Raising a child is expensive. According to studies, your 10-year old will cost you more than $20,000 in 2019.
The cost of education, clothing, food, health care, and transportation all add up at the end of the month. Other research shows that the total cost of raising a child from birth until they are 18-years old could amount to nearly a million dollars.
That’s a reasonable chunk of change that you’re investing into your child. However, the results are worth it if your child turns out to be a well-adjusted young adult. If you’re a new parent, you might be wondering how you are going to save money for your child’s future.
The cost of a college education continues to rise, and the last thing you want for your child is for them to take on a student loan. Statistics show that most students take around 21-years to pay off their loans. That’s a lot of time to remain indebted to the federal government. By paying for your child’s education, you give them an advantage over their peers that allows them to succeed earlier in life.
Saving for a college education is only one aspect of building a fund for your child’s future. Along the way, they’ll need allowances, a cellphone, and their first car. So, who’s going to pay for all of that stuff?
We decided to put together this guide to help you with saving money for the future of your children and family.
Invest in Their Future Early
Many parents make the mistake of starting a savings plan for their children too late in life. Waiting until your kid reaches 10-years old to start saving for college is wasting valuable time. By starting your savings plan early, your child will have more money and more opportunity when they reach early adulthood and goo off to college.
The first place to start with saving for your child’s future is by opening an investment account to build savings. Investing in a mutual fund is an excellent way to save, and your money gets the benefit of earning compound interest as well.
Mutual funds consist of capital pooled together from investors and managed by a professional account manager. The fund manager invested the money into financial assets on the stock market, giving your exposure to stocks and bonds that yield profit. Most mutual funds earn their clients between 8 to 11-percent per annum before costs.
The best part about investing in a mutual fund – is the compounding effect. When you open an account with a mutual fund, they pay you an annual return. As a result, your opening balance is higher, and you are using your money to make more money. The following year, you receive a return on the total amount of funds in your account at the start of the financial year.
By opening a mutual fund for your child at an early age, you can make minimal contributions and watch both your child and your money grow.
The 529 Plan
The 529 Plan is a savings vehicle for your child’s future. A 529 allows you to put away $2,500 per year toward your kids’ education. When you withdraw the money, the capital gain is tax-free, provided that you use it to fund your child’s college or education expenses.
A 529 is an excellent way to take advantage of tax-free benefits for funding your child’s education. However, the $2,500 limit means that you’ll have to start saving immediately after the birth of your kid. If you only manage to save $2,500 per year, it means that you’ll have around $35,000 in your 529 plan by the time they turn 18-years old.
Research shows that the average student graduates college with $36,000 in student loans. By using the 529 plan from birth, you can set the foundation for your child’s college education.
Examine Your Budget
Now that you’ve set up the financial vehicle for your child’s future, it’s time to discuss how you can maximize your contributions to the asset. The first place to start with saving money is by examining your budget. Write down a list of all of your monthly expenses, and arrange them in categories.
Use the budget plan to account for all of your spending during the month. Make sure that you know where every dollar you earn goes, and you’ll start to identify areas where you are wasting money. After identifying these wasteful expenses, make a plan to eliminate them from your budget.
If you enjoy going to the car wash every week, consider washing your vehicle at home instead. If you enjoy sipping on a Starbucks on the way to the office, buy a travel mug and take your coffee with you from home.
It may not seem like removing your daily cup of coffee from your expenses will make a big difference in your budget, but it adds up over the year. If you’re spending $2 on a coffee every morning, then that’s $10 a week. Multiply that by 50-working weeks in the year, and you have $500, you can save toward your child’s future.
Look at other areas of your budget where you can cut back. Do you need multiple streaming service subscriptions? Are you eating out too often during the month? Do you spend too much on entertainment? Cutting back on all of these factors will reduce your expenses, allowing you to save more for your child.
Sell the Old Stuff
One of the reasons why raising a child is so expensive is that you have to buy them new stuff continually. Kids grow out of their clothes, toys, and accessories quickly. Paying $1,500 for that new baby stroller seems like a great idea when they are 5-months old, and you need to haul them around the mall or go running in the morning.
However, when they are 5-years old, they’ve old since outgrown the stroller, and its sitting in your storage gathering dust. Take advantage of the situation and sell all of the kid’s old stuff on eBay, Facebook, or Craigslist, and bank the cash.
