Money Management and Saving for Retirement

Set a retirement goal. Know how much you need to save.

Time is money. The sooner you begin saving, the better.

Example A :

Susan saves $250 per month starting at age 35.
She saves for 30 years, then retires

At 5% interest she will have $208,000 at age 65.

Example B:

Rick saves $250 a month starting at age 45.
He saves for 20 years, then he retires.

At 5% interest a year, he will have $102,800 at age 65.

Because Susan began saving 10 years earlier than Rick, she has more than twice as much money in her retirement fund!

Here’s how to build that retirement account:

Target at least 10% of net income for retirement savings—20% is better!
Make regular, consistent investments into a retirement fund, regardless of general economic conditions.
Don’t be overly conservative in where you invest your money.
Don’t put all your funds in one type of investment. Diversify your investments.
Develop the savings habit. Don’t buy anything unless you can pay cash for it. The only exceptions: house and college education.

Get a Handle on Your Money by Reducing Your Expenses and Increasing Your Income.
Strategies for reducing your expenses

Make saving money your first priority each month. Track your family’s expenses for one month and identify a flexible expense that can be reduced to enable you to save more.
Pay off credit card bills in full every month.
Limit spending on business items such as toys and supplies by asking parents to bring items. Children need love, attention, and lots of interaction more than “things”.
Look at optional expenses such as cable television and cell phone plans—reduce optional expenses and put that money into savings.

Strategies for increasing your income

The rates you charge parents should reflect the quality of your program. Regularly review your rates and adjust them accordingly.
Charge for all the services you offer including: registration fees, late fees, vacations, holidays, holding fees, etc.

Understand Ahead of Time the Financial Consequences of Business Decisions.
Too often providers do not carefully consider the financial impact of their decisions before they make them. Whether it’s going into the family child care business to begin with or hiring an employee, buying a car or remodeling your home, providers can make smarter decisions if they examine the financial consequences before acting. For example, you will probably need to care for at least two additional children just to pay for the cost of hiring an employee. Buying rather than leasing a car is more economical, and the less money you borrow to purchase the car, the more money you will save. Remodeling your home may be necessary to provide a suitable play area for children, but the tax benefits of doing so are very minor.
Establish a Retirement Plan.
Most providers are not saving enough to meet their retirement needs. The four major sources of retirement income are Social Security, pensions, earned income, and private investments. No matter what their age, providers should develop a retirement plan:

Identify how much money you need to save for retirement.
Contribute to your retirement on a regular basis throughout the year.
Take advantage of the many IRA plans available to maximize your savings over time.
Diversify your retirement investments in broad market index funds that represent U.S. and international stocks, fixed income assets such as bonds, and real estate.

For more information, see Money Management and Retirement for Family Child Care Providers by Tom Copeland available from Redleaf Press .

Use these convenient tools to help plan for the financial success of your business:

From The Family Child Care Business Planning Guide by Tom Copeland, published by Redleaf Press

For Early Childhood Professionals