Savings Tips for Young Families
Investing for retirement isn’t always easy, especially when you have a young family and all the expenses that come with it. At this point in your life, being smart about how you balance your money priorities is more important than ever.
Downshift Your Savings During High Child-Care Years
Don’t completely stop depositing to your retirement accounts when your kids are young and your expenses are high. After all, tax rules limit how much you can invest each year, and once the year is past, you can’t go back and make up the deposits. If your budget is too stretched to cover child-care costs without running up credit card debt, try downshifting your savings to the minimum needed to collect your employer match. Be careful not to let the money you save as your kids get older and less expensive to care for creep back into your spending instead of your retirement accounts. As day-care and other costs decrease, allocate that money into your retirement accounts.
Don’t Let Your Mortgage Eat Up Your Retirement
You’ll be much less stressed about covering monthly expenses while also saving for retirement if you avoid spending more than 35 percent of your pay on your monthly home payments. If your rent or mortgage, real estate taxes, maintenance, and renovation set-asides account for more than one third of your gross salary, you’ll feel the pinch. If costs are higher than 35 percent now and moving isn’t an option, comb through your monthly expenses for places to save. Two of the best places to look for savings are the often surprisingly high costs of entertainment and dining out.
Enlist Your Family’s Help
It’s fun to buy gifts for children—so much fun that many families get carried away, and before they know it, their house is full of stuff, but their bank account is empty and their budget is crunched. Be candid with family and friends about gifts for you and your kids. It may seem awkward at first, but there’s no reason to hold on to a tradition of excessive buying that isn’t working. Most family members are anxious to help any way they can. If your extended family is spending money buying things you don’t really need and, meanwhile, you are suffering from high expenses that are keeping you from saving, then no one is getting ahead. Instead, open a college savings account for family members to contribute to, or suggest gift cards for groceries or other items that will help you clear space in your budget for savings.
Full Account
I enjoy seeing people’s reaction when I suggest that they revisit their holiday gift-giving traditions and start talking to their families about money. It’s especially fun in a group setting, such as a money management workshop. First I get a lot of surprised looks, and then one or two brave souls will speak up in agreement. Before long, the whole room is abuzz with stories about peer pressure they feel around gift-giving and the true meaning of family events, in which gifts take a distant backseat to family togetherness. It’s wild and exciting to see the consensus that generally forms around the notion that most people would rather reduce the gifts of “things” they get, in exchange for help building their nest eggs or their college funds. But it definitely can be hard—even scary or embarrassing—to be the first in your family to suggest to the rest of your family that gift-giving focus less on superfluous consumption and more on long-term financial health. I suggest you take the first step; send a family e-mail suggesting a change, and then marvel at how many relatives agree with you!
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