The first few months after you bring your baby home is an exciting time that can also be a bit stressful. It’s easy to get caught up in sleepless nights, organic baby food and reading every book you can find.
Sometimes parents forget an obvious priority: teaching and helping your child to save money as they grow up.
1. Set up a savings account for your child and make regular deposits.
You don’t have to know what you want to do with your child’s savings yet. However, the first step is as simple as opening a savings account for your child. Studies show that young adults who had savings accounts as children make better financial decisions, are more prepared for financial emergencies and plan better than their peers who didn’t grow up with savings accounts.
Open an account like Genisys’ youth club savings certificate that lets you put a few dollars into it every paycheck. Invite your child to participate by making deposits of their own when he or she is old enough. Accounts specially designed for kids often offer higher dividend rates and educational resources so your child can learn to be smart with their money as they grow.
2. Start saving for college now.
Most parents know they need to save for their child’s college education, but few seem to realize how much college will cost. Education costs have been rising much faster than inflation, and if you’ve been out of school for a few years, you might be shocked by the costs. To make matters worse, and more expensive, many universities are receiving fewer public dollars, and getting a larger portion of their income from tuition, thus passing the cost on to students.
All told, experts expect four years of public school to cost around $250,000 by 2030. While it’s difficult to imagine saving that much money, don’t give up or neglect to even try.
First, think of college costs as a pie that’s been split into thirds. The first third will be paid for by your loans and awards your child earns. You’ll pay for the second third using the income you earn at the time.
Only one-third needs to come from a college savings fund. Granted, one-third of $250,000 is $83,333.34, and that’s a lot of money. Take a deep breath, because you have decades to save it, and you have a secret weapon: compound interest, which Einstein considered the most powerful force in the universe.
Look for college savings plans including 529 Savings accounts which can have significant tax savings. Other options such as the Coverdell IRA account allows you to contribute up to $2,000 a year and withdrawals are tax-free.
3. Focus on what you can control.
If you’ve been a parent for more than a few minutes, you’ve had at least one moment of pure panic while thinking about the future. There’s so much you can’t control, so place your focus on the things you can control.
Disaster sometimes strikes, and when it does, it’s usually unexpected. We don’t like to think about life ending, but it is inevitable. Instead of panicking over it, plan for it. While you’re at it, start planning for some of the less dramatic problems that might crop up. Start with life insurance, then look into other savings products and programs that are designed to protect your family.
One mistake many new parents often make is to immediately start throwing money at college savings while ignoring their overall financial picture. If you read the numbers in the previous point, it’s easy to see why. Start by building a nest egg that can carry you through six to nine months of no income, and then build your retirement fund. Money market accounts are a good way to build your short-term nest egg, because you can access your money if you need it, and you will get a better return than a traditional savings account.
Take your financial planning steps before they take their first steps and you will be prepared for their future, your future and any curve life may throw at you.
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