Balancing Debt and Savings for Parents

Meeting financial needs and reaching your financial goals comes down to paying down debt and saving for the future. Here are a few ways you can do both.

Having children doesn’t change the fact that you want to pay down your debt and save money, but it doesn’t make it any easier. Parents have to juggle household expenses, a mortgage, and much more, starting with childcare costs. But there are also clothes, food, summer camps and eventually college.

It’s almost too much to keep straight. But there is a way for parents to cut down debt, save for the future, and help get the most out of each dollar.

Because the household finances of families can be complex, the process can be daunting. A family’s needs and expenses are always changing as parents change jobs, and children change their needs, interests and activities. That’s why a good place to start is with a blank page and a bank statement that shows your expenditures over the last three months.

By looking at your expenses, you can start to figure out how much you’re likely to spend in the near future. If there are upcoming costs, like summer camp for the kids, or a down payment on a new car, factor those in as well. This is also a good time to see if you’re paying for services you no longer use, or if you’re overpaying for things like your phone or internet.

Once you have an estimate of your monthly costs, subtract it from your monthly income. The money that’s left is what you have to work with to pay down your debt or build your savings.

Debt to Keep and Debt to Pay Down

A good idea when it comes to debt is to look at the interest rate. You should pay down the high-interest-rate debt first. Debt with high interest rates includes things like consumer debt and credit card debt. Mortgages and some car loans are examples of lower-interest-rate debt.

All of those debt repayments are part of your monthly expenses. And if they’re attached to double-digit interest rates, make them a priority. A mortgage, on the other hand, likely has a lower interest rate and is connected with a larger amount of debt, and so it may make sense just to stay the course. As you retire those high-interest debts, revise your monthly budget. The money you’re no longer using to repay debt can go to your savings goals.

Savings Necessities Versus Savings Opportunities

Just like there are different kinds of debt, there are different kinds of savings. And it’s important to prioritize. First and foremost, on any parent’s priority list is the emergency fund. This is a savings account with between six and twelve months of household expenses. It’s essential as a protection in case of a job loss, health emergency or another unforeseeable and costly misfortune. And, especially with a family, it’s vital to make sure you’re saving for emergencies.

But there are other savings priorities. As your family grows, you may want to move, or upgrade your home, and you’ll need cash on hand - preferably in an account that’s not dependent on the stock market. That’s why so many would-be homeowners or upgraders save for the big move in a high-interest savings account.

Looking farther into the future, college is a major expense. While you may have started 529 accounts for your children, the cost of college keeps rising. And still farther ahead, you want to retire someday. And if you work for a company that offers a 401(k) match, then that opportunity to get free money may be too good to pass up. Even without a match, the tax advantages of a 401(k), or even an IRA, may be too valuable to pass up.

While an emergency fund is as close to a necessity as you’re likely to have, the other areas represent savings opportunities.

And those opportunities require some collective soul-searching about what’s most urgent and most important to your family.

Saving Versus Paying Down Debt

Once you know how much money you have on hand to either pay down debt and build your savings, and you know your priorities, you can make a plan. That plan will likely be a mix of saving for certain things, and retiring certain debt.

But knowing the interest-rate costs of each debt, and the opportunities presented by certain savings strategies can help you get the most out of every dollar you spend toward creating a better future for yourself and your family.

When you save for your family, you want your money to grow effortlessly. That’s why the Barclays online high-yield savings account is designed offer competitive interest rates, while offering straightforward access to your money. And if you ever have a question, our representatives are ready to talk with you.