9 Smart Ways To Start Saving For Your Child’s Future
As a parent, you want to ensure your child has the financial security to reach their full potential. You never want them to feel the desperation of shattered dreams arising from goals they can’t afford to fulfill.
How can you start saving for your child’s future? The following nine tips can start you on the road to financial freedom for your babies.
1. Obtain Life Insurance
You don’t want to think that something could happen to you. However, if the unthinkable occurs, who will care for your kiddos? Life insurance can go a long way toward helping a remaining spouse or grandparents afford their care.
You can go with a less-expensive and temporary term policy or look into whole or permanent life if you have the means. The latter accumulates cash value that you can use to finance your child’s future education.
2. Start a 529 Savings Plan
When it comes to funding education, college costs continue to rise. You should start a 529 college savings plan as early as possible — even before you conceive. If you later decide not to start a family, you could put the money toward individual educational pursuits.
These vehicles save you money come April. They are not federally taxable as long as you use any withdrawals for qualified expenses such as tuition. Why give the IRS extra pennies that could fund your child’s future instead?
3. Use the Three Piggy Bank Method
Your child forms their attitudes about money well before they take Economics 101 in high school. Research indicates that your children’s underlying financial beliefs form by the age of seven. If you want them to have a healthy outlook, start early.
You want kids to both to enjoy the fruits of their labor and save pennies. Use three piggy banks, designating one for fun money they can use anytime, the second for a 1-year savings goal and the third for longer-term needs like college or retirement. This technique teaches them that money is for enjoyment but also covering life’s expenses.
4. Maximize Your 401K
You don't want to burden your children if you retire with too little. If you aren’t throwing as much as you can into your 401k, make a plan to start. Even an additional $5 weekly can pad your future dreams. It’s worth sacrificing one latte to have your employer match your investment.
What if you are self-employed? Changing IRS rules means you can maximize your retirement savings further. Doing so, especially during an economic downturn, can increase your financial peace of mind, an attitude shift your children will notice and appreciate.
5. Start a Savings Account Young
You also need to teach your kids about the power of interest. Start a savings account when they are young. Review the statement together each month and point out how their money accumulates.
When you amass sufficient funds, you can switch to a higher-yield money market account. Let your child help you choose the best one to instill sound economic decision-making.
6. Request CDs and Other Monetary Gifts
Does your child’s toy chest overflow with barely touched items? Instead of letting relatives go hog-wild on holidays and birthdays, ask them to buy certificates of deposit or other monetary gifts.
You shouldn’t deny your child a coveted toy or two as presents — doing so could turn them into Ebenezer Scrooge. However, you could explain to well-meaning relatives that you embrace the minimalist trend if they insist on going over-the-top with purple glitter unicorns instead of more practical stocking stuffers.
7. Make a Household Budget
If your kids see you sobbing because you ran out of toilet paper before you can buy more, they learn that money creates stress and despair. Make a household budget to avoid running out of essentials when your wallet contains only moths.
Let your children assist you in this process. Once you categorize your monthly expenses, let them help you identify areas to reduce spending. This exercise builds their decision-making skills.
8. Purchase a Home
While renting is sometimes a necessary evil, homeownership is like writing yourself a check monthly. It’s the wisest way for those with limited means to begin building wealth. Instead of making your landlord rich, you build equity that you can borrow against.
This savings vehicle comes in handy when it's time to pay your child’s college costs. A home equity line of credit often offers lower interest rates than student loans. You could borrow against your equity to cover books and other expenses not eligible under 529 plans.
9. Invest in a Mutual Fund
The stock market historically outperforms savings accounts in terms of keeping up with inflation. However, many would-be investors hesitate out of lack of knowledge.
Why not invest in a mutual fund? You can select one that reflects your values and diversifies your portfolio for you. You reap the benefits without having to research individual stocks. When your child reaches their teens and wants to invest, you can point them to your broker to get started.
Start Savings for Your Child’s Future Early With These 9 Smart Tips
It’s never too early to start saving for your child’s future. Use these nine smart tips to create a financially brighter tomorrow for your little angel.