Parents will do just about anything for their children. You want to be sure they are healthy, happy, and have a bright future ahead of them. If that future includes post-secondary education, then you can also expect things to get pretty expensive.
According to statistics, the cost of college has increased dramatically in the 21st century. Parents can expect it to cost around $27,146 for one year of in-state public college living on campus. Add that up over a four-year program, and it’s over $100,000. A university education is even more expensive, making the savings goal even more daunting.
Knowing this, it makes sense for parents to start saving and investing very early on for their child’s future. Let’s take a look at some of the safest ways to do so.
The Earlier You Start, the More Successful You Will Be
The first tip is to start as early as possible. While starting when your child is born is great, it’s not too late if your child is already a few years old and you’re just considering it now. The point is to start as soon as you can because you’ll be able to save more by the time they enter post-secondary school.
Life can also be unpredictable, so just because you can afford to save now doesn’t mean it will always be the case. Saving early gives you a bit of a cushion should you hit times when putting money aside isn’t financially possible.
Opening a Child’s Savings Account Is Safe and Reliable
It doesn’t get much safer than opening a child’s savings account, as you’ll know that the money you deposit will be safe and will collect interest over the years. A bit of a wake-up call for parents, however, is how low the interest rates can be. This is why it’s worth shopping around and looking at what various banks offer in terms of children’s savings accounts. Be sure to look for one that you’ll co-sign and, therefore, co-own.
Another great thing about a child’s savings account is that your child can contribute to it whenever they want. Maybe they get money for a birthday or some other special occasion, or perhaps they get a part-time job once they are in high school.
For those parents who have a hard time remembering to contribute to the savings account regularly, you can always set up automatic deposits from your bank account to theirs.
A Custodial Account Can Offer Bigger Payouts
A child’s savings account can be great for many, but what if you want a bigger potential payout? In that case, a custodial account might be worth investigating. The longer name for it is a custodial brokerage account, which can be opened at any brokerage firm or bank.
The way this type of account works is that whatever money is deposited into it is then invested in mutual funds, bonds, and stocks. To avoid paying the federal gift tax, there are certain regulations you’ll need to follow. This is something a broker can discuss with you.
Sometimes, a custodial brokerage account can feel too restrictive, and if that’s the case, you can always choose a traditional brokerage account that is opened in your name.
Look Into What a 529 Plan Can Offer
You may have heard of 529 plan accounts, which are generally considered another safe investment option. These are operated by the state and described as tax-friendly. The majority of states do offer a tax break on contributions, but these aren’t tax deductible at the federal level. This is perfect for parents who want a way to save from kindergarten right until the post-secondary phase. It is worth noting that this plan includes saving for an apprenticeship program.
Even though this option is filled with benefits, there can be some disadvantages, such as the fact that fee levels vary by state, you can’t switch investments, and there aren’t many investment options available.
Commit to the Long Run by Investing in an Income Property
Investing in real estate can potentially offer the biggest payout. If you purchase the income property early enough and allow it to appreciate over many years while renters pay down the cost of the mortgage, you can turn a large profit. There’s even a chance that you can make enough money to pay for their entire post-secondary education and have some left for your retirement.
The problem with this approach is that you need capital for the down payment, you need to know the property won’t sit empty, and you need to make a wise purchase decision, thereby ensuring it appreciates over time.
What Aren’t Considered the Safest Ways to Invest?
Just as crucial as the safest ways to invest for your kid’s future are the least safe ways. These carry much larger risks, and there is never a guarantee they will pay off. An example is online gambling, such as what you’d find on this site. Sure, it can be fun, and you may even win, but it’s a very risky way to go about making money. You can quickly go through your cash without anything to show for it.
Then, there are “risky” investments in the stock market. This means there is a big chance the investment may underperform, you may lose what you invested, or worse yet, you may suffer a huge loss. With odds like that, why do people opt for risky investments? The simple answer is these investments tend to pay off fast and high if they work out. The problem is that it’s a big “if,” so you run a substantial risk. This route isn’t recommended unless you’ve got extra capital on hand, and you’d be okay if you lost it all.
The Future of Your Child Can Be Bright with the Right Financial Choices
Considering each of these safe ways to invest for your kid’s future means that by the time they reach their post-secondary years, you’ll be able to gift them a significant financial helping hand. It’s all about making smart choices early on in your child’s life that you and your child will thank you for later.
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