Growing children have many immediate needs. For many parents, it can be a scramble to pay for all the home, food, medical, and educational expenses that a child needs. This doesn’t factor in future needs, such as college tuition, room and board, and beyond.
Parents need to look for ways to invest in children’s savings to prepare for the future. After all, any parent would want as little financial stress as possible for their kids! By planning for the future, you can create a plan that will secure their finances as they age.
Another benefit of investing early in a child’s life is that you can start teaching them money management strategies as they grow up. Having that kind of mindset as they go through life will instill a sense of responsibility and sends them on the right path to financial success.
For parents who want to invest in their children’s financial future, here’s how you can start:
Take Care of Yourself and Your Current Needs
Before even thinking about tuition plans and future investments, you need to secure all of your current financial needs. Make sure you have a well-planned emergency fund, you’ve paid off all debts, and you’ve invested in your retirement. These are all immediate needs that you need to address before you can look further into the future.
You need to secure yourself financially so your children won’t have to worry about you after your retirement. Only then can you start making room in your budget for your child’s future!
Open A Savings Account For Your Child As Early As Possible
You can establish a custodial savings account for your child. You will control the account until your beneficiary reaches a certain age—which is 18, in most states. In a custodial account, the child is the legal holder of all assets.
All money you want to set aside for your child’s future can be saved in this account. Any monetary gifts he or she may receive on early birthdays can be set aside in this account so it will all be in one place for them once they’re of age.
This savings account can be a vehicle you can use in teaching your child about stocks, money market funds, and other investment securities. Include them in making investment decisions and give them lessons that they will take with them as they grow up. By the time they take ownership of their account, they will have all the knowledge they need to have a bright financial future.
Invest in Your Child’s College Education
As many as 84% of millennials are saddled with student loan debt that they’re still paying after nearly a decade in the workforce. You can help your child avoid this by investing in a 529 plan.
A 529 plan is a tax-advantaged savings plan that covers K-12 and college tuition. Savings are non-taxable, and withdrawals used for education costs are tax-free as well. The account holder contributes money to the plan, and they can choose the funds they want to invest in to make it grow.
Minimum contribution requirements and tax advantages vary per state, so make sure to do some reading before opening an account. The earlier you invest in a 529 plan, the more time your money will have to grow.
Invest in Your Child’s Retirement
It’s never too early to start saving for retirement! You and your child don’t have to wait until they’re out of college to get started. A Roth IRA (Individual Retirement Account) is similar to a 529 plan. All growth is tax-free, and all withdrawals made in retirement are tax-free, too.
Setting aside $50-$100 a month will help your child get a head start on their retirement savings. Compound interest will keep their money safe and growing until it’s time to retire. It’s a great safety net for them as they enter the workforce in the future.
There are many ways you can invest in your child’s future. The most important thing is to settle all your current financial needs and start as early as possible. As your child grows up, you can teach them all about these investments to give them a useful framework for handling all future earnings.
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