad are going to take care of them. They need to take responsibility. Okay. Second.

They be realistic. Just because your child wants to go to the school, if you can't afford it, then you can't afford it. We need to find another way. We need to look. But also ask yourself, why do they want to go to school? Is it because. Oh man, I heard the school's a party school. Well, we're not paying for them to go to party. Okay. Is it because I like the mascot? Well, we're not paying for them to go. Love the mascot. The school experience is important, but the reason they get there is for the degree and what it's going to do for them in the future. It is an investment no different than any other investment and needs to look be looked at as a return on investment. Saying we're investing in this. What's the return on investment on it?

Number three is to we do not invest in their uncertainty before we invest in our certainty. We talked about this. In other words, I want your retirement and your financial future set. Doesn't mean it's fully funded but that you're contributing the max and you're following the rules of the wealth priority ladder. You're following those rules and you're fully funding it before you're taking care of the children's college. Because your financial future, your aging and all of that stuff that's assured. That is a certainty. Their education may not. So I want you to make that the priority. Now remember I said enroll in the process. That leads me to number four and that is this. If it's an expensive school, enroll them in the process to look for the grants and the scholarships. I just was. We were walking Budo just yesterday having a conversation with one of the neighbors whose grandson is going to college. And this kid, I shouldn't call him a kid. He's 6 foot 5. Okay. He ended up going to a school, it's a private school and he was able to, to get an academic scholarship and an athletic scholarship to pay for the school. So these are things that I think we need to be involved with. So having conversations. This is why money isn't taboo. We have to have these conversations. We start these conversations with our children early to understand what money is, what it means. How did, how does it come about? It's not just that it just magically appears in a bank account and that there's costs and there's responsibilities. And so if they truly want to go to these schools, it's time for them to sit back and say, all right, we'll do our part. If you do your part and your part is to figure out the grants, the scholarships and do the things that are necessary to try and get those. Rule number five is this. You might have to use a stepping stone school. What do I mean by that? You go to a junior college for two years, you go to a community college for two years. It's actually easier to get into a higher level college if you do that stepping stone. It's less costly. It gets them acclimated to the college experience without getting embedded into it in a way that they just get buried in these large classrooms or something like that. And so it's a stepping stone and they're going to get their General Ed out of the way anyways. Why are we paying high priced stuff for the same thing that's going to get them to the same place? Because when they get the degree from the bigger college, the degree is the same degree that they would have gotten if they went there all four years. Use a stepping stone school to reduce the cost to make that happen.

And number six, this is on student loans. Number six, if you decide that you're going to use student loans, one, you don't use a parent plus loan because that is on your back, but it is a traditional student loan and that student loan should not exceed more than one to one and a half years starting wages for the loans. What do I mean by this? If your child is going to school and when they're going to graduate, their opening salary is $25,000. Then the max student loans for the life of their college should not exceed 25 to 37,5. That's one to one and a half times that opening salary. That's it. Because I don't want them to end up like that gentleman where he started out with 79,000 is now sitting there staring at 236,000 after paying 190,000. You don't do it. It's a return on investment calculation. You don't invest. I have a cousin who's getting paid less than $30,000 a year. He got a master's degree or PhD. He got an advanced degree in, in art history and he paid for it with student loans. And he's sitting on hundreds of thousands of dollars of student loans with a $27,000 a year salary. If he'd have done the math and he's freaking out going, how do I pay for it? Should have thought about it beforehand. I know I'm ranting a little bit because I think it's really important for us to not get ourselves in trouble with this. And so the important thing then becomes that we limit, if we're going to do student loans at all, we limit it to no greater than one to one and a half times their, their starting salary when they graduate with the degree that they're they're searching for because there still isn't a guarantee they're going to finish college and get the degree or get the job. Okay. And number seven, which I do not have on here, number seven, if they need to, I know, get a job, make money, they can get a job and go to school at the same time I did. A lot of people do. So the important side here is this, is that we don't bury ourselves with trying to pay for their education. We do our best. We follow the rules of the wealth priority ladder and at the allocation, we make sure that we assure our financial future before we worry about the college. If we can't pay for these huge schools, which there's a question whether you get a huge benefit out of it other than the big school college experience. Okay. And that can be debated, then we enroll them in the process, we get realistic with the expectations, we put them through a stepping stone school first and they get involved with grants, scholarships, and they have to do their part. If they're not getting good grades, if they're not doing things, community service, if they're not doing things to set themselves up, then maybe it's not that important. I hope this helps and Dan, I hope that this helps and answers your question in a more detailed fashion. I think this is an important topic and I think it's something that we need to have conversations around because too many people are burying themselves trying to fund colleges, fund educations, and the cost of that carries with them for the rest of their lives. And I think it's time we stop that. All right, so with that, with that, here's the deal. I've got a couple of other videos that will help you out what to do with your cash. We'll hook that up up here as we move through that.

And so we'll get you hooked up with that. And the getting out of debt video, we'll get you hooked up with all that. Just check them out here. Let's keep you moving on this path. Path. Let's keep you smart. If you have questions like Dan did, or if you have comments like Dan did, post them, send them to me, let me know and we'll. We'll bring them on. We'll make sure they get answered. My. My job is to keep you on this path towards a new financial destiny, to give you the tools, the skills, the strategies and the tactics that will help you find financial freedom. It is your birthright. Let's go out and claim it the right way. I got nothing. I'm not selling you investments. I'm selling you on your financial freedom dream. It's yours. Let's go grasp it. All right. I hope you found this of value, and I look forward to seeing you in another episode, another show, or on the road. And until we get a chance to see each other again, always, always strive, live life that I love. Cheers. Thank you for being a part of the affluent entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join the affluent entrepreneur facebook group@melabraham.com group and I'll see you there. Cheers. Bye.

And that's it for this episode of building your money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.