Table of Contents
- Why Is it Important to Save for Your Child’s Future?
- How Much Should You Be Saving for Your Child’s Future?
- Tips for Saving for Your Child’s Future
- Will Your Child Receive Financial Aid If You Save for College?
Being a parent is undoubtedly a rewarding experience. But it also brings particular challenges, especially so when it comes to ensuring them a proper school education. Children grow up very fast, and so do their needs and demands. In this sense, it is crucial to start saving for your child’s future as soon as possible and as much as you can afford. After all, that will make your and their life easier in the long run. Do you want to know more about why and how to save for your child’s future? Please keep reading.
Why Is it Important to Save for Your Child’s Future?
Children’s future, especially their education, is crucial for a parent. However, it comes with its costs, so you must start saving as much as possible to provide them with a high-quality education. After all, that would be nothing less than a good investment in your child, hopefully enabling them to build their financial independence and stability.
How Much Should You Be Saving for Your Child’s Future?
It is undeniable that college costs are increasing, so seriously consider building finances for your child’s best education. However, if you are expecting us to give you a fixed number, you will be disappointed since it is hard to quantify this question into something precise. Still, there are a few crucial takeaways from which you can still benefit.
Concretely, start by getting familiar with college tuitions and their estimated growth; that will make it easier for you to calculate your savings. But do not stress out; you may not need to save for the total cost. If you save one-third of that cost, you will still be fine as the other part may be covered through a financial loan, and depending on the country you live in, various financial support schemes may be available. Finally, note that the more you manage to save, the better. Thus, do the best you can within your financial possibilities.
Tips for Saving for Your Child’s Future
It goes without saying that as a parent, you want the best for your child, even if the “best” sometimes translates to “pretty expensive.” You will be responsible for their clothes, food, school, books, toys, sports, and other expenses. So covering this and also trying to boost your child’s financial future is not an easy task. Yet, it is crucial and, most importantly, doable if you follow a few essential tips to help you in this process.
You may have perhaps thought of starting to save for your child but are waiting for the “ideal time”. Well, there is no such time other than now. Successful saving to invest in your child’s future is as much about the length of time you can save for as how much money you can put aside. In this way, you must start saving for your children as early as possible, however much you can afford. Even if that is a tiny sum, remember that with a steady contribution, the savings will grow. It is simply crucial for you to maintain discipline when saving.
Create a savings account
Opening children their own separate accounts, which you will still manage until they turn 18, is an excellent choice for several reasons. First, with such an account, you can set up regular and automatic payments from your account, which will build a solid fund over months and years. Besides that, it will keep your child’s savings separate from yours and avoid using that money for something else. Some banks even apply withdrawal limits, so even if you want to take the money out, you cannot do much of that, so you will necessarily limit yourself only to what is strictly needed. Finally, maintenance fees may be low, so pay great attention to that.
Teach your child the value of saving
Money will always matter, especially when you have kids and need to ensure a stable financial situation for the family. In this sense, it is essential to put some money aside yourself, but also teach your children how to manage their finances properly, now and in the future. Teaching them the value of saving from a young age will help them build this valuable habit, enabling them to become financially stable and independent in their later stages. You can teach your children to save in a few simple steps, such as:
- Explain to them the value of money and show them that things cost.
- Provide them a place to save. For younger kids, it can be pretty straightforward. They can start putting their money in a jar, while teenagers can have their debit cards jointly managed with you.
- Give them opportunities to make their own money. Allow them to work part-time when the age criteria have been fulfilled.
- Set a good example. If you want your children to become successful savers, become yourself one and lead them by example.
Open a Child Trust Fund
A Child Trust Fund Scheme is a long-term tax-free saving scheme for children that gives them a lot of money when they reach the age of 18 and likewise encourages them to develop good saving habits throughout their adulthood. Depending on your country, there may be different criteria for opening a child trust fund. So, make sure you are familiar with the procedures first. Notwithstanding that, please know that this fund is managed by parents until age 16/18 again, depending on your country’s rules. The former are the guardians of the fund and can, among other things, tell the account provider how to invest the fund and run the account, or change the type of account from cash to stocks and shares, as well as other similar actions.
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Contribute to a 529 College Savings Plan
Using a 529 College Savings Plan is accompanied by numerous benefits. To begin with, by using a 529 saving plan, you will benefit from the tax-free policies, meaning that you will not be taxed when the money is taken out to pay the college. Besides that, you will also be able to benefit from high contribution limits, which will maximize your tax benefits related to 529 saving plans.
Unlike a random savings account that enables the beneficiary to take hold of the account once they have reached legal age, in a 529 savings plan, you will be able to maintain your control and not allow the money to be used for another purpose. Any non-qualified withdrawals may face income taxes and additional penalties.
A well-reasoned investment into shares or other financial instruments may have great chances of success. It will therefore allow you to benefit from potential market growth and company returns. This will add up to your savings and has some advantages over classic cash savings. The latter is easily accessible. However, interest rates are low, so your child’s savings will grow slower and not as much as they could through investing. Therefore, when time is on your side, and you do not need money in less than three years, really consider investing.
Will Your Child Receive Financial Aid If You Save for College?
A yes or no answer is not an easy task here. In principle, even if your child has a college fund, they may still qualify for financial aid. It mostly depends on the school cost of attendance, outside resources given to the students such as scholarships, and the expected family contribution. It is vital noting that different countries and colleges apply different formulas to calculate the amount they will offer as financial aid.
Notwithstanding that sum, please note that most of the time, the financial aid is given in the form of a loan which will have to be paid back, so the more you can pay off, the better.
Considering the importance of high-quality education and the costs with which it comes, saving for that purpose is the most significant investment you make for the future of your child. Knowing that saving requires planning and discipline, we recommend you take the critical steps elaborated above and make saving easier and more productive.