How to build a solid child future plan

Kids come with suitcases, as some cultures say, and most of the time with a bigger expense too. But it’s not all about winging it on your own anymore. Coming up with a financial plan for your child’s future will mean they’re better able to stand on their own two feet when they become adults. Life is tough at the moment, so how do you set up a child future plan without causing too much of a dent in the finances? And what do parents want for their children’s future exactly?

In this article, we’ll discuss the different ways you can not only save money for the future but I’ll also share tips on how to plan for a child regarding continued education, forging careers and having their own family one day, should they want to?

So let’s get started!

Get your personal finance in check ASAP

If you’re in debt, there’s little chance you can prepare for your child’s financial future plan if you don’t have any money to put towards it. So it’s important to get a hold of your own finances before planning your child’s financial future. Setting an example for your child involves you actively trying to save where you can and getting out of the red where possible. Check out this article on how to save money for your family, but here are some other ideas you can implement right now to help maximise your money.

Get the most out of your tax return if you’re self-employed

Filing your taxes can be a nightmare, but getting the most from your tax returns will make the experience slightly better. Staying on top of your finances is extremely important so you can maximise your tax refund and meet your savings goals.

Do your research on any tax deductions you may be eligible for, as it will lower your adjusted income and you can pay fewer taxes. Some tax deductions you may not be aware of include charitable deductions, childcare and student loan interest.

Get the most out of your IRA and HSA

Traditional IRAs and Roth IRAs are retirement investments that can both reduce your taxable income and save you money in the long run. An HSA, otherwise known as a Health Savings Account, is designed to use your healthcare costs to lower your tax liability. It’s a savings account much like your standard bank account, except you can only use the funds on healthcare expenses.

Unlike a standard savings account, the HSA money can’t be taxed and they can reduce your taxable income. There are certain eligibility requirements for an HSA so make sure you do your research before you start.

Explore investment opportunities 

Did you know you can invest the money in your HSA? Similarly to a 401(k) plan or another retirement account, you may invest the money in your HSA in mutual funds. Many investment companies have funds specifically designed for HSA investing.

Be sure to declare it on your taxes 

If you have an HSA, you’ll need to declare it on your taxes. You can use IRS Form 8889, Health Savings Accounts, to do so. Report your and your employer’s contributions, your deductions, and your distributions. 

Don’t overlook other ways to maximize your tax refund

There are certain factors that you might not realise but can also help to maximise your tax refund. For example, if you received a bonus at your work and taxes were taken out of that, you may get some of that money back. To see if this applies to your situation, use a bonus tax calculator which will give you an estimate of how much tax will be withheld from your bonus.

Consider taking out a life insurance policy now

While the idea of your death may not be something you want to confront at the moment, it’s always worth exploring which life insurance plan (like HDFC Life) could help to support your children should the unexpected happen.

A decreasing life insurance policy is aimed at helping beneficiaries to pay off mortgage repayments and other similar debts, giving your children the opportunity to stay afloat and not incur significant debts in the event of your death. Make sure to look at the different life insurance policies that are out there, like term insurance plans and group insurance plans, to understand what is required of you to start.

Investing for your child and setting up your child’s Junior ISA

Some parents will even consider opening an ISA to which family members and friends can contribute. Most ISAs will let you and others add up to £9,000 per year into the account, completely tax-free. When your child turns 18 years old and is a legal adult, the ISA will be legally theirs.

However, it’s important to know that once your child is legally the owner of that ISA account, they can do what they wish with the funds inside. So, while it may be an extremely effective way of providing a nest egg for your child, it may also give them a lump sum they can spend however they want. You can start investing for your child now so they have a nice financial cushion to help them later.

So teach them about the benefits of saving money even at their age

Teaching kids about the value of money is highly effective at their age. Young savers create a strong understanding of money fundamentals and learn to make money work for them at an earlier age, which means more opportunity for them to invest their money young and become millionaires later!

Teaching your child some financial responsibility can be as simple as helping them aim for a small-scale savings target. Perhaps their pocket money can be put aside for 8-10 weeks so they can buy something they’ve been eager to get. Or teach them the rule of putting a certain percentage of their earnings into a savings account and they can spend the rest. In no time at all, that satisfying feeling of earning that reward will become a healthy habit on how to plan for the future.

The child future education plan – openly discuss their career goals

Planning for your child’s education can get expensive, especially if your child picks a vocation that requires post-graduate fees. Here are some tips on how to navigate the world of future child education.

