Personal Finance

I have a 3-year-old daughter and am trying to decide if I should start saving for a house or college - which is better for our family?

Kristin Hitchcock

Published: October 28, 2024 12:03 pm

24/7 Wall St. Key Takeaways:

• Generally, saving for a house downpayment should be done before saving for college.
• That said, someone else’s priorities are not your own! It’s important to personalize someone else’s financial plan to fit your needs and wants. 
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

Young families have to make many decisions about what to save for and what to skip. After all, you can’t do everything. I recently came across one Reddit post that perfectly exemplifies this struggle. 

This user faced a common dilemma: Should they focus on saving for their children’s college or put more toward a down payment on a California home? Already on Baby Step 5 in Dave Ramsey’s financial journey, they’re debt-free, with an emergency fund and nearly 15% set aside for retirement. 

They have around $350,000 saved for a home, but housing costs in the area are sky-high. So, they need a lot more. 

Let’s break down Redditor’s situation and what I would recommend going forward. I’ve covered Dave Ramsey’s guide to building a million-dollar net worth, which you might want to review before diving into my opinions below. 

High housing costs and saving for rising college tuition are never easy, but I do think there is a simple solution here:

Dave Ramsey’s Order vs. Personal Priorities

It’s easy to get caught up on someone else’s set order. Dave Ramsey recommends saving up for a house downpayment as step 3, which is before saving for college. This little-known step is technically step “3b,” as it’s meant to come after saving an emergency fund. 

For families in places like California, it can take a long time to save up for a house. Therefore, 3b might take several years. However, most people’s financial security and goals benefit from having a stable home in an area where they want to live, especially since homes usually grow in worth. 

Based on those thoughts, here’s what I’d recommend.

1. Allocate Some for the House

Interest rates might stay quite high for some time. Building up a down payment can reduce future mortgage payments and match the user’s personal goals. 

2. Set Up a 529 Plan

Contributing small, regular amounts can provide tax benefits, and investing these funds over time can grow into a substantial amount by the time their children reach college.

3. Explore Alternative Education Options

Not all people go to college, especially with the rising boon in trade jobs. Community college is another solid option. Both would lower their children’s education costs. Even if the children wanted to go to a private college later on, starting at community college could allow the kids to graduate debt-free without as much money saved up. 

Long-Term Benefits of a Balanced Approach

It’s important not to get too caught up in exactly following someone else’s steps. However, in this case, I think Dave Ramsey is right. Don’t forget about step 3b, which places saving for a house before even saving for retirement. 

I think strictly pushing kids towards college is a poor decision in today’s world, though. Trade jobs are in high demand, for instance, and many states have great community colleges.