Give Them Education...or Retirement | Series 5.6 - Enjoy More 30s: Family Finance

Episode 6

Give Them Education...or Retirement | Series 5.6

Published on: 18th October, 2021

Help fund your kid's retirement?! May sound crazy but hear me out.

  • ...what I found in being an advisor is that most people want to kind of replicate whatever their parents did for them. Whether that be you know, some loans or paying 100% of the school costs...(04:13)
  • The other option though, that can be incorporated, is retirement instead or in conjunction to this traditional college focus. (04:27)
  • ...would you rather have in this example, the $65,000 pay off all of these college loans or that $65,000 give them one and a half million dollars when they're about to retire, of tax free money? (07:34)

Quote for the episode. "...if I can teach them about money through some student loans, and also free them up to be able to enjoy more time with family and make more memories with their kids...that's a win/win." (10:45)

Securities offered through TFS Securities, Inc., and Advisory Services through TFS Advisory Services, an SEC Registered Investment Advisor Member FINRA/SIPC. TFS Securities, Inc., is located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.

Transcript
Voiceover Audio:

Welcome to the EnjoyMore30s Family Finance

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podcast, the only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

Joseph Okaly:

Hello and welcome once again to the EnjoyMore30s

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Family Finance podcast. So every week, I am here talking to you

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about money so you can take some steps forward, gain that

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confidence and just remove that financial anxiety. That's what

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we're trying to do to allow you to focus solely on making your

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life more enjoyable. This series as you know, by now, all about

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the kids, the Your Kids Money Mindset series, and we're going

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to continue doing that for you here today. As parents, we want

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obviously to help out our kids. That's that's a no brainer. We

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all know that's true. But it seems we're programmed as

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parents to feel this obligation many times to help pay for

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college. Everybody's doing it. If we're not giving that to our

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kids to then it's almost like we're bad parents sometimes. But

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what if we looked at something else? What if we helped them pay

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for an even bigger future expense instead?

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Now as always, if you like what you're hearing, please make sure

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to subscribe or follow us on whatever podcast app you listen

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to, wherever you go. Clicking that star, leaving the review,

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it really, really helps us out. We want to reach millions, all

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the millions of other young families out there just like

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you.

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Now last week, if you remember, we discussed all savings for

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your kids through life insurance policies, the so called kind of

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Gerber policies, and dug into why in my opinion, if you're

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trying to save if the goal, the primary driver is 'I want to

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save for my kids', then you almost certainly don't want to

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be going about doing that through that life insurance

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policy. So if you haven't checked out that episode yet,

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definitely do that soon.

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Now, for today's episode, it's titled Give Them Education...or

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Retirement, which is a really odd title, probably you haven't

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heard it put that way before. But we're going to cover

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something like I said, it might initially sound crazy, but it's

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really an intriguing way of looking at it. It's an

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intriguing idea that may be more attractive than you could

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realize. The goal for today's episode is to help you

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understand that you do have choices for how you choose to

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help your children. We know you want to help, I'm going to just

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go ahead and assume you want to help your children. So let's

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make sure you know all the options that are at your

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disposal.

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When I went to college, I knew absolutely nothing when it came

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to money. Zero. And had very little appreciation for money. I

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was 18 years old. I mean, what did you really expect? If you

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think back to when you were 18 years old, I would guess you're

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probably in a similar boat. You know, I knew working in high

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school that you know, it was hard and I valued the money that

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I earned. But you know, everybody goes to college,

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right? I hear everybody takes out loans, right? So, you know,

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part of me was like, who really cares, this is normal, taking

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out a bunch of loans is normal, and the value and the amounts

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that added up, they don't really resonate with you at that point

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in your life. I was offered a full ride to Montclair

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University. So they were like "here, take $100,000 for free",

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which I obviously being the intelligent 18 year old that I

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was passed up to go to TCNJ and pay money and take out loans.

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Now I did meet my wife, Lauren at TCNJ so I have to say,

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obviously it was 100% worth it. But from a financial standpoint,

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that was like, you know, crazy, stupid. So 18 year olds going to

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college are for the most part, not financially intelligent, at

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least what I've come across, in my opinion. The loans that I had

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after college, they were in some ways a blessing to me. They

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taught me that, 'hey, this is what 10s of 1000s of dollars of

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debt looks like', right? This is what it is. This is what having

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to pay back loans looks like. This is basically you know what

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being responsible, this is being an adult, this is what this

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looks like. And what I found in being an advisor is that most

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people want to kind of replicate whatever their parents did for

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them. Whether that be you know, some loans or paying 100% of the

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school costs for the kids so they don't have that hanging

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over their head.

