What is your projected ROE?
The most common question people ask (whether they realize it or not) when making an investment decision is, “What is my expected return?” The well-known acronym is ROI, which stands for return on investment. The idea is intuitive and simple; before making any investment decision you want to know what results can be expected so that you can compare alternatives and choose what you feel is the best investment for your desired result.
Today, one of the biggest investments for a parent is college education. When we do financial planning, education savings is almost always stated as a primary goal by parents. Interestingly, the focus is generally on saving for 4 years of college. What is rarely, if ever, brought up is the idea of ROE – return on education. The default assumption is that the key to educational success, or at least the foundation of it, is a 4 year degree. While that assumption may have been valid in the past, times have changed, and with the cost of education skyrocketing, many parents find themselves trapped by this traditional path. To help provide some freedom from this trap, instead of simply focusing on 4 costly years away at some school (which may still be the outcome), starting with the end in mind, or the projected ROE, can produce a better result.
Decisions on education are complicated to say the least, but thinking ahead can better help our kids find, develop, and pursue their calling without breaking the bank. Just throwing money at an education decision does not provide a guarantee; in fact, it can be like buying a lottery ticket simply hoping for the best. Investing education money for a specific purpose will likely have a much greater ROE.