Some items sell better at specific points during the year. For instance, if you decide to sell your baby’s crib, you’ll get 30-percent more for it in March than you would in December.
Consolidate Your Loans and Pay Down Debt
Starting a family when you have a mountain of debt to pay off is a challenge. As a new or aspiring parent, you need to create a financial foundation for your child’s future that involves your family using as little debt as possible.
Sure, everyone has credit cards, auto loans, and a mortgage. However, if you make it a priority to pay down the best as quickly as possible, you’ll increase the financial prosperity of your new family. One of the best ways to pay your creditors is through the use of debt consolidation.
A consolidation loan rolls all of your outstanding debt into one credit facility. This strategy allows you to make one payment to cover all of your debts each month. If your credit score increased since you took out your loans, you might qualify for a lower interest rate.
Call your lender and speak to them about a consolidation loan. If you can get a cheaper APR, then you can add the monthly savings to your child’s mutual fund or 529 Plan.
Ask Your Insurer to Review Your Premiums
Most people start driving in their teens. However, studies show that most Americans get their first car at age 18, and that requires them to get insurance to cover any accidents. Typically, insurance companies offer higher premiums on policies for drivers under the age of 25-years old.
The insurance companies view this demographic as high-risk, and they boost premiums to make you more careful on the road. However, unless you make an effort to contact your insurance company, the chances are they aren’t going to decrease your premiums.
If you are over the age of 25-years old, and you have a good driving history that’s accident-free, you could qualify for a discount on your premiums. Call your insurer and ask them to adjust your rate. Most insurance companies will comply with your request, and you could receive a saving on your premium of up to 25-percent.
Reduce Your Transportation Costs
How many cars do you have in your household? Most couples have two cars in the driveway, but they only need one to handle their transportation needs. Consider selling one of your vehicles, and bank the proceeds of your sale in your child’s mutual fund.
Make use of public transport to get to work or carpool with friends or your neighbors. You’ll find that you don’t need the second car as much as you thought. Owning one car also means that you lower your monthly gas bill. These savings alone are enough to get your child a financial head start in life.
Cars are often a status symbol in American society. Are you driving a vehicle that suits your budget, or are you funneling your cash into a depreciating liability? If you own a gas-guzzling SUV, then consider trading it in for something more economical.
Money Gifts and Taxes
Bringing a child into the world is a life-changing event for your family, and your extended family as well. Your parents become grandparents, and everyone knows how grandparents like to spoil their grandchildren. However, before you accept any cash donations for college or other lifestyle expenses, make sure you understand the tax code.
As an example, your parents might decide to give your child a cash gift for their christening. Relatives can provide each other cash amounts up to $14,000 per year, without incurring taxation.
Unfortunately, that monetary gift can disqualify your child from applying for financial aid through the FAFSA (Free Application for Federal Student Aid) program.
Grandparents can still give the child monetary gifts, but make sure they are within the taxation limits to avoid any gift taxes.
Teach Them Financial Literacy
Many Americans live on or below the poverty line. Studies show that more than 60-percent of Americans are living paycheck-to-paycheck. Rates of homelessness are rising across the country, with “tent cities” popping up in every city along the West Coast of the United States.
While drug addiction has plenty to do with rising homeless rates, so does the current economic conditions across the country. The last thing any parent wants is for their child to become another statistic of the homeless crisis. Therefore, you must teach your child about financial literacy from an early age.
With financial literacy, we are talking about teaching them how money works. As your child grows, let them start a piggy bank, and show them the power of saving their money. Show them what happens when you run out of money, and make them financially responsible from a young age.
Many Americans like to keep their financial situation away from their children. These individuals claim that having kids stress over money is not a healthy way to grow up in America. However, research shows that families that share their financial position are often in a better space with money.
By teaching your children about how money works, you give them an education they can’t receive in school. If your child grows up financially responsible, then they are more likely to continue with these habits into their adult years.
In Closing – Give Your Child a Bright Future
As concerned parents or aspiring parents, you want to give your child every opportunity in life. If you read through and implement all of the tips in this article, you should be on your way to securing your kids financial future.
The costs of raising children will continue to increase in the future. When your child is ready to attend college, the financial landscape will be utterly different from what it is in 2019. By saving for your child’s future, you give them an edge in life that will help them succeed.