Many young couples today are not in a hurry to have kids. Some would decide to have their kid 3 – 5 years after their marriage. The main reason for this is simple: raising kids costs money.
According to the USDA Center for Nutrition Policy and Promotion, it costs at least $230,000 to raise a child until the age of 18 in the United States. Mind you, this expenditure doesn’t include a college education. However, knowing how to save money for your kids is actually a smart way to be prepared for the financial responsibilities that come with parenthood.
There are various ways to invest and save for your children over time. If you are yet to have a kid, you’re in luck. There’s no better time to begin your financial plan than today.
Thankfully, we are going to examine some of the best investment opportunities that you can tap into as a parent to secure your children’s future.
What Is The Best Way To Save Money For A Child?
The easiest and safest way to save money for your child is by creating a high-yield savings account, where your money can gradually grow without any risks. Over time, your savings will appreciate, and you’d have a significant amount of money to raise your kid.
How Much Should You Save Per Month For Your Child?
The monthly savings for your child would be determined by a few factors such as the kid’s age and the specific goal you are saving for. For example, if you are saving for your child’s college education, you should contribute a minimum of $250 (right from birth).
However, if you start saving when your child is older, you would have to save twice as much.
Reasons To Save Money For Your Kids
Knowing clever ways to save money for kids should be a priority. Bear in mind that it’s very difficult to raise your children right if you lack the financial resources and planning that they need. Here are some significant reasons why you must be intentional about learning how to save money for your kids:
1. Saving Money For Your Kids Secures Their Education
One of the major aspects of raising a child is sound education. Right from when your kid gets into crèche, you have to prioritize their education, making sure they spend time in an ideal learning environment. But if you must secure your children’s education, saving money should be a no-brainer.
Even after middle school and high school, most children have to attend college. If you don’t have the finances to afford your children’s tuition fees, you may be tempted to resort to student loans. This means your kids will incur debt that takes several years to pay off.
2. Saving Money For Your Kids Protects Their Health
Saving money for kids is essential, especially when it comes to their health. You have to build a health fund that will cater to your children’s medical needs. Of course, we don’t pray they fall sick or get into serious accidents. But if that happens, you need to be certain that you have the financial backing to handle the situation.
3. Saving Money For Your Kids Helps You Invest In Their Future
One of the mistakes many parents make is thinking their kids don’t need investments. Just because you can cover your child’s education and health costs doesn’t mean you shouldn’t go further.
As of today, there are numerous investment options for parents who want to build a financially stable future for their children. Find an investment plan that’s within your control and start preparing before it’s too late.
4. Saving For Your Kids Helps Them To Become Financially Independent In Time
I keep telling myself that I would have attained financial success sooner than I did if my parents had made the right choices concerning my future.
Investing for your children is a brilliant way to set them up for financial stability when they become adults. Some young adults find it very difficult to stand on their feet after college because they lack financial support. They basically have to start building from scratch.
However, if you know how to save money for your kids, you can make it much easier for them to be financially independent when they are old enough to take full responsibility for themselves.
How To Save Money For Your Kids
If you want to learn how to save money for your child, there are four basic steps I believe you must follow. Going through each of these steps is how you figure out how feasible your goal is and how long it would take you to achieve it.
Step 1: Create A Financial Plan
Anyone who wants to learn how to save money for kids must begin with a financial plan. This is the point where you organize your finances to accommodate the goal you have in mind. From tracking your expenses to paying off debt and then budgeting for emergencies, you have to ensure that you have control of your financial situation.
Also, it’s important to understand your cash flow, tracking how much money comes and goes out of your bank account. By the time you’ve ticked off all these boxes, you can now build a financial plan toward saving money for your kids.
Step 2: Create A Savings Account
Where else would you raise money for your kids if not a savings account? Now, you probably have a savings account where you build an emergency fund or save money for large expenses. However, remember that saving money for your child is a serious business. I would advise you to create a separate savings account for the contributions that will be made. This way, you won’t mix up the fund with other savings.
More importantly, it would be even easier to track your progress when your child’s savings are deposited in a single account.
Step 3: Have A Budget
You need to create a budget when saving money for kids. Mind you, this is quite different from building a monthly budget for your income. The budget I’m talking about here is how much you are willing to set aside for your child’s fund.
