Five Tips to Balance Saving: While saving for your kid’s education and retirement are important, it can be hard to prioritize them when trying to keep up with the cost of everyday living, get your finances in order, and pay down debt. Here are five critical places to focus your efforts and why they’re so helpful.
Get rid of your outstanding debt
Every cent put towards interest accrued by your debt is money that could’ve been put into retirement or college savings accounts. If you have any outstanding credit card or loan debt, make it a priority to get rid of it as quickly as possible. There are several ways to do it, but the best way will depend on your income, discipline, and goals. One tip we recommend is weighing the pros and cons of consolidating credit card debt as a way to get the ball rolling, as it’s one of the more popular methods of streamlining debt pay-off.
Utilize employer matching programs
If you work for an employer that offers 401k matching, then sign up for it as soon as you’re eligible. Employer match programs will contribute money toward your retirement accounts at a rate of 1:1 for every dollar you deposit. The amount each employer will match up to varies, so contact your HR or payroll department to find the maximum percentage and update your retirement contributions to hit at least that number. Not only is it “free” money that’s given without any extra work, but that contribution will go a long way to ensuring your retirement accounts have a healthy amount of money set aside when it’s time for you to retire.
Take advantage of 529 plans
529 plans are tax-free savings accounts that can be used for eligible education expenses. Depending on your state, you may also get an additional tax credit for your 529 contributions. In addition, family and other loved ones can also take advantage of this by contributing to your child’s 529 accounts on their own, which might be a great suggestion when it comes to what to get your kid for their birthday or graduation.
Focus on Roth IRAs
There are currently two types of IRA (Individual Retirement Accounts) available: traditional IRAs and Roth IRAs. Contributions made to Roth IRAs are made with after-tax dollars, whereas traditional IRAs are funded with pre-tax contributions, meaning that a traditional IRA is taxed as income when money is withdrawn. Roth IRAs are great for retirement accounts as you’ll pay tax on your income now instead of during retirement when cash is tighter, and they’ve got another advantage over traditional IRAs, too. With a Roth IRA, you can withdraw money for retirement or education, which gives you more options should you or your kid come up short for tuition, books, or other eligible expenses. The best part is that if your child doesn’t need any of that money, it’s automatically rolled over for your retirement, essentially letting you have the best of both worlds without tax penalties.
Let the scales tip occasionally
Above all, remember that contributions to both your retirement and child’s education will rarely be 50/50, so give yourself some grace should the scales tip one way or the other from time to time. As long as you make both an active priority in your financial goals, it won’t matter much if a few months are more dedicated to retirement or college savings.
The bottom line
In summary, if you want to lower the debt burden of being a parent, there are a few things you can do. If you put the right savings plans in place and work to pay down your pre-existing debt, you’ll be in a better position to give your kids the opportunities they deserve and still retire on time.