As a parent, it is natural to want to set your children up for success and ensure that they have a bright future. One way to do this is by making sound financial decisions for them, but what is the best way to approach this task?
The first and most important step in setting up your children’s future is to make sure you are on firm financial footing. Before you can think about setting up accounts for your kids, you need to prioritize your own financial situation. This means making sure you have a solid risk management plan, that you’re accumulating assets, and that you’re saving at a healthy rate. Only once you have these things in check should you start thinking about setting up accounts for your kids.
Once you have your own financial situation under control, you can start thinking about prepaid future expenses, including college accounts and other savings options. There are several different options available, including:
- 529 College Savings Plan: A 529 plan is a tax-advantaged savings plan designed to help families save for college. One of the main benefits of a 529 plan is that the money can be used for a variety of educational expenses, including K-12 private schools, trade schools, and colleges. Additionally, if your child does not end up going to college, you can access the money and only pay income taxes on the gains, not the principal.
- Custodial Accounts: Another option for setting up your children’s future is to open a custodial account. This type of account is typically set up by a parent or guardian for a minor and is used to save money for future expenses, such as college or a wedding.
In addition to setting up accounts for your kids, it is also important to start teaching them about money at an early age. This can help them develop good financial habits and understand the importance of saving for their future. You can start by teaching them about budgeting, saving, and investing, and help them understand how to make informed financial decisions.
In conclusion, setting up your children’s future requires a step-by-step approach, starting with prioritizing your own financial situation and moving on to prepaid future expenses. While there are several options available for setting up accounts for your kids, it is important to consider your own financial situation and choose the best option for your family. By teaching your kids about money and helping them develop good financial habits, you can set them up for success and ensure that they have a bright future.
To learn more, check out our Financial Order of Operations here.