April 26, 2023
What we’ll cover:
Starting a family is an exciting time. Having kids can pull you and your finances in many different directions.
With a growing family, you may have noticed that your personal finances and money goals have become more complex at this stage of life. For instance, you may have more monthly expenses to keep track of and additional savings goals you didn’t have to think about before (like family vacations and higher education plans).
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 all your financial priorities each month. But it doesn’t have to be a painful exercise. Below are a few savings strategies that could help you and your young family stay on track toward your money goals – whatever they may be.
Assuming you’re a veteran when it comes to budgeting, we’re going to forego the usual talk about how to budget and the benefits of budgeting. We’re also assuming you understand the importance of an emergency fund and are regularly contributing to it. So let’s jump right in.
1. Open multiple savings accounts. Having just one savings account might have made sense when you were a kid. When you’re ready to start a family and have kids of your own, it’s time to consider setting up multiple savings accounts. After all, your needs and financial goals have 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 having a baby. 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 to help you boost your savings.
One more thing: If you haven’t done so already, look into opening 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 health care 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.
4. Buy a life insurance policy. With a family that’s financially dependent on you, you have to think about providing for them in the event that you no longer can. We don’t mean to take a dark turn here, but the reality is you don’t want to put your family in a financial bind if something tragic were to happen to you (or your spouse). This is why life insurance is a smart purchase for young families. There are many policy options to choose from. Each family’s needs and goals are going to be different. So it’s important to shop around and talk to a professional about finding the right level of protection for you and your family.
5. Avoid lifestyle inflation. At this stage in life, you’re probably making more money than the 20-something version of you. Sometimes when you make more money, you may be tempted to spend more money. This is known as lifestyle inflation. And it’s what could happen if you don’t stick to a budget or spending plan.
We get it. Nice things are…well, nice and they make us feel good. But lifestyle inflation could limit your ability to save and pay down debts (it might even lead to more). Always remember to pay yourself first by putting away as much as you can into savings.
This article is for informational purposes only and shall not constitute an offer, solicitation, or recommendation to buy or sell securities, or of an account type, securities transaction, or investment strategy. This article was prepared by and approved by Marcus by Goldman Sachs®, but is not a description of any of the products or services offered by and does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendation in this article and it is not a substitute for individualized professional advice. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC are or any of their affiliates, none of which are a fiduciary with respect to any person or plan by reason of providing the material or content herein. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.
Investing involves risk, including the potential loss of money invested. Past performance does not guarantee future results. Neither asset diversification or investment in a continuous or periodic investment plan guarantees a profit or protects against a loss.