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The other option though, that can be incorporated, which is

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this crazy idea, right? Is retirement instead or in

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conjunction to this traditional college focus. So with paying

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for college, you're trying to get them ready for that race to

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come, right? Yeah, we want to get all this off of them. Do the

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training, the conditioning, the endurance, so that when they get

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out of school, they have less over their heads, less weight on

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their shoulders, and boom, they're just ready to go.

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Thinking about retirement instead though is kind of like

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just saying, instead of trying to only focus on the

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conditioning, the endurance, the training, all that kind of

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stuff, why don't I just try to make the race a little bit

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shorter, and then they don't need as much maybe. So it's a

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different way of approaching it. So here's kind of how it works.

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And like anything, it doesn't have to be all or nothing, you

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don't have to only save for college or only save for

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retirement. But these are just all your options so that you

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know what you have to choose from, at least when you mix them

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together, and whatever proportion makes sense for you.

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So let's say that you save $150 a month for your kids to go to

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college. So 18 years worth when they're 18 years old, if we

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assume a 7% return, you end up with around $65,000. And if you

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use this for college in the more traditional way, then this is

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all gone. Right? And for simplicity sake, just for the

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sake of this explanation, let's say they went to maybe a

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community college or in state or whatever combination, but you

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know, $65,000 was the perfect amount, it covered the whole

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entire bill. So certainly not a bad setup for them then, right?

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Here's where it gets fun, though. So let's say instead,

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let's say that they took out loans for the full amount, which

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for those who had some school loans and valued that lesson,

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that might be a goal anyway, like for me and my kids. I kind

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of want them to have some degree of loans, because I did and I

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feel like that really did teach me a good lesson of how what

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debt looks like. And this is what your choices look like

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later on down the road. So what if instead now so we still have

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this $65,000. And we instead give it to them in something

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like a Roth IRA into contributions over the next 10

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to 12 years, whatever it might be. So every year we put money

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out of this pool that we created for them we're putting into this

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Roth IRA. Over 11 years with the $6,000 a year limit, we put all

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$65,000 into the Roth for them. Alright, so now when they're 65,

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and they're ready to retire, what did you give them instead

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now, assuming that same 7%. So I can either give them $65,000 for

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college, or I give them $65,000 for retirement. That $65,000 at

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age 65 now, when your kid is ready to retire, is worth

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roughly one and a half million dollars at that 7%. And oh wait,

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if we use a Roth IRA, it's completely tax free. You saving

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$150 a month for 18 years was one and a half million of tax

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free money for them at age 65 for retirement. I mean, how huge

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is that? So when we compare, would you rather have in this

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example, the $65,000 pay off all of these college loans? Or that

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$65,000 give them one and a half million dollars when they're

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about to retire of tax free money? You know, what would be

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your what would be your choice? And I'm not saying there's a

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wrong choice or a right choice. But you could see that there's

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definitely at least a choice, there's something to think

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about, there's something to pause and say, 'Hmm, maybe I

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want to evaluate this option over here a little bit, at

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least'. Now a completely fair comment is that this is a really

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long payoff, right? This is a long term gift. I'm starting now

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and they're not getting that for a long, long time. And it may

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feel difficult to give for such a long time pay off into the

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future. And again, that's completely fair. I get that. At

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the same time, you're actually giving them something in the

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present, if you share that this strategy is in existence, is an

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application for them today. 'You need to pay off your school

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loans over the next 10 years' most likely true, you know,

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'that's the deal, Johnny'. But when you have your own family,

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and trips to Disney, and all that other stuff living in the

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present that you want to do, I'm giving you the freedom to go do

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that. Because you already know that a huge chunk of your long

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term retirement goals are now off your shoulders. You don't

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have to have that weight on you. I'm giving you freedom of the

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present moment.

