Your sweet little bundle of joy has finally arrived, and you are over the moon. You have everything you need for your little one — the crib, the stroller, the car seat, even the adorable outfits he’ll probably outgrow before he can wear most of them. What you probably don’t have is a secure investment for his future. We all know children cost a small fortune to raise. So, how can we help set them up for their adulthood? You can start now, using any of these sure-fire ways to save money for your newborn’s future.
Invest in Your Own Future
It may seem odd to settle your own financial future when we’re talking about your newborn’s financial security, but the two are very closely related. After all, your continued financial security will directly impact their future. How can you go about investing in and settling your own future?
File A Will
A will lays out how you want your assets divided, and what will happen to your child in the event of you become incapacitated or die. CNN shares the most commonly named guardians are grandparents, but you may wish to name backups as well. After all, most children tend to outlive their parents, so Grandma may not be around to look after Timmy.
Get Life Insurance
Life insurance can help cover bills, funeral expenses, and the like in the event of your death. There may even be enough left over after these expenses to help your child with future college expenses. USA Today provides a look at what new parents should consider before buying life insurance.
Open a Retirement Savings Account
Saving for retirement may seem like an odd thing to begin doing at this point in your life, but it is necessary. It will help ensure that your child, once grown, will not feel obligated to financially provide for you. NerdWallet suggests setting aside 10 to 15% of your annual income for your golden years.
Save For Baby’s Future
Now that we have you all set, I’m sure you’d like to know what you can do directly for your baby. Saving for baby is actually much easier than it sounds. There are quite a few options available. The seven listed here are the most common ways parents have set their children’s financial future up.
Very similar to regular savings accounts, which we will discuss shortly, a custodial account allows the account to be in your child’s name from the beginning. This makes for a little less work later on, when your child is old enough to hold the account on their own. Market Watch talks about the cons of this account, including taxes for both you and your child, and the young age at which your child can gain control of the account.
Essentially a college savings account, 529 plans may vary from state to state. Be sure to check into your state’s laws regarding these accounts before you open one. Some states offer more than one kind of plan, like New Mexico, whereas other states only offer one. The good news is that you don’t have to live in the state you open the account in. GetRichSlowly explains the penalty for taking funds from this count for non-educational purposes.
Perhaps one of the more well-known ways to save for your child’s future, a regular savings account is set up under your name until your child turns 18. You can still put their name on the account, but you will have to take your name off of it when they reach adulthood. The Balance explains what you will need to open this type of account, including your child’s birth certificate and an initial deposit.
If you’re as financial terminology challenged as I am, you may not know that Roth IRAs are a type of retirement account. I knew what an IRA was, but had no idea there was a separate kind. A Roth IRA differs from a traditional IRA in that taxes are taken directly out of the money you put into the account, when you put it in. Investopedia provides an excellent resource to learn more about Roth IRAs for your child.
Coverdell Education Savings Accounts
The good news about Coverdell Education Savings Accounts (ESAS) is that they are tax-free. What To Expect shares that ESAS accounts are also flexible in how you can invest the money, as well as how it can be spent later. Your child will also still be eligible for certain kinds of financial aid, as the account will be counted as an asset for you. So if you don’t manage to save as much as your child needs to pay for college, have no worries — they can still receive aid.
CDs and Savings Bonds
A favorite way to save for a child’s future in years gone by, CDs and bonds are no longer as popular as they once were. This doesn’t mean you can’t still invest in one for your little one, though. MyBankTracker.com explores the benefits of these financial options for children. The best part of these options is that your child actually owns it, without your name on it at all.
A trust fund is usually thought of in conjunction with the obscenely wealthy, but any family can open one for their child. LegalZoom advocates opening these accounts for your child, with a comprehensive look at what to do to get started.
Taking care of your child in the here and now is, of course, a priority. Their financial security into adulthood is also very important, and there’s no time like the present to invest in it. Let us know what you thought of this list in the comments below, and share with your family and friends.