How to balance family savings priorities
With a little planning, you can save for short- and long-term goals.
Saving for yourself is hard enough, but when you save for a family, things can get complicated. You’ve got to weigh short-term opportunities and desires against long-term goals, and factor in those unexpected expenses that seem to pop up regularly.
This all may sound complicated, but it’s doable with a little planning. Thinking through how to prioritize those goals can help you come up with a plan that covers your family’s needs, while leaving room for saving and spending on vacations and other fun stuff.
First, establish an emergency fund
You never know what will happen: Your pet could get sick, you or a family member could have an accident, you could be laid off unexpectedly. That’s why it’s important to set aside money for emergencies. Experts recommend you tuck away at least three months’ worth of expenses in an emergency fund. If, however, you or your spouse are self-employed or income is unpredictable, you might want to consider saving even more.
“Students have access to a wide variety of loans, but there are no loans for their retiring parents.”
Next, consider long-term priorities
It may seem far away, but financial planners recommend that first among your long-term goals, prioritize saving for retirement, even ahead of saving for your kids’ college educations. Remember: Students have access to a wide variety of loans, but there are no loans for their retiring parents. Also keep in mind that federal financial aid formulas don’t factor in parents’ retirement savings. So consider contributing as much as you can to retirement funds, and take advantage of your full company match if your employer offers one.
Then save for your kids’ college tuition. According to the College Board, tuition at public universities has increased an average of 3.5 percent each year over the past decade, so it’s crucial to start saving as early as possible. Consider taking advantage of 529 plans, which allow contributions to grow federal income tax-deferred. You can then make tax-free withdrawals to pay for qualified higher education expenses such as tuition and room and board.
Now you can consider other long-term priorities, if your family has any. One common family priority is to care for aging parents. If this responsibility falls on you, think about ways you can reduce costs, such as sharing your home with your parents, in addition to saving.
Move on to short-term goals
Once you take care of your long-term priorities, you can move on to short-term goals. Start by making a list of goals for you and your family within the next five years. Your list might include things like vacations, new cars, home remodels and weddings.
You could open a savings account dedicated to each big-ticket item. Or see whether your bank allows you to open separate sub-accounts under your primary savings account. Doing this helps you focus on meeting each goal. Make weekly or monthly contributions after you take care of your long-term savings.
Get creative and stay flexible
If it feels like you’re not contributing as much as you’d like to your short-term goals, consider creative ways to beef up your savings. Hold a garage sale to sell clothing or items you no longer use. Start a change jar and toss in the change you get from your daily spending. If you’re planning a vacation, prepare your own food for the month or two before you leave instead of eating out, and then use what you save for travel expenses. If you’re planning for a new car, continue making monthly payments to yourself even after you’ve paid off the car you own. Direct the money into its own account and give yourself a jump start on the down payment.
You never know what might happen or what new savings goals might arise. Planning for the long term and saving for the short term ensures you’re prepared for whatever comes your way.