It’s instinctive: parents always want the best for their children. And whether it’s the top-of-the-line baby food or a four-year degree in the United States, children are certainly expensive. Don’t be discouraged. There are ways to invest in your child’s future while planning for retirement or paying off the mortgage.
Start Planning Early
When you’ve just returned home from the maternity ward and holding your newborn, planning for an expensive college is probably not the first thing you have in mind. But it helps a lot to start early. This is because of the effect known in the investing world as compounding. Think of it like pushing a snowball up a hill. Every year, not only do you get paid interest on your principal but also any previously accumulated interest. It’s minuscule over a short period but can add to massive amounts of capital over two decades.
Try to set aside a fixed amount every month to dedicate to savings towards your child. This takes the guesswork and stress out of it. By investing every month, you’ll benefit from what is known as dollar-cost averaging. You’ll benefit from market fluctuations because you’ll be purchasing at periods when the stock market is low.
Additionally, many countries have tax-advantaged savings accounts for education. For example, in the United States, this is known as the 529 Plan. This will add a big boost to your savings.
Invest Your Savings
Inflation will eat at your savings. So although a savings account might seem to pay a high rate, in reality, the rate is much lower. You’ll want to invest in the stock market. Find a financial product that suits your risk appetite and time horizon. Alternatively, you could talk to a financial advisor. If so, you might want to go for a fixed fee consultation rather than paying a percentage. You’ll pay less in service fees in the long run.
Being thrifty has a bad reputation but it pays off in the end.
Some people like to focus on the big things. For example, a smaller apartment in a less swanky part of town could save you big. A used car is a fraction of the price of the new one.
Others like to focus on expensive daily habits. That daily latte is hurting your wallet (not to mention ballooning your waistline.)
Saving for your child’s future is an intimidating task. It doesn’t have to be if you plan, invest, and be thrifty.