As a parent, I want what’s best for my kids. Most parents feel the same, I’m sure. In some cases, that leads to putting their needs before my own. However, when it comes to our financial future, you should think about putting your needs ahead of everyone else’s. Yes, even ahead of your children. Sure, it would be great to be able to pay the entire cost of my children’s college education. (And it’s something I plan to do, assuming I’m able when the time comes.) However, it can’t be at the expense of my retirement. Let me explain.
Take Care of Yourself First
One of the best things you can do for your finances, and the finances of others, is to take care of yourself first. If you sacrifice your retirement so that your child can go to college, or go on a trip around the world, you might find yourself in trouble down the road. I’d like to think that my kids would take care of me if things went bad once they are adults. However, I know that I ultimately need to make myself the first line of defense for my own financial future.
The biggest factor is this simple fact: students can get loans for their education. On the other hand, you can’t get a loan to retire. With no regular income and being in your twilight years, your ability to pay back a loan is limited. Lenders won’t even give you the time of day. While there are products like reverse mortgages, you only get a small amount of the home’s worth in exchange for being able to live out your years in your current residence. Plus, you still have to pay for all the upkeep and maintenance of the house while you are living there.
If you want to be ready for a better financial future, you need to take charge now. Put your own finances first. It’s not selfish, we promise. Get your own finances in order, reduce bad debts, and make sure you are contributing enough for retirement. Then, and only then, should you focus on helping your children pay for school.
Put Yourself in a Position to Help Others
One of the great things about taking care of your own financial future first is that you can put yourself in a position to help others. If you want to provide financial support for others, you need to be in a good place yourself. Think of how much more you could do if your financial future is secure. You could volunteer more, or even give more money away, if that’s what you want to do. Taking care of your own financial future isn’t just about selfishly trying to take care of your own needs.
Over the years, I’ve learned that I need to take care of myself first. Even though there are times where my kids were my highest priority, sometimes I still needed to make an effort to spend some quality time for myself. Taking care of myself emotionally makes me a better person overall. It doesn’t hurt that my kids know that sometimes daddy isn’t available to cater to their every whim.
The same is true of your finances. As you consider how to help others, you should think about where you are at with your own finances. Shore up your situation first and do what you can to prepare for the future. Once that is taken care of, you will be better able to help anyone who might need it.
Retirement Takes Priority
Secure your retirement, even if that means your kids will have to take out student loans to finish college. If you end up financially stable you can always help them pay off those loans down the road. In fact, the interest rates on some student loans are offered at such low rates, it may make sense financially. If you can get between 5-and-10% returns on your retirement investments, but your kids are only playing 3.9% interest on their student loans, the math works in your favor.
The beauty of this is that your kids will have hopefully already made a few payments on their own by the time you are able to help out. Now they know the weight of being in debt and having to slice a portion of every paycheck towards paying off what they owe. It’s a good lesson to learn.
Now imagine handling the situation the other way around. You spend all your money on your kid’s education — losing out on years of compound growth on your savings. Sure, your children will graduate college debt free. They will probably even have solid jobs to support themselves. What about you, though? Will you ever be able to retire? Those are heavy questions (with no solid answers) for someone in their 50s or 60s.
Will you ask your children to financially support you in your old age? How do you think your children will feel about that? Think about it for a second. How will your children react if you instead asked them to take out student loans, only to help them pay it off later because you decided to save for your retirement first? Which scenario is better?
You Might Not Be Able to Do Both
Without a financial plan, you likely wont find yourself in a good position. That creates a big chance that you will end up over-extending yourself. You never want to need financial assistance because you mistakenly helped others out too much early on in your life. Get your own finances in order, and then worry about others. You’ll be more secure, and be in a better position to help others in the long run.
Here’s a quick checklist of what you should do before you help your kids out financially.
- Don’t ever raid your emergency fund to help others.
- Have a plan to comfortably become debt free one day. Having a paid off home would be even better.
- Check your retirement contributions. Up the percentages if your retirement projections are a bit low.
- Don’t forget all the retirement vehicles available to you. For most people, that would be a 401(k) plus a Roth IRA.
- Taxable accounts are always good, but only if your retirement accounts are well funded.
The Bottom Line
Many parents think it’s their duty to provide for their children. And yes, in many ways, that is true. At the end of the day, though, money comes secondary to the emotional support you can provide for your child. The last thing you want is to become a burden to your children as you get older. By shoring up your finances, you are effectively taking a huge weight off your kids’ shoulders. That should be priority number one.
Here’s the simple truth. A 19-year-old kid has an entire lifetime to pay back their student loans. A 45 to 50-year-old parent hopes to retire within a decade or two. Time is on the child’s side, but not necessarily the parent’s. Sure, help your kids with education expenses if you can — just not as the expense of your own retirement.