Trying to save money for multiple financial goals can be overwhelming. However, there are a few saving goals that you can’t ignore. College and retirement are to name a couple. But how can you invest right for both college and retirement? Read this guide, and we will share a guide you can follow to achieve these savings goals.
Assess Your Finances
First, look honestly at your current financial situation – your income, expenses, savings, and debt. This will help you understand how much you can put towards monthly college and retirement savings. Track your spending to see where money might be leaking out unnecessarily. Try to trim discretionary spending on dining out, entertainment, etc. Evaluating spending and finding places to cut back is key to freeing up money for savings.
Prioritize Retirement Savings
While college tuition is a considerable expense, most experts recommend prioritizing retirement savings over college savings whenever possible. The rationale is that while many potential options for funding college extend beyond the 4 years, like financial aid, grants, scholarships, student loans, etc., there are very few ways to make up for lost retirement savings later in life.
The earlier you save for retirement, the more your money benefits from compound growth over decades. Try to contribute enough to a 401(k) or IRA to get any employer-matching funds. This is free money towards retirement that you don’t want to miss out on.
Start Small for College
Don’t let the high costs of college deter you from saving anything. While you may not be able to sock away thousands of dollars a month for college at first, start small where you can. Setting aside even $50 or $100 a month, though it may not seem like much, can still add up over many years with compounding investment returns.
Consider opening a dedicated 529 college savings account, which offers tax advantages. Have a portion of each paycheck automatically deposited into this account so the savings happen effortlessly over time. The amount you save as tax every year can contribute a lot to help you pay off college tuition.
Look for Account Synergies
See if there are ways to supercharge your savings through account synergies efficiently. For example, if your employer offers a 401(k) match, save at least enough to get the whole game. Then, look into opening a Roth IRA account. With the Roth IRA, while you won’t get a match, your money can still grow tax-free. The combined growth in these synergistic accounts can accelerate your savings over time.
Invest Savings Wisely
Ensure any college or retirement savings are invested appropriately to enable growth over time through compounding returns. Money kept in cash in a regular bank savings account will effectively lose buying power over the years due to inflation. Have at least some portion of savings invested in diversified, higher-return investment vehicles like stocks and bonds. Index funds that track major market indexes are an innovative, hands-off approach requiring little effort.
Find Other Creative Ways to Save
Beyond the basic saving and investing approaches, explore creative alternative options to stash away money. For college, ask grandparents if they would be willing to make small, regular gifts to a 529 account. Some companies offer employee benefits where they will contribute to a college savings account when you do.
Look for contests and sweepstakes for students where you can win college scholarship money. For retirement, see if you can generate side income you commit to saving, like renting out a room or driveway. Every extra dollar you can creatively tuck away will help.
Revisit Progress and Tradeoffs
Reevaluate your savings approach each year to see if you need to make any changes or tradeoffs to align with shifting priorities. Retirement savings must take center stage one year if the market is down. Or if college expenses are looming sooner, you may need to redirect more towards the 529 that year. Consistently monitoring, assessing, and adjusting your saving strategy is key to keeping both goals on track over the long run within your budget.
Use Windfalls Wisely
If you receive any financial windfalls like a tax refund, bonus, or gift money, use the opportunities to boost your savings. Rather than see extra funds as a license to spend more or make impulse purchases, exercise restraint, and channel the money towards furthering your college and retirement goals.
Even a few hundred extra dollars periodically put into your 529 or IRA can make a meaningful difference, given the effects of long-term compound growth. Have automated transfers or investment account contributions set up so you can pounce on one-time cash infusions.
Lower College Costs Where Possible
While saving is crucial, you also want to explore options for reducing potential college costs and minimizing how much you may need to pay outright. Having your child apply to regional in-state public schools, enroll in community college for the first two years, commute from home, and take advantage of AP credits from high school can all lead to paying lower total tuition.
Additionally, maximize scholarship eligibility, apply for financial aid such as Federal Student Aid early, or consider schools that offer strong merit aid packages. The less you may have to cover college bills, the easier it is to achieve retirement goals sooner.
Final Words
The path to saving for two massive expenses like college and retirement on a limited budget is undoubtedly challenging. But you can make consistent progress towards both goals by prioritizing retirement, starting small for college, maximizing accounts and investment returns, and getting a bit creative. Stay focused on the long-term rewards of higher education for kids and secure retirement for yourself as the payoff for the years of disciplined savings and sacrifice along the way.
