Do you have minor children and worry about having the financial means to provide for their welfare and education as they get older? Reports suggest that it will cost approximately $300,000.00 to raise a child born in 2015 to the age of 18. That doesn't include paying for college. You can ensure that you have the resources to cover those expenses by using these three financial vehicles that help maximize your savings.
Open a 529 Account: A 529 account is a specific type of savings account that is used to save for education expenses. You can open it for your child at any age and there is no limit to how much you can deposit into it. The money yields returns similar to a mutual fund which means you are more likely to enjoy an 8% return on your investment as opposed to a 2% return which is about the best you can do for regular savings account.
Regularly depositing money into a 529 account will ensure that your child has resources to pay for college when the time comes and that you don't find yourself suddenly in debt trying to help them pay for college at a time when you should be more focused on preparing for retirement.
Buy a Life Insurance Policy: Everybody knows life insurance as something you need when you die, but life insurance can be financially beneficial while you're alive as well. This is because the dollars you invest in whole life insurance premiums build cash value that you can withdraw when your child gets older. If something happens to you the death benefit will pay out and provide your child with the finances to pay for college or other expenses, but even if you are still alive, the cash value can still be withdrawn which, though less than the death benefit, can help significantly when it comes time to pay your child's future expenses.
Just remember, all life insurance is not created equal. Term life insurance is not the same as whole life insurance. Term life insurance only pays a death benefit. The premiums are typically considerably cheaper than whole life insurance, but term life insurance does not build a cash value so has no benefit to you while you're still alive. Some life insurance is better than no life insurance , however, so if you feel whole life insurance is too expensive for your budget, at least get term. You never know when something could happen to you and any life insurance can protect your child and ensure your dreams for their future are realized.
Create a trust: A trust is a legal entity that can be used to hold assets for the benefit of your child. You can remain in control of the asset even though your child is the beneficiary. There are several benefits of a trust that make it an excellent option to ensure you have the financial means to provide for the welfare and education of your child as they get older:
- You can impose restrictions and limits on how the assets are disbursed to the beneficiary;
- You can protect those assets from being depleted by the beneficiary's immaturity, their or your creditors, or even your divorce;
- If something happens to you your children don't have to go to court to get access the assets.
Taking advantage of any one of these three options can help you prepare for the expense of caring for your child's welfare and education as they get older. By saving and investing early you can deposit smaller amounts and still be prepared for the expense of raising your child.
Do you have a 529 account? How are you preparing for your family's future needs?