How to Prioritize Retirement Savings

Why you should fully fund your 401(k) before helping your children pay for college.

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Saving enough money for retirement is one of the biggest challenges baby boomers and later generations are facing. Even with the rising cost-of-living, many individuals earn enough money to fund their retirement. However, many people don’t save because they have misplaced priorities. For example, they may be spending more than they can afford to, or they may be saving for the wrong purpose. Here is how to fit retirement savings into your current budget.

[See 10 Winter Wonderlands for Retirement.]

Solve the spending problem. There is something to be said for owning nice things. But there comes a point when you can have too much of a good thing—particularly when spending too much causes cash flow problems and leaves nothing for saving, investing, or other financial goals.

If you find making a budget too difficult or restrictive, then try another way of limiting spending: Pay yourself first, and then use the rest of your income however you wish. Set up an automatic payment from your paycheck to go directly to your 401(k) or IRA for retirement goals, and another to go to your savings account for short-term goals. Once you meet your savings and investing goals and take care of your immediate needs such as a mortgage and living expenses, then you can use the rest however you wish. You will be able to spend this money guilt-free because you know you are only spending from your excess, not from money that should be used for saving, investing, or other financial needs.

[See The Dangers of Debt in Retirement.]

Make retirement saving a priority. Are you planning on paying for your child’s education? What about helping him or her with a down payment on a house? If so, you may need to reevaluate these goals unless you are already on pace to fully fund your retirement. It’s nice to help out your children. I want the best for my children too, but not if it means I will struggle through retirement. Remember, your children can borrow their way through college and can save for a few years to buy a house. But you can’t borrow your way through retirement.

You need to take care of yourself first. Set aside money for your immediate needs first including a house, food, and transportation. Then take care of the next tier of savings goals, which is securing your financial future. This could include saving money for short-term and long-term goals. Once you have your immediate needs taken care of and you have made good progress on your retirement savings, then start saving for college or similar goals.

[See 10 Retirement Myths.]

Both saving and spending can be emotionally charged events. You want to buy nice things and you want the best for your family. But you also need to take a step back and look at the big picture. Align your priorities with your current, short-term, and retirement goals. And most importantly, follow through with them.

Ryan Guina is a U.S. military veteran, writer, and professional in the corporate world. He blogs at Cash Money Life and The Military Wallet.