A couple of week´s ago I shared the news that my girl got accepted at the language magnet school we had our hearts set on was emotional, to say the least. Not only are we a bit relieved and even relaxed because her bilingualism is now basically guaranteed, but we can also plan for the rest of the year and the immediate future—or at least for the next six years she´ll be in this school.
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I have to admit, though, that I am also almost as excited that we will no longer need to continue dishing out close to 1K every month to cover the cost of her preschool. Keep in mind that we live in Los Angeles County and that my girl has to go to school all day because mamá has to work- 1K is what that costs around here.
So now the big looming question is: What to do with that extra income?
I hate to admit it, but both my husband and I are terrible with money and with keeping a budget. Just terrible. I really want to learn from our past mistakes and have a serious plan for making wise use of this extra money about to hit our home budget. I know I will still need to allocate some for a part-time sitter to help when I´m traveling, but that still leaves me with a substantial amount of money that, if invested wisely, can grow beautifully.
We also need to come up with a plan soon before we decide we really need a new car, or a house with two bathrooms! Which we do-both, but it will have to wait.
Our options for investing that additional income are:
- Invest it on an IRA plan
- Invest it in a college fund for Camila
Can you believe she doesn´t have a college fund yet? Our excuse is that less than a year after she was born the recession hit us pretty bad. We were barely surviving and our savings were depleted. Then we had to invest in daycare so I could start working again and then preschool came along. We figured we´d get back on our feet soon enough and make her college fund a priority.
However, since we ate up our savings, we don´t have a huge retirement plan either. I´ve read financial advice that says to secure your retirement fund before you invest in a college fund. The reasoning being that there are loans for college but no loans for retirement.
I really, really want to be smart about this decision and have this be the start of a path to financial recovery in our house. My gut-feeling is to go with the college fund because this money has already been part of her education and it should continue its destiny.
What would you do?
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DISCLOSURE: This post has been sponsored by H&R Block. The story and miserable money management are all my own.
My husband and I have made too many financial mistakes to count, but I have learned a lot from Dave Ramsey. He advocates that having 3 months worth of income stashed away is a priority to protect yourself from going into debt if an emergency comes up. Then to pay off credit cards and cars, etc., then 15% of every paycheck into retirement, a percentage into college (depending on the ages of your children and how long you have to save), then paying extra on your mortgage so you can be completely debt-free as soon as possible. He has his “baby steps” listed on his website which are helpful, at DaveRamsey.com. There is a mortgage calculator there to show you when your house will be paid off if you pay “X” amount of dollars extra each month. I got his “Total Money Makeover” book from our library.
Thanks for the tip, Kim! I did read one of his books some years ago…seems like I should revisit!
To me it boils down to which would be worse if we were without it. I mean ideally you’ll have both college and retirement. But which would be worse not to have, if you didn’t? Making your child get loans for college, or making her support you in old age — or living on charity if she can’t, for whatever reason?
We aren’t funded for retirement to the level the experts say but we do have enough there to support us if we moved to Mexico and we decided we are ok with that.
Great points, Beth! The last thing we want is to have to depend on her at all.
Maybe a retirement with a goal to move to Mexico isn´t so bad
Hi there!!, to be honest, there is always a way to pay for college, and retirement is important, but first come first, get rid of your debt!!!. Start with smaller debt, if you have credit card that would be, then student loans, etc, the idea is for you to pay your house in few years, and then you will be good. We even got this life insurance/savings, so when my son turns 21 he can use that money for college (I hope so). I am not saying don’t pay for college, but if you have a plan like Kim said, you will have plenty to cover college and have a great retirement life with everything you saved. We are doing what Kim suggested.
You´re so right! It will feel so good to live without this debt. It´s not even that much since we don´t even own a house (we prefer it that way right now). Can´t believe just 5 years ago we were debt free!
Definitely the best moment to think about money for college is when your children are still young. De otra forma para cuando menos esperas llega el momento en que van al colegio. Good to think in their future.. but on the hand you never know what is going to happen in the future. One of my sons left college because he joined a band. They are doing excellent. Actually right now they are in Japan. So, who knows ?? Such is life.
Cierto!!! They could eventually choose any path. I wouldn´t mind having something for her to count on, though. But, first gotta take care of the debt because don´t want to pass on any of that to her
My man friend is a financial analyst and tax consultant so he deals with other people’s money all the time. I try my hardest to take his advice and the budget he has me on, but it’s quite difficult when there aren’t those same obligations a married person has, especially one with children. There are no savings coming in yet so my IRA is sitting very dormant, sadly.
I’m awful with money but trying to get better at it. I’m a big Dave Ramsey fan and think his advice is solid. Emergency fund first then pay down debt like it’s your job. The savings for the future can be well funded when all your income is yours and not for paying off debt. Congrats as well to your little girl! GL!
This was very insightful! I’m not the greatest either. These are great tips, Ana! Love your note in the disclosure
It was really hard to take steps towards financial stability when we were living on only one income. Now that I am working from home, that extra money is really helping to pay off debts and pay for medical/dental bills that would otherwise become debt. I firmly believe my children should go to college and I hope to get to a place where I can help them, but I do think paying for it should be partially their responsibility. And don’t discount scholarships! People don’t apply because they think they can’t get them. Yet, I look around and there are so MANY opportunities opening up for Latino children now. We just need to know where to find them.
We do have both already but it depends on us to keep adding funds to them, it;s not automatic cause we haven’t set it up that way. Hopefully later we can set it up so it takes the money out of our accounts automatically and they really grow. Why not set them both? A little here and a little there?
I am not the best advisor and not the best money-management person either but that’s just our experience! I’ll keep reading the comments to see what other people have to say too!
Ana! How exciting for your family that the school came through. Warmed my heart to see that pic of your little girl! Re: $: even starting small…the key is to start NOW. The basic starting point is this: 3-6 months of living expenses in emergency savings (accessible, but not sitting in your checking account), then the rest in your retirement fund, and after that…college savings. My favorite book is Jane Bryant Quinn’s “Making the Most of Your Money.” Don’t be intimidated by the size…just read the parts that are relevant. Extremely readable, great advice, with tons of detail if and when you’re ready for it, good basic advice if you’re not. I’d also recommend Tsh Oxenrider’s blog simplemom.net. She’s a Dave Ramsey fan, but lots of good stuff about the peace that comes with basic money management as well.
I’m interested in seeing Lynch at some point this preseason. He looks fat.