Parents know that it can be hard to say no to spending on children. And expenses such as college tuition certainly may be a priority in the short term.
But parents shouldn’t sacrifice their financial futures for their children, says Tracy Green, a Wells Fargo Advisors Planning and Life Events Specialist. Beyond that, the decisions you make now can help shape how your kids will manage money as adults.
Here, Green shares the five strategies parents should consider to help balance spending on their children with saving for the future—while teaching kids how to take care of themselves.
1. Create and maintain an emergency fund
“This should be at the top of the list,” Green says. An emergency fund can keep you on track financially should you face surprise expenses, whether for a home repair or medical treatment—or a job loss.
A widely accepted rule of thumb is to have an emergency fund that can cover three to six months of living expenses. However, Green recommends assessing your sources of income, monthly expenses, and how stable your job is to determine how much you should set aside.
2. Stick to your retirement savings plan
Green urges parents to start saving for retirement as early as possible and stick to it, even when faced with expenses such as paying a child’s college tuition. “Parents should continue to pay themselves first even if it is a temporarily reduced rate,” she says.
If your employer matches your retirement savings, make sure you contribute at least the amount needed to maximize matching dollars since that is essentially free money coming your way and then increase savings as soon as you are able, Green says.
3. Be realistic about college costs
Education is valuable—and expensive. As your child considers colleges, Green suggests having a realistic discussion about how much you can afford to contribute.
“Decide whether or not you will be able to pay for all of it or if they will be responsible for a portion,” she says. “Maybe you agree to pay a set dollar amount and he or she would have to pay for any additional funds needed. But make sure you do not sabotage your retirement to send your child to his or her dream school that you really can’t afford.”
Green notes that loans, part-time jobs, and scholarships are available to help students pay for college. Also, make sure you consider tax-friendly college accounts like 529 savings plans.
4. Teach the difference between needs and wants
Whether it’s something for yourself or something for your children, Green says it’s critical that parents always evaluate their needs versus their wants—and teach their children to do the same thing.
“They may want a cell phone and you know it’s needed so you’re able to get in touch with them,” Green says. To highlight evaluating the need vs. the want, she says, you can cover the cost of a basic phone instead of splurging for the latest and greatest model.
5. Seek to create self-sufficiency
As older children start careers, parents often help out with unexpected expenses or the occasional bill. That’s okay, Green says, but don’t allow your children to continuously rely on that help especially if it starts to impact your own retirement goals.
“By limiting your assistance, you’re helping them learn to live within their means,” she says. “This can help them take responsibility for their own situation and hopefully develop their own sound financial skills.”