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Ask Dave

Saving For the Twins' Future

Candace just had twin boys five months ago and is wondering what the best option is for building up savings for them once the family's debt snowball is finished.

QUESTION: Candace in Minnesota just had twin boys five months ago and is wondering what the best option is for building up savings for them once the family’s debt snowball is finished. Dave walks her up the Baby Steps before giving some thoughts about how to accomplish her goal.

ANSWER: The first thing you do when you finish getting out of debt is you build a household emergency fund—a rainy day fund—of three to six months of expenses. Then you start saving 15% of your income in Baby Step 4 into retirement. Then you start saving for kids’ college as Baby Step 5.

You can open a mutual fund in a kid’s name with you as the custodian, and it will be taxed at their rate. Until it makes a lot of money someday—until it starts making some serious bucks—it’s not going to have any taxes. It’ll grow without any taxes because when you don’t make any money, you don’t get taxed. For a long time, depending on how much you want to put in there, you can do that in the kid’s name. That’s called UTMA (Uniform Transfer to Minors Act).

What we chose to do with our kids was we decided that—with rare exceptions where someone had just an unusual skill or an unusual aptitude—that they were going to go to college. We pretty much said that, and we just said, “All right, we’re going to start saving for college,” and then we talked to them from the time they were little as they were getting older and said, “This is your college fund. This is your college fund,” which kind of assumes you need to go to college, which really means you need to get your grades up so you can get into a college. You need to be thinking about college. We just kind of put college out there like it was just a normal process, and pretty much anybody who wants to win needs education. And we told them that. We just laid it out there.

Had one of them gotten there and been an artist or been something else and chosen not to go, then I guess we could have done something else. But we just said, “Hey, having a four-year degree under your belt is a really, really smart way to start your life, especially if it’s a four-year degree that has actually some application in the marketplace.” Does that mean that you have to go to college to win? No, but education—knowledge—is valuable in the marketplace. We brainwashed our kids. We just kind of made it like you brush your teeth, like you put on your pants when you go outside. You’ve got a college fund. It’s just normal. You’re just going to go to college.

I think it probably leaned into this idea. We didn’t really have this big philosophical discussion with a 6-year-old as to whether or not college was in their future or not. We just saved for it and said, “You’re going. Just gotta make that happen.”

You can do whatever you want to do, but that’s how we approached it with ours when they were your kids’ age. 

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