Ok, so maybe the title is a bit over-the-top, but I’m feeling kind of over-the-top today.
Plus I am so proud of what my daughter has accomplished that it’s fitting.
Anyway, today I’ll give you an update on my daughter’s college career, including her car decision (which is somewhat related), and give you a picture of her finances at the end of it all.
Car and College Incentives
To catch everyone up on where we started, we offered our kids a car incentive and a college incentive.
The gist of each incentive was as follows:
- Car — Stop doing something my wife and I knew was negatively impacting each child for a year. If they did this, we promised to buy them a new car.
- College — They were given a college fund. If they spent it all and then some, they had to pay the difference. If they spent less than that amount, they got to keep the difference.
The reactions from each child were quite different. As almost any parents know, kids raised in the same family environment are almost always completely different in many ways.
My son’s attitude was along the lines of, “It’s too much work.” He’d rather we just give him the money for doing nothing. LOL!
My daughter’s attitude was along the lines of, “I want the maximum amount…and more if I can get it.”
Now let’s explore what my daughter did to try and get as much as possible.
Car Incentive Results
In her early teens my daughter had a TERRIBLE time with sweets. She ate candy, cakes, etc. plus drank soda every day and in quantities that rivaled mine in my “glory days”, which is saying a lot.
It was impacting her health but she wouldn’t stop. Then she went to the dentist and had 10 cavities, and we had had enough.
So her incentive was to eliminate sugar. Not all sugar, of course, as there’s sugar in everything these days. But she couldn’t have the refined sugar treats like candy, cookies, cakes, soda, and so forth.
One year. No sugar.
As you might be able to tell from the above, she’s kind of determined, so once her mind was made up, that was it. She had no sugar for a year and we owed her a new car.
We had previously agreed that the cost of a new car would be $25,000. After she met her goal, we made another offer since she wasn’t sure she wanted a new car.
The new offer was she could either get the car or we’d give her the money. She took the money.
Not literally though. We kept it and allowed her to draw from it as she wanted to spend (and as you’ll see, she did spend).
I would watch her checking account and as it got low I would replenish it from her fund. Or sometimes she would have a larger purchase (like a computer), need that money, and I’d shift it over. I tracked the withdrawals through Quicken so I always knew her balance.
BTW, we set up the incentive for 2016, and she didn’t have access to it until mid-2017 when she decided she’d rather have the money.
One thing that helped convince her to take the money, buy a used car, and pocket the difference was our $10 car.
From the time we got it she drove the car most of the time and thus didn’t need to buy a new car. Then she fell in love with the $10 car, decided she wanted it, knew it was much more affordable than a new car, and we discussed how she could get it.
College Incentive Results
As for the college incentives, there were a few rules in addition to the ones above:
- As long as she was at home taking college classes, we would pay for these and they would not hit her college savings.
- She had $90k to spend in total for college. This was for any college-related expense except for travel home, which we paid for.
- She only received the money if she graduated. We were at least smart enough to make this stipulation. We should have added “with a job” but I’ll get into that soon enough. 🙂
With these in mind, she took several steps that helped minimize her college costs:
- She stayed an extra year at home and took online classes. She was homeschooled and started taking college classes in 9th or 10th grade which counted both as high school and college credit. Since she had “graduated” homeschool at 17, she decided another year at home (and us paying for the college classes) was a good move.
- She selected a college that accepted all her community college and online class credits. We looked at three colleges. One would hardly take any of her credits, one wasn’t sure (they didn’t have their act together) but thought they would take most, and the third would take them all. The school she selected was picked for a variety of reasons, but the fact that they would take all her credits was a major factor.
- She received some good academic-related scholarships which added up to a few thousand dollars every semester. We also took advantage of other incentives like an early enrollment bonus. As you might guess, we received no need-based scholarships (I know, a shocker, right?) and I knew we wouldn’t. Despite that, the college made me fill out the FAFSA every year. Ugh.
- She took extra classes when she went to college. Her school’s tuition was good for 12 to 18 credit hours a semester. She did not take 12, ha! Most semesters she was at the top range.
- She got credit for a summer internship she spent in Washington, DC.
By doing these things she:
- Enrolled at the college as a junior (she had enough credits to be halfway done with school when she started on campus).
- Cut what we thought was going to be four semesters to three, eliminating a whole semester of costs.
- Graduated this past December at age 20.
Not bad, right? I had a pretty good college career and her’s makes me look like a slacker.
