Saving for Our Children

One of the most common financial goals with which clients seek our planning assistance is to provide a better future for their children. It’s understandable considering that many of our clients are first-generation affluent. They are the first in their families to earn multiple six or seven figures, and they understand how detrimental financial struggles early in life are.?

Many clients come to us with the following mindsets/goals:

I want to give my kids the best education possible, even if it costs $30,000/year/child.

I want to hand each of them a paid-off rental property when they graduate college.

I want to hire my kids in my business and set up a custodial Roth IRA so they can become millionaires!

All of these are beautiful sentiments and strategies you can implement to build wealth early for your kids. However, the problem with implementing even a single one of these is that doing so would put these goals before your own financial stability.?

Trying to make your kids wealthy before you are is putting the proverbial cart before the horse. It's setting them up for a life of financially worrying about you and potentially having to support you.?

Here is what you need to do before putting a single cent toward the kids:

Pay off high-interest debt - ?If you have revolving credit card debt or personal loans, you likely need to focus on that and your own retirement investing. Compounding interest is important. You may receive a state tax break on your 529 contributions, but it likely won't eclipse the high amount of interest you pay on your debt. Get high-interest debt-free first, then revisit putting money away for the kids.?

Figure out your retirement investing plan - If you have no idea how much you are putting away for retirement or how much you need to put away in order to retire well, then you absolutely need to hold off saving and investing for the kids.?

Retirement investing is the non-negotiable foundation for any sound financial plan. It is something that we should all be doing throughout our entire careers (even if you can only manage 3% or 5%). If you are not putting much away now due to other financial priorities, that's fine. However, you need to know how much you should put away, create a plan to increase that % contribution over time, and have a multi-year plan to know when you'll be able to invest for retirement and put something away for the kids.?

Consider the type of support - There are a lot of strategies on social media geared toward saving for our children. If you are not careful, you may end up implementing an investment plan that doesn’t align with your true support goals.?

Take some time to consider what you want to do — pay for in-state college tuition; give the child a no-strings-attached pot of money; help them buy their first home; etc. Once you know what you aim to accomplish, it’s much easier to filter through the different strategies to find what is right for your family.???

We all want to give our kids the best in life, but I'm telling you now — your kids will thank you for having your financial act together. Drawing a boundary around the financial support you show them is an act of unconditional love.