Parenting is both the most challenging and rewarding profession in the world. It necessitates considerable changes in the lives of parents, particularly in terms of finances. Every parent wants a bright future for their child. To achieve this, most of the parents turn to savings. Although saving is a time-tested method, today, there is no dearth of comprehensive child plans in the market.
Whatever your financial planning may be, start saving early to get the maximum returns. Even small savings for a long duration can deliver substantial returns later. However, some parents struggle to keep aside a few percent of their income for their child’s future. It may be due to a lack of financial knowledge or sheer negligence.
We have curated a comprehensive parents guide to savings for children to make things more systematic.
Six effective saving tips for parents
Here are six tips that can help you save for your child’s future:
Build a backup or emergency fund
The ongoing COVID-19 pandemic is a testament that life is full of uncertainties. Job loss, serious illness, or death of an earning member can not only derail your future but the present too. In this scenario, not only the child but the whole family gets disturbed. Hence, it is vital to prepare for the unexpected.
Here comes the importance of building an emergency fund. Your emergency fund should have sufficient balance to fuel the basic needs of your whole family for 9 to 10 months. Furthermore, you should avoid spending from this fund for unnecessary needs.
Keep the money in a high-yield savings account
A high-yield savings account is the best option for both normal savings and emergency funds. Interest in such accounts is much greater than regular savings accounts. Sometimes, the fees for operating such accounts are also less or nil.
However, the initial deposit in a high-yield savings account is much larger than a regular savings account. Thus, if you have a sizable sum saved in your regular savings account, you can consider transferring it to a high-yielding one. Overall, it is a great tool to achieve your financial goals faster.
Save for your Child’s education
Post-school education costs are rising steadily. Student loan debt puts consistent pressure on the mental health of students. This trend is only going to get worse shortly. So, today is the right time to save for your child’s education. There are multiple ways to achieve this:
Open a Registered Education Savings Plan (RESP)
Registered Education Savings Plan (RESP) is a savings account that helps parents save money for their children’s education after high school. The tax-sheltered investment comes with great benefits such as Canadian Education Savings Grant, Canada Learning Bond, and tax-deferred investment earnings.
In the Canada Education Savings Grant scheme, the federal government also contributes to the RESP account. You can also take advantage of the Canada Learning Bond if your family income is low and you are not in a position to contribute to RESP.
Purchase a comprehensive child plan for extensive coverage
Insurance companies offer personalized solutions for every child’s needs. While the rates may be on the higher side, it reaps benefits in the long run for your child. Such plans offer a wide range of coverage, such as:
- Global education programs
- Down payment for first homes
- Collateral for loans
- Financing any other needs
- Financial flexibility
Pay off high-interest debts
You can not save for future obligations if you are already under high debt. Therefore, become debt-free, pay outstanding credit card balances to concentrate on future planning. If it is difficult to pay off all debts, at least consider paying off high-interest debts. Such debts create major hurdles to saving and investing.
Buy life insurance
Without good life insurance in place, your life savings are at high risk. In the event of your death, life insurance ensures total financial protection for your family.
You can purchase either whole life insurance or term life insurance as per your needs and budgets. Some term insurances combine death benefits and survival benefits. It is a win-win situation for parents who want investment opportunities along with life insurance.
Save for your retirement
Every parent avoids becoming a financial burden on their adult child. Therefore, in addition to saving for your child, secure your retirement too. Start savings early to enjoy a financially independent retirement with your partner. Several life insurance plans, mutual funds, and other investment strategies offer retirement benefits.
Steps to savings for your child
If you are wondering where to start, here is a step-by-step guide to help you start saving:
Step 1: Start Early
There is no right time to start investing or saving. Start now to see the magic of compounding. For this:
- Do not wait for a large sum to invest; start with small amounts
- Choose extended investment plans since they offer higher returns than short-term plans
Step 2: Balance the savings
You must save what you can afford. At the same time, your investment strategy should complement your child’s goals. Therefore, you should:
- Invest optimally to meet the objectives of your child
- Not put the burden on your family’s budget
Step 3: Get the benefits of federal saving schemes
- Sign up for Registered education savings plan (RESP) and get monetary contributions under Canada Education Savings Grants
- Give the boost to your investment in tax-sheltered schemes such as Tax-free savings accounts.
Step 4: Consider financial flexibility
Education should not be the only concern for your child. Instead,
- Consider building long term wealth
- Include other commitments such as marriage, down payment for a first home, and other financial obligations of your child
Step 5: Prepare for challenges
- Apply for a health card for your child. Contact your provincial or territorial health authority for complete assistance.
- Review your health insurance plans to add your child to the plan
- If you have purchased life insurance before the birth of your child, consider reviewing it for extra coverage
- Apply for child and family benefits under Canada Child Benefit and Child Disability Tax Benefit. If you want to know more about CCB vs RESP, click here.
Every parent wishes to fulfill the dreams of their children. However, it becomes challenging for a parent to meet current and future financial obligations simultaneously. Here comes the importance of small and steady savings. Savings in conjunction with systematic financial investment has the potential to unlock the full potential of your child.
Therefore, it is advisable to start early to beat inflation. In case of confusion, do not hesitate to consult a financial advisor to get a personalized savings roadmap for you.