The Money Results
So, where does this leave us money-wise? Here are the results as of her graduation:
- College Funds Leftover: $35,810.07
- Car Funds Not Spent: $10,304.07
- Total: $46,114.14
- Less Cost of Car: $5,000.00
- Net Cash: $41,114.14
Now let me explain:
- The $35.8k is what was left over from the $90k. It’s pretty amazing (in a bad way). Just imagine if she had been on campus for all four years. Yikes!
- I bet you’ve noticed the difference between the $25k she got for the car incentive and the $10k she ended up with. That’s a pretty big difference. In that year and a half she spent $15k on a wide variety of things: a new computer and other electronics, car insurance (she wanted a car at school her last semester), eating out (a big one — she hated the school food and yet they forced her to buy the meal plan with her housing), and a bit here and a bit there. When all was said and done, she had a fun time but was $15k poorer. Her choices and she’s happy with them.
- We agreed she could have the $10 car for $5,000. She wanted it and our son didn’t (he opted for a loaded 2016 Honda CRV from my parents which he paid half for and we paid half. It’s easily the nicest car in our family, which is kind of ironic), she got it. I’ll detail below how we got to the price.
With all that said and done, she ended her college career with no debt, a car, and $41k in cash.
Setting the Car’s Price
The $5k for the car was set after some negotiation as there were several numbers in play. Some meaningful ones:
- $10. This is what we bought the car for and what my daughter thought we should sell it for. LOL, no.
- $3k. This is what we put into the car after we bought it. The car had a few issues here and there and they added up to $3,000. So at a minimum to re-coop our expenses, we needed this.
- $7k to $8k. This was the car’s blue book value the best I could estimate. It also seemed reasonable compared to what I was seeing other used cars sell for (which weren’t as good as ours — plus we knew our car’s history and that it had been taken care of.)
So with these we basically decided to meet between what we had in it and what it was worth, This seemed fair for both parties.
Transferring the Money
Now we come to the fact that we owe our daughter $41k. How do we get it to her?
It looks like we can “gift” $15k to anyone in a year and not owe taxes on it.
I’m not sure this would be considered a gift, but I didn’t want to take any chances. So at the end of 2018, my wife gave our daughter $10k and I did as well.
Now in 2019, we’ll each do about the same and her $41k will be transferred.
Again, maybe we didn’t have to break it up this way, but I’d rather be safe than sorry.
Job and Future
My daughter graduated in early December and I flew out to pick her up. We drove home together the next day.
She looked for some jobs online and did some networking after we got home but:
- It was December, not a great time for hiring.
- We had Christmas, of course, and all the activities leading up to it.
- She had a friend visit after Christmas and through New Years.
- We went to Grand Cayman for 10 days in January.
Plus she didn’t seem to be too worried about finding/getting a job, so little progress was made. That’s what $41k in the bank can do for you. The sense of urgency has passed.
That said, she is working for me doing several things at Rockstar Finance. She’s organized and web savvy, two things I need, and I might as well pay her as anyone else.
She also works for a set of other sites, doing tasks very similar to what she does for me.
She really just needs one or two more sites to work for as a “social media manager” to make up a full-time job. Given that the web jobs are mostly flexible in time and location, I think this is the direction she’s heading in. Whatever she does, she’d like to stay in Colorado. Our state has a way of making you love it. 🙂
Earlier this month she moved in with a friend and another roommate (both women). The friend was tired of paying high rent, bought a house, and wants a couple roommates. My daughter pays $600 a month for room and utilities, which is not bad. They live about 15-20 minutes away from us and we still see her at least once a week at church.
We’re in the process of detaching her from us — new checking account, new car insurance (on her own), and so forth — which will take some time, but for the most part she’s left the nest completely. It’s bittersweet, of course, but we are so happy that she’s well on her way to making her own way.
Razorback 14 says
Outstanding and encouraging way to share (and teach) others who will be faced with the same position soon.
My wife and I struggled with all areas you described, but we made it —— and both our boys graduated from college DEBT FREE —- as you can imagine, although this was not an easy path for us, now we celebrate all the steps we built and followed.
For our boys, our simple goal was to be DEBT FREE —— now, we’re working on a the same plan for our grandchildren——
FYI —-
Our oldest son —- graduated from Penn State with a degree in Economics and earned his Masters of Financial Econometrics from Texas A&M ——. GPA : 3.85
Our youngest son —- graduated for college in Arkansas with a degree in education and he earned his MBA from Texas Tech University—
We estimate that we spent about $400,000 total for our boys to complete their college education—— in my/our opinion, it’s money well spent.
Razorback 14 says
Ooooops —- our youngest son earned a GPA of 3.75. Ha. Didn’t want to leave that out. We are so proud of both boys.
