How to Save Smart For Your Children’s Future

Kids bring joy and light to our lives but it cannot be denied that raising them could be very costly. Their basic needs are just one thing. Once you add up childcare, health expenses, tuition fees, trips, and even future college expenses, you will realize that the total cost is enough to make you pull your hair out.

As parents (whether biological or not), we all want our kids to have a comfortable life and secure future. We might not know what the future really holds for them but as parents, our obligation is to make sure that they are equipped with the right tools and skills that can give them a good start in life. Doing that sure costs a lot of money.

So instead of continuously whining about childcare expenses, it is time to stop and think about how you can ultimately give them a good head start in life. Below are several tips that can help you start saving smartly for your children:

The best time is NOW.

When is the best time to save up for your family? The best answer to that is 5 years ago. Don’t worry, you still have a chance to make up for that because the next best time to start saving is NOW. The sooner you can start, the better.

When you open a savings account for your young kids, time is your good friend and ally. You will give your kids a huge advantage if you start saving when they are still babies or toddlers. The longer their savings are placed in an account, the bigger it gets when they reach their teens or adulthood.

The best part? You don’t even have to set aside half of your income to build up this fund, you can just put aside a small amount of money as a regular contribution. Small amounts add up over time and if you factor in compounding interest, you are in for a huge bonus!

For example, if you opened a fund with $1,000 as a starting balance and add $100 each month for 21 years, your total contribution would be roughly $26,200. However, with compounding interest, you could get a total of $36.921! That’s over $10,721 in interest made over the years (assuming a 3% compound monthly interest). Now imagine if you can regularly set aside a higher contribution than $1. Your child can certainly use that money when they are about to enter college or move out of the house.

List your family goals.

Think about your plans for your children. Do you want them to have their first car or first apartment when they turn 18? Do you want to give them an option to travel during a gap year before they choose to enter college? Or do you want them to enroll in a good university far from home?

Whatever those goals are, you have to take note of them so you will be motivated to save regularly. Of course, we won’t really know what happens to their future, and the kids might even choose a different path, but your duty is to make more options available for them in the future. The reality is, many options and opportunities require financial expenses. Whatever they might choose in the future, you can surely support it with the money you have saved.

Choose the right savings account.

There are many types of kids or junior savings account that are available in banks. These types of accounts usually give higher interest rates than accounts that are designed for working adults. Research a reliable bank near you and try to compare which one can give you more of your money’s worth.

Try to understand tax implications.

This should also be part of your research. Once you are scouting for children’s accounts, you also have to ask about the tax implications of each type. Most are tax-exempt, but they might be subject to taxes if the money is withdrawn at an earlier date. Most children’s accounts are tax-free only after a certain number of years (usually more than 5 years) wherein the parent has made regular deposits.

Don’t forget to factor in inflation.

Although a compounding interest will give you more than what you have saved for, the value of your money would still be at risk after inflation is factored in. As the years go by, the worth of your child’s money would be devalued because of inflation.

It would help if you set aside a higher amount of money each month (if you can). Choosing the right account, with promising interests or yields is also a good cushion against the effects of inflation.

You can also invest in safer types of assets such as Gold. Traditionally, Gold investments are known to withstand volatile fluctuations in the economy. Its value is not dependent on inflation or deflation.

As a parent, it is one of your responsibilities to ensure that your child can get a good head start in life. Establishing a fantastic nest egg is a great move, but we should also not forget to teach kids the value of hard-earned money. Providing our kids with a modest fund gives them an advantage, but to ensure that they will use the money wisely, you also have to educate them about saving, budgeting, and financing.