One of the questions I get most is how to invest for a child’s future. When I ask some follow up questions, I often find out that the parent is in debt, has little money, and hasn’t invested yet for their own future. I honor and respect the motivation. The parent didn’t get a financial head start when they were a kid, so they want to do better for their own children. That’s fantastic.
But to do the best for your own kids, the oxygen mask rule applies. If you’re in debt, broke, and setting a bad financial example, squeezing a few bucks to set aside for your child won’t help much. The way to help the most is by taking care of your own finances first. Set a great example. Talk to your child about debt, and why you’re focusing on getting out of debt. Get your own retirement secure so you’re not a burden later on. When you do those things, you’ll find a few more years down the road you WILL be in a position to help cashflow college or give generously to your child. And the example and education you gave them will be worth far more than a smaller cash gift that you put aside before you were financially secure yourself.
I prioritize dollars in the following phases:
1. Max out your 401k match
2. Pay off all non-mortgage debt
3. Save an emergency fund
4. Invest for a healthy retirement
5. Save for a house down payment and kid’s college
6. Invest more and pay off your mortgage
So until you’re on phase 5 above, focus on moving through the other ones to make sure you’re in a great financial position to help your children even more. The example you set will be life changing for them as well.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.