Saving for your child’s future is one important endeavor you cannot afford to take lightly. It is imperative for you to take big steps that will help your child get a strong start. Unfortunately, many parents make the grave mistake of procrastinating when it comes to investing in their child’s future. In this article, we will cover several powerful tips that will help you save money with limited risk
Create a Realistic Budget
You must manage your money wisely if you want to have success with saving money for your child’s college education and other expenses. Creating a realistic budget will help you manage your money with ease. If you are married or in a partnership, you should have a plan for how you and your spouse will manage finances after marriage. There are now modern computer software and apps designed for budget-setting, but pen and paper can help you lay out your budget also.
The earlier you start saving, the better. Even the smallest investment can grow overtime, and even the most gradual growth can add up after a few years. The “get started early” approach will help significantly reduce the stress that comes with budgeting for a child’s future. Saving fifty dollars a month over fifteen years at five percent will yield an impressive saving account balance of over $13,000. Please keep in mind that you don’t have to invest aggressively if you start early.
Focus on investing a set amount of money each month. You should also consider increasing this amount once or twice per year. If you increase your deposits in small increments, the increased amount will have a huge impact on your overall savings.
As a parent, you must be determined to make sacrifices for your child. There is nothing wrong with shopping or traveling, but you should place more emphasis on your child’s future over your own luxuries. Make an earnest effort to keep your spending habits under control. Discipline is the key when it comes to make big financial sacrifices for your son or daughter.
Educate Your Child about Money
It is your responsibility to teach your child how to value money. There’s an old saying “Money doesn’t grow on trees.” It is vital for you to share this old adage with your children. They need to learn that nothing is free and that hard work pays off.
Giving them some chores to do for an allowance is one way that you can teach them a humble appreciation for money and the value of hard work. Giving your child a piggy bank will help them understand the concept of saving that hard-earned money
Use Tax Savings to Your Advantage
At the rate college tuition prices in the US are going, they will continue to increase as time progresses. Fortunately, there are several funding options that grow tax-deferred or tax-free. Is there a catch? Well, yes there is a catch. Two of these options are reserved for educational purposes. Let’s take a close look at them.
529 College Savings Plans: Similar to a 401(k) plan or an IRA, 529 College Savings Plans gives parents a golden opportunity to save for a child’s education tax-free via a variety of attractive investment options.
Pros: The 529 College Savings Plans are hands-off. This is ideal for parents that have no or little investment experience. In some cases, tax breaks are awarded.
Cons: These funds can only be used for higher education. Be ready to pay maintenance fees.
Custodial Account: This is a special account created at an established bank, brokerage, or mutual fund firm. The Custodial Account is managed by an adult for a minor under the age of 18 to 21.
Pros: The Custodial Account excels when it comes to saving for broader purposes. The savings in this account can be used to buying an automobile, paying for summer camp, or covering college tuition.
Cons: The Custodial Account is associated with the risk of securities. The money will be transferred to the child when they become an adult.
U.S Treasury Bonds: U.S Treasury Bonds are savings bonds issued and ensured by the United States Government. They are exempt from local and state taxes.
Pros: U.S. Treasury Bonds pose less risk than other saving vehicles tied to the stock market. These special bonds offer great tax advantages if the money is used for college tuition, and the family is under the income limit.
Cons: U.S. Treasury Bonds come with early withdrawal penalties. Based on recent studies, it is highly unlikely that U.S. Treasury Bonds will be able to keep up with increasing tuition rates.
When our children are young, it can seem early to address concerns about their financial future. But taking early measures can help secure a bright future for them. Taking heed to the basic tips listed above will put you in position to save a significant amount of money over a reasonable period of time. Your child’s future starts today!