They are living independently—- married, working and building their families now.
Again —- we are most proud of all they’ve done in the short lives.
PEG says
What does your daughter do about health insurance?
ESI says
Same thing we do:
https://esimoney.com/picking-right-early-retirement-health-insurance-reviewing-options/
Xrayvsn says
Wow your daughter is quite financially savvy which should come as no surprise given her dad’s expertise on the subject.
Most kids come out of college with a lot of debt. For her to do what she did and come out with 41k in the bank is remarkable.
She made some smart choices and now has a lot of options so she doesn’t feel like she has to settle with just any job to clear her debt.
TL says
Love the all the details. My kids are 6 & 8 years away. I’m curious if you used a 529, or how you saved for college. My kids 529 balances are getting sizable, and I’m wondering how much is too much. I’m debating stopping contributing.
ESI says
You might want to read this:
https://esimoney.com/save-much-college/
We are letting the amounts we have grow for 20 years or so and hopefully can give funds to grandkids.
Fred Leamnson says
Great story. The moral seems to be that a rewards-based strategy works better as an incentive. She clearly took to it.
You’re so right about kids growing up in the same household turning out so differently. I’m wondering how your son feels about her success? Is there a sibling rivalry? I’m also curious how you feel about the different path he’s taken?
Sounds like you gave them both the same incentives but each chose a different path.
ESI says
No sibling rivalry that I see. Probably because they are interested in completely different things.
I’m fine with his path. It’s his path and his life to decide. I’m also working on some special things for him, so stay tuned. 😉
Fred Leamnson says
Good to hear. My brother and I had a lot of sibling rivalry. Like your kids, he and I are completely different people.
Look forward to hearing about your son.
ESI says
I’ll give you an update at FinCon. It should be in process by then.
Kenneth F LaVoie says
Incredible. I can’t believe how many ways this story mirrors our own (both in content AND timing). Our daughter, now 17, is finishing up her first full year of a 2 year associates in early childhood development. We put an inheritance into a 529 when she was 4-5 years old and now it’s nearly 6 figures and she will only need 1/10th of it so the rest, we think, will become “generational wealth” for her kids and grandkids God willing. We are working a similar deal with subsidization but it’s still in the “lump of clay” stage. Basically, her career choice is a very low earning one which she’s chosen due to her 1.) disdain for school, 2.) love of horses, 3.) love of children. So we tell her as long as she’s “living life right” (we’ll further nail down what that means later), then we’ll “subsidize her life” a bit. Our contribution will, for example, let her live a $50,000 life on $30,000 in income, as long as she’s fulfilling her part by working hard and keeping her life clean. Good stuff. Thanks for sharing in such detail.
ESI says
So are you saying that once she graduates you’ll supplement her $30k income with $20k to get her to $50k?
M says
This seems like what was referred to as “Economic Outpatient Care” in the classic book, The Millionaire Next Door. I don’t recall the exact details, but you should perhaps read about it.
My recollection is something along the lines of…..While its surely done with the best of love and intention, I’m not sure its a good thing.
Jim @ MSW says
Love this story! Interesting way of giving your kids some “skin in the game” for college. I know you have written about this before, but the additional details were helpful. My oldest is going that way in a few years, definitely have to keep this in mind as an idea.
Didn’t realize that you home schooled. I’m interested to learn more…too late for our oldest but definitely considering this for our youngest. Even though our high school is ranked highly for academics, my wife and I have just not been impressed with the quality of what she is getting. Also curious about how that works with college admissions. Did you post about it before? If not, may be worth a post on the details. Thanks again!
ESI says
I think the standardized test results are key for homeschoolers.
My daughter did very well on her ACT test, so getting into a college wasn’t an issue. Plus, she did get some academic scholarships as a result.
Brian says
Really good information in this post. Question for you on the spending from the $90k college fund.
It appears that $18k/semester was spent for your daughter’s education ($90k less $36k)? What did those funds cover (tuition, room/board, books, other, etc.)? Was there some “fluff” in there as well for entertainment, trips, etc.? Did she attend a public or private university?
With two kids roughly 10 years away from college, I’m trying to make sure that we are saving enough.
ESI says
She attended a private school.
We only withdrew money from the 529s that are allowed to covered by these funds — tuition, room, board, books.
Things like travel, eating out, entertainment, etc. were either covered by us (we were happy to pay for her to come home) or her (eating out and entertainment) from her personal funds (what she had earned for the car.)
Lin says
Your daughter sounds like a truly exceptional person, who took full advantage of truly exceptional opportunities. How wonderful for all concerned! Congratulations to you all.
