The first thing you as a parent need to consider when determining what to save for when it comes to your children is what you are financially able to do. Everyone has a different financial position and needs to evaluate which milestones they want to save for. When it comes to saving for children, there are some things you should save for, such as an emergency fund; things it would be nice to save for, such as college or extracurriculars; and things where you're being really generous such as a down payment on a house. Regarding the really generous items, you need to weigh what you're sacrificing in terms of your own happiness. Giving your kids whatever they need to be successful in life is nice, but the end goal is for them to be able to provide for themselves.
Emergency Fund
An emergency fund is one of the most significant savings goals for parents or anyone in general. Many unexpected costs can arise with children, from medical bills to school trips and everything in between. Having money set aside specifically for emergencies for a family with kids ensures you can respond effectively and quickly to any situation. Creating an emergency fund isn't just about having peace of mind; it's also about helping your family feel secure should something arise. It might seem overwhelming initially, but setting aside even small amounts each month can add up over time and help you be prepared for the unexpected. To start building an emergency fund, consider establishing automatic transfers from your checking account to a dedicated savings account; this will help you save without having to think about it. Most financial advisors will recommend having an emergency fund covering at least three months' expenses. You may need more depending on how in demand your job skills are in the current job market. Your emergency fund needs to be easily accessible, so you'll want it in a high-interest savings account or a money market. The money in your emergency fund isn't going to grow fast, so you'll want to put any access funds in an investment vehicle with a higher rate of return.
College
College is one of the most common items parents think about when saving for their children's future. After all, it is a significant financial burden for many families and can seem daunting to tackle. Fortunately, it does not have to be intimidating. With the proper guidance and resources, parents can help ensure their children get the best education possible without breaking the bank. For starters, you should begin saving as early as possible to give your child's education fund time to grow. Consider opening a 529 plan or other college savings account that allows you to deposit money on behalf of your child and benefit from tax advantages when it comes time to withdraw funds for tuition payments or other educational expenses. Most 529 plans allow you to generate a gift link you can send to others so that they can also contribute to the account. This comes in handy for birthdays and Christmas because we all know our children have way too many toys. Additionally, take advantage of helpful resources like scholarship searches and loan options to know what kind of aid may be available down the road.
Weddings
Traditionally, parents pay for the majority of the cost of a wedding. The bride's family pays for the cost of the wedding itself, and the groom's parents pay for the rehearsal dinner. Who pays for the modern wedding isn't set in stone, but somebody will need to pay, so saving early would be a good idea. Weddings have become a massive industry in the United States. They are seen as a once-in-a-lifetime event, and the average household spends around $30,000 on a wedding. There are plenty of ways to cut down on the cost of weddings, such as keeping the guest list small, choosing an affordable venue, or having the wedding at an untraditional time, like during the winter or on a Sunday. However, if you start saving early, you can avoid some of those cost-cutting decisions.
House Downpayment
The most generous item on this list you might want to save for as a parent is a downpayment on your child's future home. A downpayment on the house typically costs between 5-20% of the total home purchase price. Additionally, closing costs generally range from 2-5% of the purchase price and include title insurance fees and loan origination charges, among other expenses. The downpayment on a home is a significant hurdle on the path to homeownership and can potentially force your child into renting. Renting isn't a bad option considering all the maintenance that goes into a home, but it's nice to have homeownership as a viable option. The big question here is should you help your child purchase their first home? That's a personal decision you'll have to make depending on how generous you'd like to be and if you're financially able to assist. If you decide to contribute to your child's first home, consider transferring money into an account in your child's name over several years because each person is allowed to gift $16,000 per year to another person tax-free at the time of this writing.
As parents, we want to give our children the best possible life. Keep in mind that our goal should be to raise our children to be able to provide for themselves. With that being said, a little help doesn't hurt. When planning out a savings strategy, it is important to remember that small contributions add up over time. When you're determining how to allocate funds for savings, prioritize the most important items first. Establishing an emergency fund should be at the top of the list so your family will have enough resources in case of an unexpected expense or situation. What's next is up to you, but I'm sure your children will be grateful for any assistance you choose to provide.
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