How to Save Money For Your Kids
Are you looking for an easy way to start saving money for your kids? Whether you have kids or not, saving money is no easy task. You will need to be intentional about saving, say no to extra spending, and stick to your plan.
A survey done by CNBC found that 53% of parents don’t have any savings set up for their children. The survey also found that the pandemic has understandably caused financial problems, and 27% of parents are saving less for their kids.
In this article, we’ll share a few tips and tools that will help you start and continue saving for your kids’ futures.
Creating a money-saving plan that works
If you want to start saving money, having a plan, and doing your best to stick to the plan is necessary. Your money-saving plan doesn’t need to be a 10-page document or track every penny you spend. Your primary goal is to figure out how much you can save every month.
Start by listing your fixed monthly expenses, and add monthly savings as a fixed item in your plan. This helps because you won’t be saving the leftovers at the end of the month, which can end up being nothing.
Make it a priority to build an emergency fund. An emergency fund will help you handle unexpected bills. When you have a savings account with 3-6 months of income, unexpected expenses won’t derail your savings plan. You can use your emergency fund to cover car repairs, medical expenses, and everything else life throws your way.
Using an automatic saving method makes saving easier. Investing tools like Loved can help you save little by little without thinking about it. Putting $100 in your kid’s savings account might seem like a big step, but saving a dollar a day automatically will get you there in a couple of months.
In 2019, Bankrate found that 45% of working Americans have a side hustle. But only 1/3 need the money for regular expenses. The majority of people can save their extra income. You can decide to save all or part of a specific type of income, whether it’s your extra income or a percentage of your regular paychecks.
Where should you keep your kid’s savings?
There are plenty of different options for savings and investment accounts. Each type of account offers various advantages and disadvantages.
Here are a few popular options:
529 College Savings
A 529 plan is an investment account that offers tax-free earnings growth and tax-free withdrawals when the funds are used to pay for education expenses. For college, university, and other eligible educational institutions, this includes tuition, books, supplies, computers, and sometimes room and board.
The IRS also allows withdrawals of up to $10,000 per year to pay for tuition expenses at private and public K-12 schools. The main downside to this account is that it’s limited to education. There would be fees and taxes applied if your kids wanted to use the money for a car or down payment on their house.
Children’s savings account
A savings account is the most basic account and the least risky. There are usually no fees or costs, and you can open up a joint savings account with any local or online bank. There are also no restrictions. Your kids will have access to the money whenever they need it and can use it for anything.
The downside to a savings account is the lack of growth. Instead of the money being invested, it will sit in the bank, earning a few pennies in interest every year. The average savings account APY is 0.05%. That means a savings account with $1,000 in it will only earn 50 cents every year.
A Loved custodial account allows parents, relatives, or any adult to open an investing account for someone under 18 years old.
A custodial account is easy to set up and gives children access to an investment account with more growth potential than a savings account. With this type of investment account, you can purchase shares of stocks and bonds for just $1 at a time. Investing the money you save for your kids can automate growth, and there aren’t the restrictions of a 529 savings plan.
UTMA & UGMA
UGMA (Universal Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) accounts are both custodial accounts, held in the name of the minor, but controlled by a parent or other relative.
UGMA and UTMA accounts allow parents to save money and invest, maintain full control until their child is an adult. Both accounts allow you to transfer financial assets to a minor without establishing a trust, and without needing a specific guardian or trustee to be involved.
Best tips for saving money for your children
Saving money for your children isn’t a one-time event. You will be successful in saving money for kids when you take small steps over many years. Here are a few extra tips that will help you along the journey.
Let your kids earn their own money: This will give your kids a better sense of the value of money. You can start by giving them weekly chores and an allowance. Teach them to save a portion of all the money they earn.
Tell your kids about their savings: Teaching your kids that you’re saving for their future teaches them to value and appreciate money. Explain that you’re being intentional about saving and how it will benefit them in the future.
Don’t do it all for your kids: Your kids won’t be able to rely on you forever. Make sure they’re in the know and feel some ownership in their savings. A custodial account gives your kids their own login
Cut out unnecessary expenses: Saving money will become easier when it aligns with your values. Figure out what items you’re spending money on that don’t fit your values, then make adjustments and invest the rest into your savings account!
For more tips, make sure to check out our article about the best way to save money for your kids.
And if you’re ready to take the first steps, You can sign up here to start investing with Loved!