Savings Strategies for Young Families

What we’ll cover:

• Open multiple savings accounts.
• Stay on top of your retirement savings.
• Start a college fund.
• Consider a life insurance policy.
• Prioritize saving and avoid lifestyle inflation.

With a growing family, you may have noticed that your personal finances and money goals have become more complex. Having kids can pull you and your wallet in many different directions. There may be more monthly expenses to keep track of, as well as additional savings goals you didn’t have to think about before (e.g., family vacations, school tuition, etc.). 

We wouldn’t blame you if you’d rather walk barefoot through a pile of loose Legos than think about how to allocate your savings toward your financial priorities each month. But it doesn’t have to be a painful exercise.

Below are a few tips that could help you and your young family stay on track toward your money goals, whatever they may be. 

Five savings strategies for young families

Before jumping in, check on your emergency fund to make sure it’s in order. Having a solid cash reserve in an easily accessible account can help you cover any unexpected expenses that crop up for you and your family.

1. Open multiple savings accounts

Having just one savings account might have made sense when you were younger. When you’re ready to start a family or have kids of your own, it’s time to consider setting up multiple savings accounts.

After all, your needs and financial goals have probably evolved. As your goals multiply, it can be easier to track your savings progress if you have accounts clearly designated toward each goal. 

Think about it this way: If you have $100,000 sitting in one single account, it may be difficult for you to see how much of that money is for vacations, for buying a home, or for making renovations. But if you have a different account for each of these goals, you can quickly see where you stand and how much further you have to go to reach them. 

If you have goals with specific timelines in mind, you might also consider opening a certificate of deposit (CD). CDs typically have higher interest rates than traditional savings accounts and have a fixed withdrawal or maturity date. And if you want to take your savings to the next level, you could open multiple CDs and use a CD laddering strategy.

One more thing: If you haven’t already done so, see if you're eligible to open a Health Savings Account (HSA) or a Flexible Spending Account (FSA). These types of savings accounts are specifically designed to help pay for certain qualified healthcare expenses like insurance deductibles and copays. HSAs and FSAs are popular due to the potential tax savings they may provide. 

2. Stay on top of your retirement savings

It’s easy to give your child all of your focus (and your money) when you’re just starting a family. But don’t let your retirement savings fall by the wayside. It should remain a priority.

As a general rule of thumb, you’re going to need anywhere between 80% to 100% of your final pre-retirement income to maintain your standard of living when you’re not working anymore. This is why it’s important to contribute as much as you can to your employer’s 401(k) plan and your IRAs. 

And if you want to give your kids a head start on retirement savings, you can help them open an IRA as soon as they start working and earning an income. 

3. Start a college fund

Let’s assume you want to pay for your child’s college education (or at least help them out). A 529 savings plan is a popular way to go. These plans are available in nearly every state and the District of Columbia. And depending on the state, contributions to 529s may be tax-deductible, and savers can enjoy tax-free earnings as their contributions grow over time.

Keep in mind that you don’t have to wait for the birth of your child to open an account. If you know you’re going to have a kid down the road, consider opening an account now with you as the beneficiary (you’d make your child the beneficiary after he or she is born). This can be a good way to start saving early and put that compound interest to work for you.