A somewhat alarming survey, conducted just a few years ago, calculated that the cost of raising a single child, from infancy to adulthood, was around $250,000. That is an astonishing amount as it is, but that’s without even factoring in the adult years. After all, after bleeding you dry throughout their childhood, your once-smiling, grinning and screaming bundle of joy then becomes an adult that needs to rely on the Bank of Mum and Dad to pay for everything from a new car and/or house, to a college education.
If you decide to bring a new baby into the world then whatever way you look at it, you will be paying for that baby for at least the next 18 years. But if you prepare when your child is not yet old enough to ask you for a loan, or to beg you for a new car or a new computer, then you can make things considerably easier for yourself.
In this guide we will take a look at seven ways that you can save for your child’s future, ways that will ensure that both your child, and your bank account, is well looked after 18 years from now.
7. 529s and Other College Funds
A lot of the $250,000 or so that you will spend raising your child will be spread out over the course of their life. You will spend a lot on clothes during those early years, when they can’t stop growing and you can’t resist a new frilly dress or a cute pair of shoes. They will also go through a lot of toys, seemingly growing out of them almost as soon as you buy them. However, these expenses are spread out, so they will not hit your finances that hard.
However, when your child is ready for college then your finances could take the biggest hit yet. That lump sum and everything else that is piled on top of it could spell disaster even for a family that is relatively well-off. Belts need to be tightened, compromises need to be made. If it comes to it, the child might not even be able to go to college, and that would be a huge shame.
But if you prepare for this eventuality by putting a little money aside each month, then you’ll be ready and you won’t even notice that the money is gone. Think of it this way, few parents would miss an extra $10 a week. It’s the price of an admission to the cinema, or a few beers. But If you save from the day the child is born, then when they are 16 that infinitesimal sum will be $8,320, and that’s even before you begin to add the interest and the other benefits that some saving plans give.
There are many different plans available, but these are the ones we recommend in order:
529: Few parents even know that this plan exists. It is a savings plan that was setup specifically to help you build a college fund for your child, and it is the smartest way to save for this. Providing you use this account for its intended purposes, then you will never need to pay tax on any of the money that is saved here. What’s more, there are very few limits on how much you can save and on how often you can contribute. 529 savings accounts are issued by the state and there are several different ones available, each being tailored to your needs.
Dedicated Child Savings Account: These accounts are provided by most banks. The interest rates are not fantastic, but there are a number of other features. And if you sign up with a bank like ING Direct, you will get some free literature on saving, which was developed to teach kids how to manage their money. This is a great account to begin at birth, before letting your child contribute when they get older.
Employer’s Savings Account: Many companies have savings accounts that their employees can use, saving in their child’s name. If you find it hard to keep up with a savings plan and to keep depositing every so often, then this may actually be the best option for you, as these plans deduct a percentage of your paycheck and add it to the savings account. Ask around to see if your company has one of these and make sure you read the small print before you agree to anything.
6. Prepaid Tuition
Staying with the theme of college funds, there is another, craftier option that is available, one that very few parents take up but often live to regret. This is known as “Prepaid Tuition” and means that you can essentially pay for the tuition now, locking in whatever the current rate is, even though there is another 16+ years before your child will need it.
This is perhaps better done when the child is at school and you have a good idea of where they will go, what they will do and where you will be as a family, but it’s something that you can do at any point in time. Tuition rates are always increasing, and the longer you wait, the higher they will go. Inflation plays a major role in this, but it’s not the only deciding factor. By paying in advance, you can counteract this and you could save yourself a fortune further down the line.
This is especially useful for parents who are living very comfortably now, allowing them to get in when the going is good and ensuring that even if a succession of rainy days are just around the corner, their child will still have that college education waiting for them.
These plans are provided by the state and they are not available in all states, so this is something that you will need to read up on. And don’t worry if you think that you might move away from the area by the time your child reaches college age, as these tuition plans can be used at any private college in the country.
5. Get Covered
You feel invincible when you’re young, but you’re not. Anything can happen, and if you don’t prepare for the worst, then your child may be the one left to suffer. It doesn’t matter how old you are, it doesn’t matter if you are fresh out of college or if you’re approaching middle age, if you want to settle down and have a child, then you need to make sure that child will be cared for if the worst does happen.
There are several ways that you can do this, each as important as the next:
Find a Godparent: Your first step should be to appoint a guardian, whether in the form of a Godparent or a legitimate next of kin. More often than not, parents appoint a close friend as a Godparent purely as a way of showing solidarity, expressing closeness and ensuring they are by their side at the Christening. This is a terrible way to chose a Godparent. After all, that person is the one who will look after the child if anything happens to you. So, don’t just choose someone you’re close to, make sure that someone is responsible (preferably with kids of their own) and make sure they would actually want to look after your child if the worst was to happen.
Will: I know what you’re thinking. “I’m too young to have a will.” And maybe you’re right, but you’re doing this for your child, not for you. You may be too young to die of natural causes, but while rare, you are never too young to die of a serious illness and you are certainly never too young to die in an accident. It’s morbid, I know, but you can’t refuse to think about these things just because they are unpleasant, as the alternative is much more unpleasant for your child. Make sure that you and your partner create a will and make sure you come to an agreement as to what will happen to your money and your belongings. It would be wise to give most, if not all, of what you have to your child or their carers in the event that both parents pass. It may not be as expensive or difficult as you think to create your will and there are many services available that will do this cheaply and quickly.
Life Insurance: You can purchase life insurance at any age, and this will cover you for most eventualities. If you are young, then your premiums will be smaller and your next of kin will get a bigger payout if anything happens to you. Life insurance is not black and white and there are many grey areas that you need to look into. For instance, there are policies that will give you a payout if you contract a serious illness, if you lose the use of your limbs or if you are unable to work and fend for your family. These policies can cover you for a rainy day, just make sure you read the small print and know the hows, whens, whys and what ifs of the situation.
