Saving money for your children is a smart decision that can give them a solid financial head start in life. The money you save can help them with their education and emergencies or even enable them to purchase their first home by helping them onto the property ladder when they’re ready to move out. It’s never too soon to begin saving, and if you’re unsure of how to start, here are some simple strategies to adopt.
1. Start early
It goes without saying that the earlier you start saving, the more time your money has to grow through compound interest or investing. Even small contributions can lead to a tidy sum of money when accumulated over time. To ensure a consistent and disciplined approach to saving, it's a good idea to set up an automatic direct debit to your child's savings or investment account. This will also reduce the temptation to spend that money on something else.
2. Set clear goals
Although none of us can predict the future, defining specific financial goals for your child's future, such as education expenses, purchasing a car, buying a home, or starting a business, can help guide your savings strategy.
3. Develop a budget
It’s important to create a budget that includes a dedicated portion for your child's future savings. This ensures that you prioritise saving consistently while staying within your financial capabilities. If your current budget is tight, try to identify areas where you can reduce your spending or consider options like doing some freelance work or taking on a part-time job for one night each week to increase your income. Remember, saving for your child's future is crucial, so make it a priority!
4. Consider the risks you are comfortable with
Generally, the safest place for your money is in the bank, either in a savings account or a term deposit. However, investing in blue chip companies in the share market can also be a good option. Investing in businesses that are not tier-one companies comes with increased risk, but the rewards can be impressive. According to S&P Global, the Australian Securities Exchange (S&P/ASX200) had an average annualised 5-year return of 5.05% (changes on a daily basis). Nevertheless, the market can be volatile, so you need to be prepared to ride out the lows as well as the highs.
5. Create an emergency fund
Life is full of surprises, and often, we encounter unexpected expenses or accidents when we are least prepared for them. That's why it's important to create an emergency fund that can cover such unforeseen expenses. By doing so, you'll be able to avoid dipping into your child's savings or other important funds when you find yourself in a sudden financial predicament.
6. Gifts and contributions
If you're comfortable, you could encourage family and friends to contribute to your child's savings on special occasions like Christmas and birthdays. This can help boost your child's savings without putting a strain on your budget.
7. Teach them financial responsibility
It's important to teach your child about the value of money and the significance of saving. If you introduce good financial habits early on, they will understand the benefits of responsible money management. You should make sure they can witness the growth of their account balance and motivate them to contribute to it whenever possible, as they are never too young to start building their own financial success. This will help children understand the value of money and the fact that it doesn't grow on trees!
8. Make money part of your dinner-time conversation
When the family sits down for dinner, it's an ideal opportunity to discuss money and finances with the young ones. This will encourage their interest in financial matters and help them take responsibility for their financial future.
9. Review and adjust
It's important to review your savings plan regularly and make any necessary adjustments. Changes in your financial situation or goals may require modifications to your savings strategy. If you receive a pay raise, you may want to consider using a portion of it to increase your regular contributions to your child's future fund. On the other hand, if you experience a drop in income, you can encourage your children to make up the difference by doing odd jobs around the neighbourhood.
10. Cover yourself
It's important to make sure you have adequate life insurance and health insurance coverage, even if it means adjusting your family's budget. You may not need it now, but it can help protect your family's financial stability when something unforeseen occurs.
Kids are expensive!
Raising a child can be expensive, but saving money for their future can provide them with a brighter and financially secure life. Keep in mind that every family has different financial circumstances, so tailor these tips to fit your needs. If you need personalised guidance based on your goals and resources, consulting with a financial advisor can be helpful.
No matter how disciplined you are about your savings plan, there may be times when life throws you a curve ball and you need a little financial assistance to make ends meet. If that happens to you, remember we’re always here to help. We offer cash loans up to $5,000 that are quick and easy to obtain. Once a loan is approved, the cash is deposited into your bank account, usually within a few hours - so there’s no need to stress about those unexpected expenses anymore!