Growing your family and enjoying time with them is the best part of life. Maybe you’re expecting your new arrival, or you’ve just welcomed your bundle of joy and the happiness and learning that comes with that journey. The best things in life are free, right?
Well, one thing’s for sure: once you’re a parent, making your baby’s future the best you can is big on your mind.
The reality is, that future requires dollars. Sure, time, love and (a lot of!) patience is important, but there are some unavoidable truths about providing for your family in this world. It’s estimated that it costs $235,000 to raise a child to 17 – and that’s just childhood without any of the extras or big life events!
The good news is, to save money for baby’s future you don’t need to be a millionaire or a financial know-it-all, it just takes a bit of planning and a few clever hacks.
We’ve got you covered, mama.
How To Save Money For Kids
You might be thinking of saving for starting a family, and all the costs that go with that, or saving money for the baby’s future. They both come with costs.
Here are just a few things to think about when you’re nurturing a young life:
- Education – the big kahuna. College alone could set you back $200,000 for an in-state school or $500,000 to go out of state. Private education up to that point will be more still.
- Experiences – and we don’t just mean that time they wanted to go paintballing! Family vacations and weddings, however far off, can stack up in terms of cost.
- Day to day – not the glamorous one but arguably the most important. We’re talking food, transportation, school supplies, clothes, etc.
- Housing – the proverbial and literal roof over your heads. It could be a bigger or more suitable home for a young family now, or their own starter home for when they fly the nest.
Got you thinking? With any of these paramount in your mind, the best thing you can think of doing is starting a baby fund.
Here are our steps for how to save money for kids:
- Start now – however small or infrequent, just start now. Costs can come out of nowhere and the more you have saved, the easier life will be.
Many banks and credit unions allow very low deposits and have no maintenance fees. Even a jar in your kitchen will do! You can add it do an account when you have enough. Find games or ways to make it fun until you can start saving regularly.
- Start budgeting so you know how much you can save – there’s no point getting yourself into trouble now just because you think you’re saving for baby’s future. Once you know how much you can save, separate that money as soon as you have it.
- Think of saving like you would pay your bills. That way you’ll get in the mindset of thinking of this as an unavoidable, important cost. If you wait to save what’s left it will probably have been spent.
- Once you’re comfortable in the routing of starting a baby fund, look for work perks and savings elsewhere. You can get help towards childcare and healthcare as part of your benefits, or even discounts on your transport and food.
- Now you’re regularly saving and budgeting comes the best bit. Practicing good money management pays for itself. It does part of the job for you as your kids will learn to do the same and add to their own future funds.
An important thing to remember in starting a baby fund is that it’s not just education or big-ticket items. Don’t give everything you have toward one goal.
College is a small part of all your family’s lives and there are scholarships and grants can help. Health and quality of life should come first.
With that in mind, what should you be looking to invest in?
Best investment for a new baby
Especially if you’re just beginning the journey, it can be difficult to know where to start. What can you do outside investing cash?
First off, don’t rely on home equity as a savings account. You might not have access to that money when you need it, and the value can fluctuate. As we’ve said, starting a baby fund in some form is the best way to secure that money to save for baby’s future.
If you have a large sum ready to save, here’s a handy property calculator to help you work out whether buying a new home is worth the investment.
We all know there are tons of immediate costs that come with a new baby, and many of them are big-ticket items. A great way to pay yourself back for these costs is by using a cashback service. You can get between 1 and 25% back on essential purchases such as strollers, cribs and car seats at hundreds of stores depending on which service you use. Make that necessary spending work for you.
Again, let those purchases contribute even more to saving for baby’s future by selling what you no longer need. Equally, reuse what you can on your other kids so you’re not spending twice.
You can then spend all that saved money on the changing things they need as they grow. Or invest that saved dollar (see our plans and guides below).
Making an investment plan for a child’s future
Now you’ve got some ideas and doing all you can to be smart with money, you’re ready to invest.
The ideal plan is a long term plan. That way, you can make small contributions over time and aren’t hit with big costs as they happen.
One of the best investments for a new baby is to invest in you. If you’re debt-free (other than a mortgage) and have 3–6 months’ savings, get a retirement plan in place. Your kids won’t benefit from any money you’ve saved if they have to use it to care for you.
Equally, get a decent insurance plan for your kids. This will be a source of income when they most need it. It also buys time by covering essentials so you’ve all got time to work out other sources of money. Some insurers will also let you invest creatively or bundle with other services. Do your research and ask lots of questions.
Perhaps most importantly, file a will. Anyone with a spouse, house, children or any savings should have a plan for their assets if the worst should happen. Again, saving isn’t worth anything if those you love can’t have it when they need it. Wills are quick and inexpensive to set up and can even be done online.
Got the essentials and ready with your cash? Let’s look at banking that dollar to save for baby’s future.
Best accounts to start for a child
All likelihood is, it’ll be you or other family members that start putting money in the pot.
However, as we know, demonstrating good money management skills and putting things in place will instill those values in your kids. They can then save for themselves. Sarah Hussain, a product manager at Alliant Credit Union cites this “teaching aspect” as one of the most important investments you can make.
You might also receive money gifts when you have a new baby, so setting up a savings account could be job number one.
Here are some options for that money and what you invest:
- Kids savings account. These are a great place to start. They’re easy to set up and most banks and credit unions offer them. Choose one with a good interest rate – likely to increase the longer you can leave the money where it is.
The account can often be transferred into a teen account with a low spending and withdrawal element, along with the habit of saving readymade.
- Custodial accounts are set up in the name of a minor, with an adult as the guardian in full control. They don’t have the same tax benefits as some accounts but are great if you don’t want to reserve the money for a particular cost like college.
- 529 college savings plans. According to research, these handy plans are very underused, with only 44% of parents of children between 8 and 14 holding one.
The plan allows you to withdraw money tax-free for college and other expenses. These can even include school housing, computers and internet access.
- Coverdell Education Savings Account (ESA). This plan is designed as a trust or custodial account specifically for education, but the money can go towards K-12 expenses.
Withdrawals for qualified expenses are tax-free and have lower fees than 529 accounts. However, the investment limit is $2,000 a year and this is not tax-deductible.
- Roth IRA. Bearing in mind our earlier advice about looking after your future for everyone’s benefit, using your retirement funds as an investment is an option. Make sure you’re settled and know you’re provided for.
If you’re aged under 50, you can add up to $6,000 per year, and $7,000 if you’re older. Over 59 the withdrawals are 50% tax-free. However, there is a tax penalty of 10% if you take the money out earlier – think about your age and when you might need the money!
- Trust funds are a traditional option. A neutral, third party legal entity holds money, property or property on behalf of another person. They’re then released to the beneficiary when they reach a certain age.
They’re a good option if you’ve got a combination of stocks, properties or other businesses you want to keep protected in one place.
Whichever you choose, do your research! Make sure the option is right for you and get some professional advice. This is especially true if you have a lot to invest. Or, to make sure you make the best choice with what you have.
Read up more on the pros and cons of these kids savings accounts.
Ready to save money for baby’s future?
There’s a lot to think about and a lot of different options. However, the best thing you can do is start! However small, start thinking, making a plan and looking at what works for you.
Always seek advice from a professional for any monetary investments.
Remember, whatever you’re capable of is going toward the best thing you can do as a parent: saving money for baby’s future.
What are your plans for starting a baby fund?
Share with us in the comments below!