College tuition is a huge expense for many families, but there are ways you can start saving early. Financial expert Ross Mac breaks down some of the most common college savings plans.
Now, the cost of college has more than doubled in the 21st century. Taking into consideration student loan interest and loss of income, the total cost of a bachelor's degree may exceed half a million dollars. That's at least according to the Education Data Initiative.
So as an investor, how should you start to think about saving up for the expense. Here with some tips is content creator Ross Mac, economics financial expert. Ross, you know, this is really kind of the final piece when you think about the uncertainty around student loan repayments.
The president has even expressed pessimism that the court will rule in his favor. What do you think is going to be the most immediate impact, if in fact, student loan forgiveness is or the Supreme Court rules against student loan forgiveness?
So for me, it's like why not give our children the ability to, one, learn about investing. But two, also have the ability and the freedom to graduate college without any student loans. And, like you said, in the next 18 years or so, we're talking about over half a million dollars for when my kids are getting ready to go to college. So the way I'm thinking about it is let's start putting money aside today and being very intentional.
So a 529, I want you to look at that as a tax advantaged college savings plans, where you can literally start putting money aside today and that will grow, effectively, tax-free. So as long as you're using that money for qualified educational expenses, whether that's obviously, tuition, room and board, books, and what have you.
AKIKO FUJITA: 18-year timeline is a very long one, Ross. A lot of parents looking at this saying, well, when do I start putting that money aside? What do you say?
ROSS MAC: So I would say the sooner rather-- the sooner the better, right? And when you really are thinking about this, you have one thing on your side, and that is compound interest, right?
In the words of the great Einstein, he who understands compound insit-- I'm sorry. He who understands compound interest earns it. And he who doesn't pays it. And so compound interest is the ability for your money to start making interest and that interest is thus being reinvested. And so the sooner rather than later. So for me, I have several accounts for my children. One, being a 529, where I'm starting to take money out every check, every month, right?
It's all about being consistent, as well as a-- as well as a custodial account. I think a custodial account is another great thing that is a great learning opportunity for your children because, one, you get to actually teach them how to become owners of some of their greatest or some of their greatest businesses that they actually use, right?
My daughter is on YouTube every day. She wants to-- well, she wants to watch Ms. Rachel. Well, guess what? I want you to also own the owner of YouTube, right? Let's own Google, right? Let's own as obviously, she'll get owner-- older. She'll want to own, whether it's Meta or Chipotle, or McDonald's. And so I think having an actual custodial account, it's important to want to start allowing them to start learning about the way the world works, but also allowing them to become owners.
SEANA SMITH: Ross, you mentioned Ms. Rachel, we're big fans of Ms Rachel inside our house as well. But people are trying to figure out how much money to set aside or to allocate to each of these types of accounts. I guess, when you're trying to figure out how much to put in a 529 versus a custodial account, how should investors, how should people be thinking about that?
ROSS MAC: I love that question. So one, when it comes to figuring out how much, obviously you can work backwards. There are several-- there are several, you know, almost call it investment aggregators online to say, OK, in 20 years, I want to have $200,000. How much? And you say what your, you know, expected rate of return will be on average. If we're talking about the S&P 500, that's going to be 10%
So if you say on average, this is what I want to do. You can obviously, work backwards. I say at a minimum, right, you want to start-- I won't say a minimum because everybody's going to be in a different financial standpoint.
But I think the goal is to start, say, $50 or $100 a month. And as you begin to make more money, so, you know, you will also be able to amp up and say, OK, I want to raise it from 100 to 150 or 200, et cetera. And I think that is really how you do it. But it all starts with the budget, right?
I think, you know, once we understand and figure out better ways to understand what our outflows are, we'll be able to clearly say, OK, let's make saving and investing a priority. Let's also make that a deal. And so now not only do we have, you know, our mortgage, our car notes, and, you know, insurance bills, et cetera, things that we've got to pay on a monthly, plus also pay our 529 account. Let's pay our custodial accounts. Let's pay our own personal retirement accounts.
So I look at it as, say, let's make it all a bill. But you start off, you know, maybe $50 or $100. And as you continue to make more money, maybe you start increasing that allocation size.
AKIKO FUJITA: Ross, I'm curious about that investment conversation you have with your kids. Because I've heard this discussion in so many households, where, for example, parents say, look, you pick the name that you like so kids can understand better what that investment thesis is. How do you open up that conversation? I'm just curious how you've had it with your kid.
ROSS MAC: Well, I think we all are tied to the things that we utilize on a day to day, right? And so right now, if I have an Apple phone, if I have an iPhone, if I'm on a Mac, on an iMac, or if I have AirPods, it's great to start having the conversation with my kids. Say, hey, listen, Apple owns this.
If we're eating and driving a pass at McDonald's all the time is great to let them know, OK, you can actually own this-- own this company. And so for me the conversation and obviously, you know, if you see my content, my kids are 2 and 1. So it's, you know, it's pretty early. But I love having a conversation anyway because when we start talking about certain shows that my daughter watches on Disney, well, guess what? You own Disney.
And so I think what's very important is to understand, look, guys, as the world, we are all consumers of something, whether it's a service or actual business. But nonetheless, there's an ability, right, if it's a public company to also be an owner. In that way, if your friends, right, if your kid's friends are going to McDonald's or Chipotle or wearing Nike, guess what? You could actually own that.
And now as your child looks and say that they're owners, they're also looking at their friends and saying, thank you. Thanks for shopping with me now.
AKIKO FUJITA: Ross Mac, appreciate your takeaways here as always. Thank you so much for joining us today.
ROSS MAC: Thank you so much. If I could say one thing, I'm having a Mac-economics Wealth Summit here in Chicago on July 9th. And it's all about this conversation, right? It's for the community to actually help individuals understand how to better, you know, attack wealth, right? I think we have to have these conversations early on.
We have some amazing people coming out. We'll be talking about life insurance, retirement planning, also how to ensure your kids can graduate tax-free-- I'm sorry, without any student loans. And so July 9th, Mac-economic Wealth Summit here in Chicago is going to be amazing.
AKIKO FUJITA: Got to get that plug-in. Rob, thanks so much for that.
ROSS MAC: Thank you.