Guest post by Andrea Travillian
As parents we want the best for our kids. We want to give them what we did not have growing up, set them up for success and basically give them the world. Including letting them go to the best college they can get into. It’s just part of being a parent that you want the best for them.
Yet when we give too much and do not focus on the right things we end up not only hurting our kids, but ourselves.
How can we be hurting our kids by giving them all we can? When we don’t prioritize our savings and financial health over the things we think our children need we are not setting a good example on how to manage money. Additionally when not taking care of our finances we hamper our ability to help them with extra money when they actually reach college.
How are we hurting ourselves? By making sure that our kids have all the money and resources they need, we forget to take care of our own finances. We end up with not enough money to retire, too much debt to manage and limited options to achieve our financial goals.
When it comes to saving for your child’s education you want to make sure you are doing things in the proper order to ensure that you and your kids are taken care of. Following is the order that best takes care of you so that you can take care of your kids.
Live On Less than You Make
This is the number one most important thing you need to do with your money, even if you are not planning on paying for your child’s college tuition. If you are not spending less than you make then you are creating debt continually. When you constantly create debt it becomes harder and harder to live on less, because those credit card payments keep getting bigger. Eventually the equation ends in bankruptcy. So before you can do any type of saving you need to make sure you are not spending everything that you have. It is not possible to be financially stable without this happening.
Clear up Credit Card Debt
Debt eats up your cash that you should be using to save money. By reducing debt you can redirect those funds to begin investing. I mainly point out credit card debt as this is one of the most detrimental types of debt. This is because it is typically a sign that we are overspending on things we cannot pay for today! Plus the rates are typically really bad, and they do not make sense to carry a balance. When you have learned to live on a budget and can pay your credit card every month in full, then it is not a drain.
Once you have eliminated the credit card debt, then you can begin to tackle car debt, and all the other debts. Look at debt as a monster eating your investing money. If you eliminate the monster, finding the money to achieve your goals becomes easier.
Save for Retirement
The most important part of saving for retirement is to start and start as early as you can. You may be thinking that you will begin saving after the kids are gone, but you will have to save much more money if you start later than if you had started to save early. Plus, kids can always borrow, get scholarships or work their way through college, you cannot do that same with retirement. No one is going to loan you money to retire, it would be a bad loan.
Save for College
Once you have cleaned up your expenses, reduced debt and started your retirement savings you can now begin to save for your child’s education! This is the right time to put aside money for your kids to use in college, anything before this will put a damper on your ability to lead a financially healthy life.
Work the Steps at the Same Time?
Can you do all this at one time: save for retirement, pay off debt and save for college? Well that all depends on your budget and extra cash.
If you only have $30 extra a month then it does not make sense to put $10 on debt, $10 in retirement and $10 in college savings. Instead it is better to work on reducing the debt. Remember that eliminating the debt creates more cash that you can then either put towards savings or even paying cash for college. If you have $600 extra a month, then it might make sense to do debt and retirement at the same time, because you can make progress on each with $300 a month. Take the time to create a budget and a plan that works for you and your money.
Ultimately the thing you have to do the entire time is spend less than you make. I would recommend doing both the retirement and debt payment at the same time, and add college to the mix only when you have eliminated the debt.
Remember by cleaning up your finances now you have placed yourself in a position to teach your kids about money management today, help them later in life by having extra cash and to not be a hindrance on your kids later in life when you don’t have retirement money. It turns into a win-win for all when you put your finances first.
Andrea Travillian has her MBA and BBA in finance and works to help people understand their money and how to achieve more with it! Andrea is the author of “Healthy Money Healthy You” and “Little Kids Big Money: Tools for Kid Friendly Finance”. For additional information on personal finance and investing visit Andrea’s Site http://www.takeasmartstep.com