Growing a family can throw a wrench in your finances, no matter how well you budget. But planning for the future is a crucial part of protecting your loved ones and ensuring you can reach your goals. Here are three smart ways to begin planning for your finances and future, plus how you can start today.
Take Small Steps Toward Saving for a Down Payment
If one of your financial goals isn’t to save for a home, you might want to reconsider. Buying a home is often the best decision for couples and families who hope to one day live rent-free. That said, it’s not always a simple financial path toward homeownership. The first hurdle is coming up with a down payment.
It’s possible to purchase property without a down payment, such as by using a USDA or VA loan, if you qualify. But by putting at least five percent of the purchase price down, you may be eligible for a better rate. That means increased savings over the life of the loan—and a more manageable monthly payment.
Plus, as Bankrate highlights, the average down payment in 2019 was 12 percent. So, you don’t need 20 percent down to buy a home these days. What you do need is a plan—and a family budget—for putting away funds so that you can stop renting and start owning.
Invest in Your Retirement from Day One
Though you may have good intentions, neglecting your retirement account to pad your children’s college fund isn’t wise. Focus on your retirement first, and budget for college savings second. After all, your child could always take out student loans or receive grants for college expenses.
In contrast, you have no safety net if you skip diverting cash for retirement. Most Americans receive Social Security after retirement age, but in an ideal scenario, the maximum potential payment would equal $3,790. That said, not every worker waits until age 70 to claim their benefits, which is only one part of the equation when it comes to receiving the highest disbursement possible.
The good news is that it’s not too late to begin building a retirement fund, especially if you start now. Less than half of Americans start saving for retirement in their 20s, while the average age hovers around 31. There’s still time to begin contributing to a 401(k) or IRA, and both involve significant tax benefits.
Think About (And Beyond) College Funding
Most parents want their children to be able to attend college, and a financial boost is often helpful. But there is more than one way to pay for college, and not every path is right for every family.
The most common college savings option—a 529 plan—offers tax benefits if your child uses the funds for their education. They can choose to use the money elsewhere, but taxes will apply at that point. But you don’t have to have thousands of dollars in a savings account for college. NPR’s expert recommends that parents start small, if necessary, saving an amount each month automatically. Any balance you accrue will help your child pay for expenses—even if it’s for gas money to get to campus or the cost of their books.
If money is tight right now—or continues to be as your child grows—consider alternatives. For example, many students receive financial aid packages in the form of grants. As CNN explains, you can even “haggle” for a better financial aid offering from the college your child is admitted to. Private scholarships and work-study programs are also options that can ease the financial burden from parents’ shoulders.
It can be challenging to know what to plan for when growing your family. When it comes to finances, though, saving anything is better than not saving at all. Plus, increasing your savings now can help your family buy a home, give your kids an education, and allow you to enjoy a comfortable retirement when the time comes.
Blog contribtor: Emma G. Brown
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