Now that you’re done spending money on clothing, food, child care – and don’t forget the biggest expense, education – it’s time to focus on your own financial needs. After all, the average cost of raising a child today in middle-class America is nearly $250,000, excluding college tuition expenses. These types of numbers leave many couples in “catch up” mode when it comes to their savings and retirement planning.
The first step, as we all know, is creating a plan. You can’t make any headway towards debt and savings goals without a clear, executable strategy. Three big keys are: concentrate on building up your investments, boost your credit, and reevaluate your real estate needs. This is a major inflection point in your life, and thus an ideal time to consider all these topics.
Regarding your savings, your cash flow is (hopefully) growing, or at least turning positive. Because you have a limited amount of time to get things in order, taking action in the areas mentioned above should be done as soon as possible, especially if any emergency funds have been drained. More parents tend to undersave and overspend while their children are still living under their roof. Here are some questions to ask yourself:
- Do we have enough cash to make it through the next economic contraction or bear market?
- Is our credit card debt manageable?
- Are the balances in our 401(k) and IRA accounts where they need to be?
- Is our house “too much” for us without the children?
- Do they kids still need insurance?
Now that some of your larger expenses have come and gone, there must be a mental shift from “paying the bills” to “creating a better future”. You will need to monitor your assets more closely now, and extra money should be going more towards retirement accounts and less towards material things. There is good news for those who may be a little behind, as the IRS has increased contribution limits in 2019 for 401(k) and IRA accounts.
However, one key to keeping your nest empty is taking the time to educate your children on the importance of personal finance. This is a very important step in creating and maintaining a “moat” around your new-found savings. The more educated your children are on the basics of day-to-day money management, the less likely they are to need your assistance in the immediate future. These are great opportunities to preach to them about not living beyond their means, sticking to a budget, saving a little each month, and the consequences of debt.
There are a few important things than can be tackled that will allow you to get off on the right foot towards rebuilding your retirement savings. The key is to capitalize on the new-found opportunities to do so. And one of those, in this moment, is a focus on your future, not your child’s future. Of course you should give them the tools to financially fend for themselves, but going forward the main goal is retirement for you and your spouse.