4. Educating Kids with Stocks
These days, the vast majority of youngsters know very little about how the world works. They don’t have a firm grasp of what the stock market is or how the economy works, and this means they are often ill-prepared when they are thrust into adulthood and are forced to deal with all of these things themselves.
You can help them by teaching them about the stock market and the economy from an early age. One of the best ways to do this is to buy them a few shares in something they love. Disney is a great example of this. You can buy stock in your child’s name and they will receive a certificate to show that they are the owners of that stock. This certificate can be framed and placed on their wall and every now and then, as those shares rise and fall in value, you can point to that certificate and explain those price changes to them.
You don’t need to turn them into stock market moguls. The goal is merely to make them more aware of the things that are essential to keeping the modern world afloat. This may even make your child more responsible with money, which is something that many kids struggle with. Sport teams are also a great investment if your child is into that sort of thing, as that way you can teach them how a win or a lose in any given game week will affect the value of the certificate on their bedroom wall.
3. Staying Safe
Through all of this, and whatever option you choose, it’s important to remember that you need to keep your details and your identity safe. More and more people are losing their savings because of fraud, and this is only going to get worse. Before you invest your time and your money in any savings account, make sure that you are covered if the worst does happen and you are a victim of fraud.
You should also take the necessary steps to avoid becoming a victim in the first place. If you need a little help with this, read this article on 100 Ways to Prevent Identity Theft. Stay safe, because your baby’s future – as well as your own – depends on it.
2. Investing in the Markets
There are a few do’s and don’ts when it comes to investing for your child’s future. Investing your money is different to saving it, as there is a possibility that you will lose everything and there is absolutely no guarantee that the money you invested will still be there in 1 year or 10 years time. But if you invest wisely, and if you are patient, then this can be a great way of building for the future.
Trade Options/Futures: This may be the “in” thing right now, but as a long term investment, these are not ideal. Options and futures are for people who have a lot of time and money to invest, people looking to profit from slight changes in the market by investing large sums of money. Do not get drawn in.
Buy Savings Bonds: Many armchair experts will tell you that these are a great option if you want to prepare for the future, but actual experts say otherwise. These bonds offer low interest, and as a result they very rarely beat inflation. If you are given these bonds as gifts, which is often the case with new and expecting parents, then cash them out immediately and look to invest that money elsewhere, because savings bonds will not do you or your child any favors.
Buy Penny Stocks: It is true that a penny stock could net you a huge return from very little money and it is true that this will secure an entire college fund at a fraction of the cost, but for every success story, there are hundreds of failures. Penny stocks are not your ticket to a fortune and they are definitely not the answer to saving for your child’s future.
Take Advice from Anyone: Everyone has advice on what companies you should and should not invest in, but in most cases there is an ulterior motive or the one giving the advice just doesn’t know what they are talking about. So many novice investors have lost everything they had this way, so do not take any advice on face value and always ask yourself what they have to gain from giving it to you and what the risks involved are.
Buy Bluechip Stocks: Bluechip stocks are stocks that are very strong and are not expected to drop. In fact, it is very rare for a bluechip company to go bust, which means your money should be relatively safe. This does happen, but there are negative sides to everything. The only thing you should ask yourself is not “if” but “how often” and in this case, the answer is “very infrequently.”
Hedge Your Bets: Do not put all of your eggs in one basket, because if anything does happen, then you will lose it all. Look at it this way, if you invest all of your money in one company and it goes bust, you have nothing to show for it. If you invest it all in several, then at the very worst you will only lose a fraction of it.
Save Dividends: Bluechip stocks pay out dividends, which are given out every year. You will be given the option to invest this money back in the stock, but your best bet is to take it as profit, move it to a separate savings account and then let it build. Over time, not only will you have the value of the shares, but you will have also accumulated a sizable sum in dividends.
Be Patient: Do not panic sell as soon as your stocks drop in value. This will happen, and it is common for the stock market to drop and rise regularly. Even if there is a huge drop, if you have invested in a large company, then it should recover eventually, it will just take time. The best thing to do is just to avoid checking them everyday and only look in every few weeks or months.
1.Investing in Precious Metals
What if the stock markets crash, what if the global economy goes into meltdown? These are questions that many first-timers ask before investing. The truth is that if these things did happen, then not only would you probably lose your savings, but there probably wouldn’t be anything worth saving for as the college would be in as much trouble as you.
This is a very unlikely scenario, but it is not unlikely to think that there will be another depression or recession, and in such situations you might not lose your investments or savings, but they would certainly take a hit.
That’s why many of the experts choose to add precious metals to their portfolio. Gold, silver, platinum and even palladium are known to guard against inflation and financial woes like deflation and depression. In fact, every time there is a financial crisis around the world, every time the stock markets take a dive or the value of the dollar drops, the value of precious metals increase. These are safe havens for the financial world. To put it simply, it is where the money goes when it is being sucked out of the stock market.
Do not spend your money on numismatics, and do not buy gold or silver to store in your own home. The former is too risky and volatile, while the latter is unsafe. Instead, invest in a bullion storage company. They will keep your bullion in an overseas vault, out of the reach of a central bank (very important in a financial crisis, as it means they can’t confiscate your investment or stop you from getting your hands on it) and in a secure environment. They will also sell it to you for close to spot price (the market value) and will be ready to buy it back when you are ready to sell.
With the huge increases that precious metals have experienced over the last couple of decades, and with the potential for more on the way, this could be a great way to prepare for your child’s future, and it may just take a few ounces of gold or platinum to get them into higher education and to put them on their way to achieving both their dreams and yours.