Little Seeds of Wealth says
What a great way to teach your children about money. I’m sure she’ll succeed in life with that good financial attitude built so early on. I’m saving your article for when we start contributing to our future children’s 529.
How did you determine the 90k figure? Is that the cost of 4 years of state school in Colorado?
ESI says
Pulled it out of thin air? LOL!
We made a rough guess as follows:
Cost of four-year college (private school, ALL costs — not just tuition): $45k per year
Total cost for four years: $180k
We pay half of it: $90k
Granted, we could have gone a bit overboard on the $45k estimate. Not sure where I got it, but a combination of a few sources led me to a number that was close to it.
Of course, YMMV, but you can use the same logic (just start with a different number) for a school at any level/cost.
Phillip says
Glad to hear this incentive structure worked for your daughter. I’m planning to do something similar with my boy, who’s in 8th grade now. I shared with him that his college fund combined with “High School Activity” fund has roughly $130k in it now (all in index funds and growing). It’s in a separate account split between a 529 and a trust so he knows it’s HIS money. I told him if he graduates early, gets a scholarship, works, etc. he gets to keep any extra money. I also told him if he gets into trouble, that same money can be used for “reform school” or other pre-college educational programs if he falls off track. Regarding a car, when he gets of age, he can choose if he wants to spend trust money to buy a car (we must approve the exact car he want before it’s bought) to get to his activities or use our old car which will be 16 years old by then. Hopefully he understands the time value of money concept and uses our old car. He also gets other incentives to do good at school and maintain good habits.
My Early Retirement Journey says
Nothing i’ve read said you’d have to pay tax on giving your daughter the 40k at once. You may have to report it, but it’s well under the 5mil lifetime gift tax exclusion. No one else mentioned that! Also the link you provided is for irs.com not irs.gov
ESI says
I changed the text to refer to the site I linked to.
As i said on the rest, I just wanted to be safe, so no harm in how we did it.
Financial Samurai says
Great incentives and congratulations to her for graduating with so much money. What are your thoughts on homeschool and why did you guys homeschool? It seems so much more efficient if we can homeschool.
Do you think college is still necessary nowadays? I’m thinking in 17 years when my son goes, maybe not so much and best to save money.
It really is good she’s helping you with the business. This is my back up plan and maybe my primary plan once my son understands things better.
Sam
ESI says
There are so many reasons to homeschool, especially these days when so many are doing it and the once “how will they socialize” objections are no longer a factor (because there are so many homeschool activities you can plug into with other kids).
The main reason for us was that we wanted to be the ones pouring into our kids’ lives. We were sure a school system of any sort (public or private) could not have done what we did.
We could teach them things they would need for life but wouldn’t get in school — like how to manage money! 😉
It also gave us a lot of flexibility as a family. We could teach the subjects we wanted, when we wanted, and how we wanted. There’s so much downtime in a school day that you really only need 3-4 hours each day to teach the kids — the rest of the time is free.
We could also do our own field trips wherever we wanted. My wife often took the kids to museums/events during the weekday when most people were at work (just like being retired!)
It also made our vacations hassle free and cheaper. We went to Disney one year in September and there was NO ONE there because everyone was back in school. We also took a few cruises in January for the same reasons.
I don’t think college is necessary and to be honest, someone could probably create a two-year college that focused on practical skills and knowledge and the students would be much better off in the end than most 4-year colleges now. But don’t get me started on that.
We can talk more offline if you’re really interested, but my guess is that there are plenty of homeschool groups in the SF area. Something you might want to consider…
Ellie says
Only one thought comes to mind about homeschooling- my boys were all musicians and loved performing in school concerts and musicals- our music program is nationally recognized. I imagine the same issues might arise for some sports, etc
ESI says
My kids participated in drama (not concerts, though those were available) as well as sports in homeschool.
They weren’t nationally recognized, though.
Ali says
Do you or your daughter feel like only being at college for 3 semesters hindered her development of “life-long friendships” that one usually builds in that stage? I’m wondering about the building of a future network–and maybe that’s something that’s more important for grad school but just something that came to mind.
ESI says
It probably did hinder her developing deeper friendships, but no one can tell if it hindered “life-long” friendships.
As for a network, she has a pretty good one — mine. And as for me, I never relied on college or grad school friends for networking needs.
My greatest connections work-wise were after my career got started.
So in the end, she may have given up a bit, but is the time and cost of five extra semesters worth it?
Jeff says
What an awesome story! It gives me some great ideas on how to prepare for our 4yo’s life after high school. I love the incentives you put in place – brilliant.