Contributor: Kristen Fricks-Roman
Company: Morgan Stanley Wealth Management
Title: Financial Advisor
As soon as school is back in session, the uptick of time and money spent on children’s extracurricular activities begins as well. Whether you are a parent now or hope to be in the future, considering wisely how you’ll spend time and money on your kids when it comes to athletics and others activities makes a difference in your family’s overall financial well-being — and your ability to save for their college education.
Here are four things that can help prevent overspending when your kids engage in extracurricular activities.
Create a budget and stick to it. When it comes to raising children, general expenses like food, clothing, and shelter make up one set of considerations — and the costs of having an active and engaged child add a whole new level to the budget. To allow for both in a smart way, make sure you know what’s coming into your bank account (income) and what’s going out (expenses). Proactively monitor your spending so you can live within your means, inclusive of all your expenses. For example, each month, you have expenses that don’t change much but are essential to keeping your life going. These include rent or mortgage payments, utility bills, loan payments, insurance premiums, and transportation costs. Deduct such fixed expenses from cash flow first, and then determine how much you have leftover for variable expenses and fun. This is where your kids’ activities come in. As a financial advisor, I have heard stories where budgets are blown because parents go overboard in the number of activities they allow per child. And then there’s the guilt that comes with not keeping up with the Joneses to give them that experience. Have a plan for how you’ll deal with the emotions your child may feel if you need to limit some activities to create balance with your (and their) financial well-being.
Think before you spend. The chances are that shiny objects will forever catch your eye, but giving in to impulsive, on-the-spot wants likely won’t serve your long-term financial goals. It’s okay to spend money on enjoyable things like dining out, travel, and kids’ athletic endeavors as long as you’ve planned for it in the budget through variable expenses. According to WinterGreen Research, a market research firm, families with children who take part in elite teams spent an average of $3,167 per player in 2018, up from $1,976 in 2013. If you’ve got excess funds, after putting away for retirement and college savings (in that order), spending several thousand dollars annually may be OK for you. Always keep your budget in mind, though, as well as the possibility that the investment may not pay off in the form of a scholarship down the line. According to the NCAA, only 2 percent of high school athletes receive college scholarships in their sport, and not all are the “full-ride” awards so many families seek. You’ll have to weigh whether it’s better to put that money toward saving for college.
Save well. For your overall budget, have an emergency fund of three to six months of nondiscretionary expenses to help withstand a sudden financial disruption such as a layoff, an untimely death, or a disability. Also, consider contributing to investment vehicles that offer tax advantages, and automating your savings process, so you don’t forget to do it on your own. To help save money and create breathing room in the budget for something you may genuinely need, such as a new vehicle — or to make more funds available for saving and investing — keep in mind that brand new sports equipment, gas, and hotel stays for sporting trips add up quickly. Less expensive options, like buying used equipment in good condition, carpooling, staying in a less expensive hotel or perhaps camping at your destination, can help save you money.
Stay clear of debt. This simple concept can help you stay out of debt: If the expenditure isn’t in the budget, and you don’t have the cash to cover it, don’t spend the money.
Raising healthy children comes not only with a lot of expenses, but also a responsibility to care for their social, emotional, and athletic needs. With an understanding of your financial picture and a solid plan, you’ll be better able to find the right balance of fun and practicality for your children and your budget.
Kristen Fricks-Roman is a Financial Advisor with the Wealth Management Division of Morgan Stanley in Atlanta. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness. Morgan Stanley and its Financial Advisors do not provide tax or legal advice. Before investing, investors should consider whether tax or other benefits are only available for investments in the investor’s home state 529 college savings plan. Investors should carefully read the Program Disclosure statement, which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences before purchasing a 529 plan. You can obtain a copy of the Program Disclosure Statement from the 529 plan sponsor or your Financial Advisor. Morgan Stanley Smith Barney, LLC, member SIPC. CRC 2235406 09/18