The funny thing about having kids is that they usually arrive at financially inopportune times. Often parents find themselves in a delicate balancing act of growing their careers, paying their mortgages and buying the necessities that allow their children to have a comfortable and safe childhood. On top of that, parents want to start saving for their children’s college education all at the expense of taking money away from their retirement at an advantageous time to maximize long-term growth.
While “paying yourself first” is often the motto, the reality often puts money in other coffers.
How do parents ensure they can both build their retirement savings and their child’s college account simultaneously?
Savings Starts Early
For those entering the workforce, it’s advised to take advantage of any retirement savings accounts available as soon as possible. If your company offers a matching retirement percentage, try to get the maximum amount you can. This will start your retirement savings at the earliest moment to maximize the long-term savings potential and to take advantage of the additional free money a matching benefit provides.
If your employer does not offer a matching percentage or a retirement plan, find a financial planner to help get you into the right savings vehicles and with an appropriate asset allocation to maximize your retirement savings growth.
When it comes to children, the same rule of starting early applies.
The earlier you can begin putting money aside the better.
There are significant expenses that come with having kids, which makes saving a difficult task. Everything from diapers to daycare will rip into your budget. But even the smallest amount can help in the long-term, even if you can’t cover the full cost of college. Just like retirement, the earlier you invest, the more potential there is for growth.
The $100 Rule
Habits are hard to break and the good ones will mean greater retirement savings and more cash for college. Setting aside just $100/month for your child’s college will grow to over $21,000 over the course of eighteen years, even with no interest. To add to the pot, when family members ask for ideas for birthday or holiday gifts, college savings is a great answer. Many kids will want toys, naturally, but a combination of the latest action figure and $25 to add to the college account is a gift that you and your child will appreciate when it’s time to pay tuition.
If you have more children, try to save the same amount. If the budget doesn’t allow it then you can split up the same $100, or whatever amount you choose, into multiple accounts. If you’re worried about one child having more money saved than the other, remember that interest rates fluctuate and market conditions vary over the course of two decades. Don’t let the fear of jealousy one child might face down the line prevent you from saving the most amount you can.
See a Financial Planner
If you’ve never visited a financial planner, there is no better time than when your first child is born. Along with advising which types of investments and savings vehicles will help maximize your savings for both retirement and your child’s future, a trusted financial planner can help you figure out life insurance and disability needs – crucial coverage for parents with young children. A good financial planner should be able to assist parents on the best route and get the kids on a good financial path.
A financial planner will also help with asset allocation, ensuring that the investment in your child’s education stays on the right track such as allocating money to more conservative investments as they reach college-age.
Talk with Your Child
Talk to your child about the expectations of paying for a college education. Some parents will let their kids go wherever they choose while others may insist that they stay in-state. Regardless, college-bound children need to know where the finances stand early on so they can weigh their own options. Scholarships, loan forgiveness programs, starting off in community college, work/school expectations and other cost-savings options should help guide children toward the college education that maximizes the accumulated savings and their educational goals.
Talk with Your Family
Not every parent has the luxury of giving their children the gift of a college education. And that’s okay. But there are other members of the family who may be willing, even itching, to help. But due to a matter of pride from the parent or fear of overreaching from the grandparent, this untapped resource often goes unused. Grandparents often want to help out and may see providing a college education to their grandchildren as a legacy to leave behind.
Many grandparents want to help and will be eager to provide some assistance when asked. It doesn’t have to be a full ride to college but, remember, if you can begin investing a little with from the very beginning, it can grow considerably over the course of eighteen years.
Kids are not alone in covering their cost for college education and parents shouldn’t sacrifice their retirement savings. Whether a parent can afford it; or their child needs help via loans, grants, AP classes, scholarships or summer jobs, a parent shouldn’t feel obligated to pay for the entirety of their child’s education.
Parents who want to save what they can for their child’s education but have limited means may find the reality to be fewer vacations and weekend dates. When a child makes the transition from daycare and preschool to elementary school, parents can use the portion they’re used to doling out toward their futures and their child’s future. There are many options to help save for your child’s college education without neglecting your retirement account. Figuring out a budget and speaking with a financial planner are the first steps to ensuring both your and your child’s future.