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I'm not actually giving you money at this point in time I'm

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putting it away for your long term future but what I'm giving

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you in the present is the freedom to go and live with your

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family. So you are giving them something if you phrase it like

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that. Just like when I was going to college and didn't value the

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free ride, your kids likely when they get out of school and you

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tell them to save early, they probably won't get that either.

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They're probably say, 'Well, you know, I really want that new

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car' or 'Well, no, I really want to move out of mom and dad's

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house and into an apartment where I can have some fun'.

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Saving early probably won't hit them. Just like taking out loans

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didn't hit me when I was 18 years old. When you start

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working as a full time job, it feels like a huge paycheck. It

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might be something that's relatively low, you wouldn't say

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oh wow, that's a huge amount of money. But when you go from

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making nothing at all to like $40,000 a year, whatever it

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might be, it feels huge. And your first thought isn't, you

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know, okay, now I get to save for my long term future. That's

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why we get and you probably have heard many people say, maybe

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even yourself saying, 'If I only started when I was young',

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you're taking that off of them now. Remember, they can take out

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loans for college, that is definitely 100% a thing, but no

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one will give you a loan to get through your retirement. That's

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true for you and it's true for them, too.

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So remember the goal for today. Do you have to do this at all?

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No, of course not. You don't have to do any of this. If I'm

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being honest, I'm still planning on helping my kids to some

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degree for college. But I also plan on helping fund some of

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their long term needs like retirement, because I can get a

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lot lot more time for it to grow, and therefore a lot lot

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more bang for my buck. Personally, if I can teach them

Joseph Okaly:

about money through some student loans, and also free them up to

Joseph Okaly:

be able to enjoy more time with family and make more memories

Joseph Okaly:

with their kids because those long term burdens aren't on

Joseph Okaly:

their shoulders. I don't want them to feel pressure, oh, I

Joseph Okaly:

have to work excessive hours, to give my kids a good life and

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then deprive them of what kids tend to want more than anything

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anyway, which is just you and your presence. Then to me,

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that's a win/win. But as always, it is what you want to

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accomplish. So again, that's the goal for today not to do this

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strategy, but to know all your options and the angles and the

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positives and the negatives, so you're more confident in

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whatever one you choose.

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Overall, thanks so much for tuning in today. I always love

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connecting with you. Join us here again next week for the

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episode that we're calling You Want a Trust? Do You Know Why?

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Where we're going to cover some basics of these things called

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trusts. You've likely heard of them about you know, here and

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there on TV otherwise, they may seem very advanced and

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beneficial and for the very wealthy, but may likely be

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something that you don't actually need. You might not

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actually have to worry about these things called trust. So

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we'll give you more background, more education on that so you

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know whether or not it's even something you should be looking

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into more.

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Overall, if you are able to implement what we covered today.

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Fantastic. You have less to worry about than before, you can

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focus more on enjoying life. That's what I want to help you

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do. If you're wanting help with any of these things, though, if

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you have questions you need help in clarifying, check out the Ask

Joseph Okaly:

Joe section on the show's website www.EnjoyMore30s.com.

Joseph Okaly:

That's EnjoyMore30s.com. Until next week thanks for joining me

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today and I look forward to connecting with you again soon.

Voiceover Audio:

The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax, or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer, or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

Voiceover Audio:

of TFS Securities, Inc., and TFS Advisory Services an SEC

Voiceover Audio:

Registered Investment Advisor Member FINRA/SIPC.

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About the Podcast

Enjoy More 30s: Family Finance
Family Finance for Young Professionals.
Young families receive little to no personal finance help. We all grow up to have jobs and money, yet our education system focuses on Shakespeare and Algebra. Even professional advice can be hard to come by, with the majority of the industry chasing retirees and existing wealth.

Joe Okaly's podcast is aiming to change this, providing personal financial advice geared specifically to professionals with young families. This podcast is dedicated to making life more enjoyable for young families, by hitting on the financial topics that tend to weigh on us, stress us out, and distract our focus from simply enjoying life.

Joseph P Okaly is a CFP Certified Financial Advisor who fits directly in with who this podcast is focused on - a young professional with a family. With over a decade of experience as an advisor, there is passion and knowledge to make a difference.

Securities offered through TFS Securities, Inc., Advisory Services through TFS Advisory Services, a SEC Registered Investment Advisor Member FINRA / SIPC. TFS Securities, Inc. located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.