We love our children and want to do what we can to give them bright futures. Sometimes that gift includes saving money for your kids to use someday.
Saving up for your kids is a great way to help your child get started in the world. Having some savings to start with when a child reaches adulthood and leaves home for the first time can be just what they need to start their own lives and be successful.
Saving money for your kids can help them in so many different ways. You could save money for their college tuition, for their school books, or for their housing while they go to school. Saving up for your kid's future can also help them start a savings account of their own for a house, retirement, or a car.
Reasons to Save Money for Your Kids
There are many potential reasons to start saving up money to give your kids one day. That money can be used for many reasons too, allowing you as a parent to help your child have a brighter future and get off on the right financial foot when they leave home.
Not only can this money help your child financially as they grow up and go out into the world, but it can also be a great learning opportunity. As you save money you can include your child and start to teach them all about finances, budgeting, and financial responsibility.
Another reason to save money for your kids is in case of an emergency. You can create a will and an inheritance fund in case anything should happen to you while your child is still growing up. That way you'll know they're taken care of no matter what happens. Setting up an inheritance can also be what you want to do regardless of any emergency.
How to Save Money For Your Kids
Regardless of the reason you want to save money for your kid, the process will look more or less the same.
Step 1: Make a Financial Plan for Your Kid
First, you'll want to sit down with anyone else involved in your finances, like a partner, and talk things over. You'll want to decide on an exact plan for what you do and don't want to do.
Ask yourself what exactly you want to save up for and what your savings goal is. Do you want to create a savings account to help pay for their college education, college books, or room and board? Or maybe you want to save up to buy them their first car. You might also have some items to discuss regarding your will or any inheritances you might have for your child.
Once you have a plan in place and know what exactly you want to do, you can start enacting your plan.
Step 2: Set Up A Savings Account For Your Kid
Go to your preferred bank or credit union and set up a savings account in your child's name. Many financial institutions have accounts designed for children that allow the parent to add to the account as they see fit. The parent of the child might be referred to as the "custodian" or the "guardian" of the account. You'll be in charge of and manage the account until the child is old enough to manage it on their own.
Step 3: Budget Money To Put Away In Your Kids Savings Account
Parents budget money to put away for their kids in many ways. You can collect all the money your kid earns through doing chores, mowing lawns, or babysitting and keep it in their savings account. Every time you get a bonus at work you could plan to put it aside in their savings account until a certain date. Or you could decide on a certain amount that you automatically transfer to their savings account each month.
Step 4: Plan When To Hand The Savings Account Over To Your Kid
Eventually, the savings account will be transferred over into your child's hands. Unless you decide to use that savings account for a specific purpose like buying them their first car or paying for their college tuition. In that case, you don't necessarily need to hand the account over to the child.
These are the types of things you need to decide. If your child is going to take over the account when will that be? Are there any stipulations you want to put in place for what the funds should be used for? Are you going to manage the funds yourself to pay for whatever you decided to save up for?
They could take over the account when they are 18 and about to leave the house. Or, when they become old enough to get a job for teens, you could add a checking account alongside their savings account and start teaching them how to also save the money they earn or balance between their spending and saving.
5 Ways to Save For Your Kids
Now that you know more about what goes into saving money for your kids, it's time to learn more about all the ways you can save up for your kids.
1. Create a College Savings Plan
College can be a very expensive endeavor, causing many parents to do what they can to save up a college fund to help their child pay for school one day.
Going to college is important for higher learning, job security, and getting paid better in the long term.
In general, people enter college as soon as they graduate high school. But that doesn't leave a lot of time for your kid to save up tens of thousands of dollars for tuition, let alone housing, and books. Saving up for your child's college and giving them that financial boost is an immeasurable help to their future success and stability.
2. Start a 529 Plan for your Kid
A 529 savings plan is a type of investment fund that allows parents to both save and invest in their child's education with the addition of tax benefits.
Your payments into the 529 college savings plan aren't deductive from your federal tax filing but the account's earnings do accumulate on a tax-deferred basis. This plan allows parents to invest funds in order to accumulate savings for their child's future education.
3. Create a Trust Fund for Your Kid
If you plan on eventually giving your child an inheritance of some kind, then create a trust fund for them where that inheritance money for your child can safely sit for the time you decide. Sometimes trust funds can also include assets you want to pass to your children like real estate or other kinds of properties you own. Trust funds often need a lawyer and possibly an accountant to help set up since assets, legal set ups, and possibly your will could be involved.
4. Create an Investment Account for Your Kid
The Uniform Gifts for Minors Act (UGMA) and the Uniform Transfers for Minors Act (UTMA) are acts that allow you to open up an investment account on behalf of your children. These types of accounts are often called custodial accounts. This type of account allows the owner of the investments to be your child, but you as the guardian or custodian of the account are allowed to manage the account until your child is old enough to take it over.
5. Create a Retirement Account for Your Kid
It might seem a little early to start a retirement fund for a child, but it's actually never too early to start someone's retirement fund. In fact, the sooner you start the better. Open a Roth IRA in your child's name and get started today.
That's why it's actually a great idea to start your child's retirement fund now, yourself, rather than waiting for them to grow up and start it on their own.
Set up your child for more financial stability and success in the future by starting their first savings account today. As you go about saving for your kids, be sure to teach them the value that money can bring into your life when used and managed responsibly.