On Monday, I made a vague mention of being scared to “come clean” about something. You can probably guess from the title.

We send our children to private school. (Actually only the oldest as the 2-year old is too young.)

This may come as a surprise because I’ve been writing for years about how to save money. One way to NOT save money… pay for private school.

Why We Pay for Private School

The public schools in our town aren’t bad. They rank in the top 8, which is good… even for a small state like Rhode Island. Hmmm… that’s not a convincing reason to pay for private school.

I think my mother may think we’re crazy for paying for private school. Nope, that’s not a good reason either.

Third time’s a charm, right? Let’s go with this…

A lot of the value of having money is to be able to spend it on things that are important to you. (Some may even argue that’s the entire value of having money.) For us, our children’s education is one of the most important things. While some are adding $60,000 in Lexus debt this Christmas, we’ll invest in our children’s future.

However, that’s not the entire reason why we pay for private school. The other part requires a little more explanation.

We looked at all the private schools in the area and I think that 9 of 10 were highly religious. That seems to work for a lot of people, but I’m not a big fan of bundling education and faith. In the case of the religious schools, if you pick one with the best education, you get stuck with whatever religious views it has. If you pick a school based on the religious views, you get stuck with whatever the education-level is (which might not be the best).

The single secular school offered a significant military discount… much more than the other 9 schools. They had an open house and my wife and I decided to check it out.

To say we lost our poop was an understatement. When a PS-8 school has electives that I want to take (Robotics, 3D printing, Ted Talks), it’s something special. It feels like the teacher to student ratio is 3-to-1… yes more teachers than students. (It isn’t really that way, but it feels like it.) I could only quibble with them teaching French in the 3rd grade instead of Spanish, but I’ll let it go.

I could go on, but you get the idea. The school far surpassed our wildest dreams not to mention our expectations.

But What Does It Cost?

Different grades have different prices, but after the discount, it comes to around $11,000 a year. They have, PS, Pre-K, K, and grades 1-8, so 11 years total. Thanks to my old Trapper Keeper, I quickly estimate this will cost us $121,000 for each child. Some of it, like the preschool and pre-Kindergarten we’d be paying anyway, so it’s probably an even $100,000 more than public school.

To keep the numbers easy, we’ll say that it is roughly $1000 a month for each child. Technically it’s more because they don’t operate in the summer, but our baseline comparison, public schools also don’t. We’re going to be paying for summer camp either way.

Anyway you slice it, it isn’t cheap. However, with the discount, it fits our definition of having a very good value.

Financial Independence, Private School, and the 25x Rule

The real reason I wanted to write about this though, is to apply it financial independence. When your goal is financial independence, it makes sense to evaluate the impact of spending $22,000 a year vs. saving and investing it.

Personal finance experts tend to use a “Rule of 25” to determine financial independence. The idea is that if you spend $40,000 a year, you’ll need a nest egg of 25 times that, or a million dollars to be financially independent. It comes from some scientific paper that estimated that you can spend 4% of your nest egg and not draw it down for 30 years. (I cover some of this here.)

Paying for private school, or college, presents a bit of a pickle for that equation. We can’t calculate our current expenses and multiply them by 25. Private school expenses are temporary. They will cost around $250,000, but then it ends (or not… there is high school and college to consider). We don’t have to take $22,000 and do the 25x calculation and presume we have a nest egg of $550,000.

I see this kind of mistake most often when people calculate their annual spending and include their mortgage. If you are striving for financial independence, you are probably not going to have a housing payment (other than taxes and insurance) for the rest of your life. The exception would be if you want to rent forever it make sense to include it. Otherwise, just subtract the rest of the mortgage from your nest egg and use the other expenses as the basis for the 25x comparison.

So when I do our financial independence calculation, our expenses later in life will drop as our biggest expenses (housing and education) disappear. Our estimated expenses now are probably around $60,000 a year, but they’ll drop to around $30,000. Which number should we multiply by 25 to decide if we are financially independent? Do we need to have $1,500,000 or $750,000 to be able to say we are financially independent? I don’t think there’s a right answer.

“What if we just invested the money for the kids?”

As I was writing this, that tempting question kept on getting in my head. Imagine if we took the $11,000 and invested it. Let’s presume that it earns 4% so that we don’t have to deal with taxes and inflation. Let’s also presume that they take the money out in 65 years. That $11,000 would grow to $140,000. It would be a real $140,000 since we already accounted for inflation.

[Message to my kids when they read this when they are older: Sorry. Yeah, we could have made you millionaires eventually. Unfortunately, you’ll have to earn it. By they way, do you know how much dog poop I picked up in my dog sitting business so you could get that education? No pressure on using it or anything…]

There some proverb about giving a man a fish vs. teaching him to fish. I think that’s fitting here.

Once again, I’m not sure if there’s a right answer here. I could see people thinking that investing the cold, hard cash is the best answer.

We’ll never know what the road not taken may have presented. However, this feels like the right for us for now.