While your child’s college tuition and your retirement savings might not be top of mind as the new school year begins, now is a great time to think about the progression of major milestones, including yours.
It’s natural to have mixed emotions about your child’s first day of kindergarten. You’re proud of their first steps toward independence, but concerned whether they’ll make friends, enjoy learning, or even want to go back on day two. The past five years flew by so quickly you can’t help but worry whether your little one is ready for the new environment. But, if you set up new routines to support the transition, it’s possible to help both of you feel less anxious about the future.
The same is true regarding finances. Consider establishing these new money habits now to help reduce concerns about your future finances.
Establish your savings priorities
Save early and often based on your savings priorities. It’s the surest way to have the funds you need when you need them.
Q: If you had an extra $200 to put toward savings each month, should you:
- A. Deposit the money in a separate account to cover emergencies?
- B. Increase or start regular contributions to a retirement savings plan?
- C. Save it for your child’s college education using a Coverdell Education Savings Account (ESA) or similar account?
A. Although hard to accept, your first financial priority is not your child’s college education. If you don’t already have six months of living expenses set aside, start today. Make sure you’re meeting your emergency fund and retirement planning savings goals first. If you’re able to help fund your child’s education, but then have to move in with them during retirement, that may not be the desired outcome for either of you.
Student loans and other debt may complicate your ability to save for the future. A hefty debt load can affect how quickly you can achieve financial goals. But, you can still build an emergency fund while reducing debt. However, it will require you to prioritize savings while still meeting other financial obligations.
Set a savings goal
It’s easy to delay retirement savings as a young parent. However, each year saving isn’t a priority is a missed opportunity on one of the easiest ways to grow savings – compound interest. The sooner you save, the faster your account balance can multiply without increasing the amount of your regular deposits.
Use a retirement planning calculator to help determine how much to set aside for retirement. It can help you set a goal that accounts for your expected lifestyle, Social Security benefits, and other income sources.
Choose the right savings tools
Select financial tools to make every dollar go further. You might begin by setting aside six months of living expenses in a savings account to earn interest on your deposits. This can help take some of the pressure off of building your account with limited funds.
Then, choose the right retirement option for you. If your employer offers a 401(k) match, that can be a great place to start. Also, consider scheduling regular deposits into an Individual Retirement Account (IRA). These accounts offer tax benefits to encourage saving for individuals under age 70 1/2.
Once your emergency savings and retirement contributions are in place, consider using a tax-advantaged account, such as a Coverdell Education Account (ESA), to set money aside for your child’s qualified educational expenses.
Deciding how to save for the future when your child is young can feel overwhelming. Especially now, as you hold their hand and walk them up to the school door. Take it one step at a time. Once you’ve prioritized savings goals, you’ll be in a better financial position to provide for your child’s education. Contact us at 888-547-6541 to learn more about the benefits of using The Bank of Missouri Individual Retirement Accounts (IRAs) and Coverdell Education Savings Accounts (ESAs). We look forward to helping you achieve these important financial goals.