Determining the amount can be a little bit challenging. You have to make sure that whatever amount you save won’t affect what you have prepared for your monthly expenditure. You also have to ensure you are saving the adequate amount needed to reach your goal on time.
Apparently, it can be tricky. But if you are making enough money to afford your monthly bills and still save for your child, you would be able to pull this off.
Step 4: Determine When Your Kids Will Be In Charge Of The Savings Account
At some point, you would have to hand over the savings to your child (when they come of age).
As long as your child is at least 18 years old, they can start managing their finances on their own. However, due to personal reasons, you can decide when it’s best for your kid to be in charge of what you’ve built over the years. This is why even as you learn how to save money for your kids, you also need to teach them how to handle money.
Young people tend to make a lot of financial mistakes, but your child could be an exception if he/she has been taught how to spend, save, and invest money wisely.
6 Ways To Save Money For Your Kids
It’s hard to save money for your child the right way if you don’t know the specific financial plans available for most parents. Hence, here are some of the best ways to save money for kids:
1. Invest In The 529 Plan
This is a taxed-advantaged investment account that so many families use to save money, especially for educational expenses. There are two types of 529 plans. We have the prepaid tuition plan and we have a normal savings plan.
A prepaid tuition plan is an amazing option for paying certain college costs ahead of time. This is why most parents rely on this to prepare for their children’s educational costs.
On the other hand, the savings plan is almost the same as other tax-advantaged investment accounts you might know of. The good part is that as long as you are withdrawing money from the fund to pay for educational expenses, you won’t be paying taxes on it.
The 529 plan should be your go-to option if you are certain that your child will go to college.
2. Take Advantage Of Roth IRA
This is another tax-advantaged account you can consider investing in. It allows you to make after-tax contributions with your earned income. In the future, you can easily withdraw your account without being taxed.
Although many households use the Roth IRA account to save for retirement, its flexibility still allows anyone to use it for other purposes such as saving for your child’s health or education. You can withdraw your earnings anytime to pay for educational costs without paying any withdrawal fees.
This is certainly one of the best ways to save money for your kids.
3. Set Up Custodial Accounts
One of the best-known tips for saving money for kids is to create custodial accounts such as the Uniform Gift to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA).
These accounts will be managed by you as a parent or guardian. When your child reaches the age of majority, he/she can be in charge of the finances. While using any of these custodial accounts, you can contribute cash, investments, and real estate. By the time the fun is handed over to your child, your investments must have matured.
However, bear in mind that UGMAs and UTMAs aren’t ideal options for college savings. Also, there aren’t restrictions on how the money can be used, which isn’t the best thing when you have a single purpose of creating the account.
4. Use Health Savings Accounts
It’s important you know how to save money for your kids when it comes to their health.
Health Savings Accounts (HSAs) are a perfect choice to save for your family’s medical expenses. They are highly tax-advantaged investment accounts for households that don’t want to be worried about expensive healthcare. However, HSAs are only available to you if you have high-deductible health insurance plans.
But don’t forget that with a Health Savings Account, your contributions are tax-free and can always be withdrawn tax-free to cover qualified medical costs.
5. Consider Creating A Taxable Investment Account
Now, this option doesn’t provide tax benefits like the accounts mentioned above. But the reason you might want to use it is because of how flexible it is.
If you want to embark on a long-term savings goal, a taxable investment account can help grow assets. Although you would be taxed, your savings must have grown to the point where you can pay the taxes conveniently.
While exploring other tips on how to save money for your kids, have this in mind.
6. Grow Money Quicker With A High-Yield Savings Account
Many families rely on high-yield savings accounts to grow their money over a long period of time. When it comes to learning how to save money for your kids, you can use a high-yield savings account to make your contributions.
This option is perfect if you don’t want too many restrictions on your money. It’s easier to use your savings for other purposes in case of emergencies or if you change your mind about why you’re saving in the first place. But most importantly, you will earn more interest, unlike when using a regular savings account.
Recap: How To Save Money For Your Kids
Your kids deserve to grow into a secure future without financial worries. But to make that happen, you have to start preparing today by learning how to save for your kids. The good thing about this is that there are various options you can rely on.
For instance, if you feel the 529 investment account is too restricted, you can simply use a taxable investment account instead. It doesn’t really matter which option you eventually choose. What’s important is to save money for your children’s future so they don’t lack the basics of life.
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