It is natural for parents to think of their children first and put their needs ahead of their own. As a Financial Literacy Manager, my opinion is that, when it comes to money, this approach is wrong.
It is not uncommon for parents to spend hundreds, thousands, even tens of thousands of dollars on extra-curricular activities like gymnastics or hockey.
It is also easy to spend a few thousand dollars on a week-long family vacation to kid-friendly, but pocketbook-unfriendly, theme parks.
Many parents diligently sock away hundreds of dollars a month to save up for junior's future college needs. Other parents take out loans to help their kids pay for college.
All these actions are well meaning, but they are bad moves, if you haven't taken care of yourself first.
A good comparison is the instructions people are given when flying on a plane: Passengers are told that in the event of an emergency, they need to first put on their own oxygen mask before assisting to put on the child's mask. The same rule should apply to money. Parents need to take care of themselves first, and then help their children.
Here are four areas where this applies:
Everyone can make more money, if they have skills that are in demand. It makes sense to invest in yourself to obtain that degree or certification that will boost your income. This is a priority over spending money on the kids, but of course, once you have that better paying job, you are in a better position to focus on your children's financial demands.
As your family grows, it is natural to want to have more space. However, this comes at a price. A bigger apartment will cost more, which means it will take more time to save up for a down payment for a house. Also, when it comes time to buy a home, it is tempting to choose a 30-year mortgage (or maybe even an interest-only mortgage) because this will help you afford the monthly payment on a bigger house.
Instead, if you choose a 15-year mortgage, you may have your home paid for by the time your kids go to college. If you don't have a mortgage payment, it makes it easier to help out with their schooling expenses. The interest rate on a 15-year mortgage is lower, so this will save you money, and of course you also eliminate half of the payments compared to a 30-year mortgage. The shorter term means monthly payments are higher, but if you select a smaller home, you can still get a house that fits your budget.
Once your children have grown up, they may continue to look to mom and dad for financial support. Once again, it is great to be able to help your children, but you first have to make sure that your retirement planning remains on track, and your home ownership is not burdened by a new loan. If your home is paid for, and your retirement needs are secure, then by all means help your kids, just do it in the right order.
This is the most important of these four areas. It can make the difference between you retiring comfortably or having to move in with your adult children because you can't afford your own place. When your family is young and you are just starting your career, money is tight and retirement seems far away. It is easy to rationalize that you have to take care of current family needs and worry about retirement later.
Unfortunately, waiting 20 years to get serious about retirement will not cut your retirement nest egg in half; it will likely cut it by 80 percent! This is because when it comes to retirement investing, time is your most important tool. There are people who retire every year, who never made more than the median household income during their working years, who have $1 million or more in retirement savings. They did not do this by waiting to save until their kids were older. They started young and made it a priority.
If you feel a little guilty about implementing the "me first, you second" strategy, remember, this move can put you in a sweet spot to spoil the grandchildren. That will make your children happy.