Raising Children Doesn’t Come Cheap
The U.S. Department of Agriculture published a report in 2017. They discovered that the average cost of raising a child born in 2015 to a middle-income family amounted to $233,610 from infancy to age 17, excluding college expenses and extracurricular activities.
Of course, the reward of having children typically exceeds the worth of every penny you spend. However, if you plan to have kids anytime soon, you might wonder how you can financially secure your child’s prospects.
In this article, we’ll discuss six different ways you can save money for your children’s future:
Pay Your Debts or Consolidate Your Loans
Starting a family when you’re already neck-deep in debt can feel challenging. You’ll want to accelerate the repayment of any auto loans, mortgages, and credit card debts you have. Paying down these debts as quickly as possible increases your family’s financial freedom. You need to create a financial foundation for your children without taking on too much debt.
One of the best ways to pay your creditors faster involves debt consolidation. This refers to combining several debts into one account or one payment, allowing you to make a single payment each month to cover all your debts. You might even qualify for a lower interest rate if your personal credit score has increased since you took out your loans.
Reach out to your lenders and talk to them about debt consolidation. If you can get a lower APR, you can add the money you saved into your child’s bank account, insurance policy, or 529 plan. If you don’t qualify or can’t afford the new loan payment, consider working with a nonprofit credit counseling agency like Money Fit.
The 529 Plan
529 programs involve college savings plans that allow parents to put away $2,500 every year towards their child’s education, tax-free, provided that they use the money to pay their child’s education expenses.
Setting up a 529 ensures you’ll have money set aside when your kid goes to college, but if you can contribute $2,500 per year, you would do well to start saving immediately after the birth of your child. By the time your kid turns 18, you will have managed to save $35,000 in your 529 plan with a $2,500 annual contribution. Starting the 529 Plan from birth ensures the foundation of your child’s college fund.
Invest, Invest, Invest
Many parents often wait years before they start a savings and investment plan for their children. However, you waste valuable time if you wait until your kids reach 8 to 10 years old before saving for their college education.
Now is the best time to invest in your kids’ future. You can start by opening an investment account to build your child’s savings. Another way involves investing in mutual funds so you can benefit from earning compound interest.
Mutual funds refer to money pooled together from the investing public. A professional account manager manages the funds, and they use that money to invest in the stock market to yield profit. Opening a mutual fund for your children allows you to watch your money grow as you make minimal contributions.
Get a Health Savings Account (HSA)
An HSA is a type of savings account that allows you to set aside money on a pre-tax basis to help pay for qualified medical expenses. You can contribute up to $7,200 to your HAS in 2021. Once your child reaches retirement or 65 years old, they can withdraw the money for any reason, and they will only need to pay regular income tax.
Married couples can only get one health savings account, but each adult child covered by the family plan can open their own HSA. Anyone can contribute to the adult child’s account as long as it doesn’t exceed $7,100. Even with the restrictions on how you can use the money, opening an HSA for your children ensures that they can pay for future medical-related expenses.
Sell Items Your Kids Have Outgrown
Kids, especially babies, quickly grow out of the stuff you buy for them. One of the best ways to earn money involves selling the items your kids have outgrown. Fortunately, several platforms allow parents to do this.
For instance, you can sell gently used items to people in your area using the OfferUp platform. They even determined that during specific times of the year, parents can get the most out of the items they sell. For example, since more babies are born in July and August, you earn 10% more if you post baby items in June compared to other months. If you start selling snow gear in October, right before snowy weather starts, you can potentially earn more than selling them in November.
You can save or invest the money you earn through selling your kid’s slightly used items.
Teach Your Kids Financial Literacy
Financial literacy involves teaching your kids how money works so they can make sound financial decisions later on in life. You can start by giving your kids a piggy bank and explaining to them the importance of saving money. Tell them they should place the coins and dollars inside the piggy bank until they fill it up. Explain that the money inside is for their future, and the more money they save, the more it’ll grow.
Many parents don’t involve their children in their financial matters because they think their youngsters will stress over money. However, teaching your kids about money and how it works trains them to develop financial responsibility. These healthy money-saving habits will likely continue into their adulthood.
The Bottom Line
As parents, we want to give our children nothing but the best in life. If you’ve read through the entire list and you’re ready to implement these tips, you’ll have peace of mind knowing that your children will grow up financially secure.
The costs of raising children will likely only increase in the future. When your kids grow up, the financial landscape will look much different than it did 10 or 20 years prior. However, saving money to secure your child’s future gives them the advantage they need to help them succeed in life.
