4 Financial Milestones You Need to Save For

Life's key milestones demand money at every turn. Here are a few to focus on.

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We're supposed to sock away three to six months' worth of living expenses for emergencies. But unplanned bills aren't the only reason you need savings. In the course of life, you're apt to encounter other scenarios that require additional cash, and not a small amount of it. Here are four major milestones you need to plan for.

1. Buying a home

You don't need to come up with a 20% down payment to buy a home these days, but doing so is a good idea. The reason? It helps you avoid private mortgage insurance, a costly premium that gets tacked onto your monthly housing costs and makes homeownership more expensive. A 20% down payment also gives you more immediate home equity, which you can borrow against if needed (though taking out a home equity loan isn't always a good idea).

As of Jan. 31, 2019, the median home value in the U.S. was $225,300, according to Zillow. As such, you'd need about $45,000 for a down payment if you were buying a similarly priced piece of property. That may sound like a lot of money, but if you give yourself a multi-year window to meet that goal, you'll start off homeownership in a more financially responsible manner.

2. Having a baby

There's nothing more magical than bringing a child into the world, but unfortunately, those cute bundles of joy cost money -- lots of it. There's healthcare, food, clothing, and supplies (ask anyone who's ever had a newborn, and you'll hear that 12 diapers a day is hardly unthinkable). Then there's childcare, a cost so astonishing that it often makes going back to work impossible.

On a national basis, the average cost of childcare is $9,000 to $9,600 per year, according to Child Care Aware of America. In some parts of the country, however, you'll pay close to double that amount to put a single child in a daycare center. As such, you'll need some serious cash in the bank before you expand your family.

3. College

It's no secret that college is expensive, but many families are shocked to discover just how costly it can be. For the 2018-2019 school year, the average price tag for tuition and fees at an in-state, four-year public college was $10,230. For an out-of-state public college, it was $26,290, and for private universities, it was $35,830. Room and board for the year, meanwhile, averaged $11,140 at all public colleges and $12,680 at private ones.

Unless you want your children to graduate college saddled with loans, you'll need to do a good job of saving for their education. Your best bet in this regard is to start a college fund when they're young so that the money you contribute to it has time to grow. Setting aside $200 a month for college over an 18-year window, for example, will leave you with $81,600 if your savings generate an average annual 7% return, which is a reasonable assumption if you open a 529 plan (a dedicated education savings plan) and invest your money there.

4. Retirement

The amount of money you'll need in retirement will depend on your lifestyle choices, health, and other factors. You should know, however, that this stage of life costs the average American $828,000 all-in. And while Social Security will provide some income for you in retirement, it'll only, in a best-case scenario, provide about half the amount you'll need to live comfortably. As such, it's crucial that you save for your golden years on your own, whether in an IRA or 401(k).

How much should you set aside each month? It depends on your ultimate savings goal, but if you start early enough in your career, you can amass a substantial nest egg by making modest contributions over time. In fact, if you were to save $400 a month over 40 years, you'd wind up with close to $960,000, assuming an average annual 7% return (which is doable if you load up on stocks in your retirement plan).

Building emergency savings should take priority over all your other financial objectives. But once you're secure in that regard, it pays to start saving for these milestones. Doing so will help you maintain a degree of financial stability as you navigate life's many changes, for better and worse.