Child future planning – schooling and routine expenses

Regardless of your child’s educational intentions, schooling is going to take up a sizeable chunk of your expenses, even after the childcare you had to pay for nursery. Consider after-extracurricular activities, school attire and camps, as well as school trips and other miscellaneous expenses for which schools will invoice you. So it’s important to consider how you’re going to pay for those.

Perhaps set up a separate bank account for education only and pay money into that account every month. If they require funding for student fees, you could help them by cosigning a loan so they can pay university bills or build assets which can help pay for their student fees.

Starting as early as possible will mean you will have more money to put behind education and help your child realise their career goals.

Child future planning – Longterm Goals

As part of your child future plan, long-term goals should be at the forefront of what you do.

These discussions can begin at any age. As long as the conversations are light and supportive (no child should feel pressured to become an accountant at 6!), you’ll be able to gain a deeper understanding of what subjects your kids enjoy at school and how you can help to cultivate their interests into a successful career.

Who knows, perhaps that natural skill they have in class can be shaped into an after-school activity that leads them on a lifelong path to becoming an expert in that specific field. But have the conversation now, so they’re ready to make the decision when the time comes.

Planning for your child’s marriage

Your child may not get married and that’s their right of course. But, what if they do? Weddings these days cost the same amount as mortgages and if you’re not prepared, you may risk your child footing the bill and causing a huge dent in their personal savings plan.

Of course, they don’t need to have an overly elaborate wedding, but being able to offer them a gift to support their special day would be not only be a huge help financially but a great step in the right direction to supporting their choices and helping them grow a family, should they want to.

Retirement planning

There will come a time when you’ll need to hang up your work hat and rely on your savings, whether that is the money you stashed in the account or your pension. Either way, you need to plan for the day you retire.

To plan well and prepare for retirement, you will need a basic retirement calculator. This calculator will help you determine what you need to save. The existence of retirement accounts has made retirement savings possible.

Different ways of investing for your retirement

Sometimes it’s hard to decide on the type of retirement investment to undertake, especially after the 2008 global stock deterioration. There are so many types of investment options you can engage in to have the right retirement package. Try some of these examples below:

Real estate

Real estate investment involves purchasing a property that will give you a continuous income later in life. Real estate has made many become financially stable and it is a good source of wealth because investors buy properties and develop them into modern rental homes, but you’ll need capital to make this happen. Make sure you have enough money to put towards the deposit and the expenses that come with a rental business. As with every investment, there is a risk.

Shares through the stock exchange

Investing in shares is a long-term investment that will give you returns annually. There are so many public and private entities selling their claims to the general market and the more shares you buy, the more you may get in returns.

Bonds

Bonds are products offered by companies and governments to raise money for their daily operations. Bonds are, therefore, a mechanism used to get loans. Every bond you buy from the government or any other entity earns good returns as interests. Government bonds are the most secure investment since a government will exist even in the next hundred years to come.

Personal pension scheme

Retirement pension plans are programs used to save for your retirement package. There is a deduction of a small amount of your salary to be kept by the pension provider. Upon retirement, you get all the money you have saved and also the interests incurred from your savings.

Some pension schemes even offer monthly payment depending on how much you had saved in your account. Most governments have made it compulsory for the working population to save in one of the national pension accounts because pension accounts have a good return.

Final thoughts

There’s always a fine line between wanting to plan for a bright future for your child and being too eager, you risk preventing them from being a child and push them away. But, don’t let obstacles prevent you from planning. Approach these subjects with an open mind, and give them that financial support to accomplish their future goals. From offering advice about health insurance to sourcing a financial planner to maximise their money, the best child future plan involves covering all bases to help secure their future.

FAQ

What’s the smartest way to invest in my son’s future?

Other questions asked were:

• What is the best way to plan financially for the children’s future child plans or Equity SIP?
• How can I secure my children’s future?
• How can I build a secure financial future for my future child?
• What are the ways parents can plan for their child’s future?
• Why plan for your child’s future?
• What are long term plans for your child?

“A top choice investment for a child’s future welfare is a Junior ISA or JISA. JISAs come in two options – a Cash JISA or a Child Investment ISA, also referred to as a Stocks and Shares JISA. Cash JISAs are not much different from ordinary savings accounts.”

https://blog.moneyfarm.com/en/investments/investing-for-children-what-is-the-best-investment-for-your-kids/

What are the 5 reasons to invest in child insurance?

1. Help with education
2. To save money
3. Protection against serious illness
4. Collateral for loans
5. Parental death

*Collaborative feature post*