Congratulations! You are walking into one of the most joyous and emotion-filled chapters of your life.
There’s so much to think about when you are a new parent. This little person is totally dependent on you and it can be overwhelmingly difficult to know all the right things to do to make sure their lives are even better than the one you had. One of the things you’ll want to do is prepare them for life ahead in every aspect. One of the greatest gifts a parent can give their children is financial security. This allows your children to establish a strong foundation earlier on in life which helps them to be able to focus on pursuing goals and dreams sooner.
Increase your savings
Having a little one means that there’s even more at stake in the event of illness, job loss, or any other unforeseen emergency. The goal should be at least three to six months’ worth of living expenses readily available. According to schwab.com, “This money doesn’t have to be in a single account, but can be spread between interest-bearing checking or money market accounts, certificates of deposit, short-term U.S. Treasuries, or other relatively conservative, liquid investments.”
Lead by example
One of the best ways to improve the financial future of those who directly depend on you is to set a good example. How you handle money and the conversations you have about finances all impact how your children will view money. In The Money Manual by Tonya Rapley, she states that “the more responsible you are with your money, the better your relationship becomes with money, allowing you to instill money management confidence early on instead of the fear most children inherit from financially-insecure parents.”
Start saving for college now
It goes without saying that the earlier you begin saving, the better off you’ll be. A 529 college savings plan is an option that offers many tax advantages and flexibility. The earnings grow tax-free and, as long as the money is used for qualified higher education expenses, withdrawals are tax-free. Qualified higher education expenses include:
- Books, fees, and supplies, and equipment required for the participation of a designated beneficiary in a registered and certified apprenticeship program
- Payment of student loans up to a lifetime maximum of $10,000 for a designated beneficiary or a sibling of the designated beneficiary
Prioritize your retirement savings
If saving for both college and for retirement is more than you can do right now, prioritize saving for retirement. There are other ways to pay for college including scholarships, loans, and grants. Making sure that you have some retirement savings ensures that your children will not be tasked with having to take care of you financially later on.
Contributing to a Roth IRA for your child can set him or her up for a strong financial footing in many ways. If the child does not go to college, or pays for school another way, the money can be used for a down payment on a home, for disability, or stay in the Roth IRA account.
Start today to do something that your child will thank you for later. Don’t get discouraged if you feel like you can’t do more right now. There’s an option that is perfect for your current situation and goals!