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8 Tips To Safeguard Your Child’s Financial Security

8 Tips To Safeguard Your Child’s Financial Security

Securing your child’s financial future is one of the most important things you can do as a parent. 83% of Americans can’t afford to pay for college while millennials currently earn 20% less than Boomers did. The rate of home ownership is also lower for millennials while student loan debts are much higher compared to their parents.

Reasons for the current state of affairs include globalization and slow salary growth. Financial planning ensures that your child will have funds set aside for college and be well taken care of in case of a catastrophe. Here are a few tips to help you plan for your child’s future.

1. Open A Coverdell Education Savings Account

An ESA (Education Saving Account) will enable you to deposit up to $2,000 annually towards your child’s college tuition. The plan allows the funds to grow tax-deferred. ESA’s aren’t just for college expenses; they can also be applied towards elementary and secondary school costs.

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If you plan to invest more than $2,000 every year you may want to consider a 529 plan. It’s similar to an ESA plan except without the annual limit.

2. Consider A 529 College Plan

There are two types of 529 plans; pre-paid plans and savings plans. A pre-paid account allows parents to buy tuition credits for future use. The disadvantage of a pre-paid plan is that funds can only be applied towards tuition and not room and board.

A 529 savings plan consists of mutual funds investments which grow over time. Most plans consist of numerous investment options. Experts generally suggest investing more aggressively in stocks while the child is young and tapering off to a more conservative portfolio as your child gets older.

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Financial experts suggest funding the account to the maximum amount as soon as your child is born in order to maximize future growth. Automating 529 contributions at set intervals will ensure that the account will grow at a steady rate.

3. Draft An Updated Will

USA Today reports that 64% of American’s don’t have a will. Creating a will is imperative when it comes to protecting your child’s financial future. You will also need to designate a guardian to take care of your children and name a property guardian to manage your estate. Drafting a will doesn’t have to be expensive; Quicken’s Willmaker is affordable and easy to use.

4. Update Beneficiary Information

Make sure to update beneficiary designation is up-to-date on your life insurance policy, bank and retirement accounts. According to Loren Barr, a probate attorney at Barr & Young Attorneys in San Francisco, CA, the information on the beneficiary designation form will override your will. It’s important to update this information after major live events such as the birth of a child or divorce. Experts also suggest naming a contingent beneficiary in case the primary beneficiary predeceases you.

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5. Open A Custodial Account

A custodial account is one of the easiest accounts to open. It’s basically a savings account in your child’s name. The account will be accessible once your child turns 18 or 21 depending on their locality. The disadvantage is that the funds are taxable after the first $950. Your child will also have complete control once they become of age, which can either be a good or bad thing depending on their spending habits.

6. Get Life Insurance

Statistics show that only 62% of Americans have life insurance while 85% need it. 70% of households with minor children will have difficulties paying the bills if a primary wage earner were to pass away. The most common reasons for delaying life insurance is perceived cost. The average policy cost for a 35-year-old female non-smoker is just $61 per month. Inquire about life insurance in order to protect you family; it may be a lot cheaper than you think.

7. Save For Retirement

According to U.S News, the average Social Security benefit is just $1,180. Let’s face it; for most of us, that’s not going to be enough to live on. Saving for your own retirement can help your child’s future because they won’t have to provide for you financially in old age. If your work offers a 401k plan, start off by having a set amount of your paycheck deposited directly into your account. The earlier you start the more time you’ll have for your money to grow.

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8. Talk To Your Kids About Money

Financial literacy isn’t always stressed adequately in school. Encourage your teen children to get a job and save for what they want instead of handing them over money. Talk to your kids about the basics such as how to manage credit cards, a bank account and how to budget. Knowledge is one of the best gifts you can give to your child when it comes to money management.

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Jacqueline Cao

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Last Updated on June 6, 2019

The Average Retirement Savings and How to Save Wisely

The Average Retirement Savings and How to Save Wisely

Are you on track for retirement?

If not, don’t worry, I’m not sure either. I save each month and hope for the best.

Fortunately, I’m at an age where most people don’t save so I’m ahead of the curve.

But, what if you aren’t in your 20s? What if you’re near retirement and are looking to gauge where you stand?

If so, keep reading. Here’s how to prepare for retirement and save wisely during the process.

What Does the Average American Have Saved for Retirement?

Saving for retirement is tricky.

Tell someone straight out of college to save $10k a year for retirement and it’ll be next to impossible.

Make the same request to someone decades older and they’d be more likely to be able to save this amount. But, a 20-year old college student can be “financially ahead” of someone saving more than them. Why?

Age matters in your financial journey. The younger you are, the more time you have to save and put compound interest to work. As you get older and have more saving power, you’d have less time to put compound interest to work.

Here are the average savings Americans hold by age bracket:

20’s – $16,000

During this stage, most people are paying loans and moving up the corporate ladder. Your best bet during this stage is to focus on eliminating debt and increasing your income. Don’t focus only on getting a high-paying job neither.

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Instead, focus on learning via Podcasts, reading books, and taking specialized courses. Doing this will make you more valuable and give you more career options.

30’s – $45,000

At this stage, you’ve hopefully escaped your entry-level salary and work at a career you enjoy. Your earning power has increased but you now have more obligations. For example, marriage, kids, and a mortgage.

Set a plan to pay off all your debt and focus on eliminating unnecessary expenses. Leverage financial tools like Personal Capital to ensure you’re on track for retirement.

40’s – $63,000

This is the stage where you’re at the prime of your career. Top financial institutions recommend you have at least 2 to 4 times your salary saved up. If you’re falling behind, start maxing out your 401K and Roth IRA accounts.

50’s – $115,000

During your fifties, you’re close to retirement but still, have time to save. You may be helping your kids pay college tuition and other expenses. Since you’re at the peak of your earning power, max out all your retirement accounts.

60’s – $172,000

By this point, you should have about eight times your salary saved up. If not, you’ll depend primarily on social security benefits averaging $1400 per month. Max out all your retirement options as much as possible before retiring.

Ways to Save Money on a Tight Budget

The sad reality is that most Americans aren’t saving enough for retirement.

Even high-earning power isn’t enough to secure one’s financial future. You need to have the discipline to save for retirement while time is in your favor. Don’t wait for you to have a high salary to save, start with having a small budget.

First, get a clear picture of where you stand. Write down a list of “needs” and “wants.” For example, Netflix and Amazon Prime are “wants” and a “cell-phone” is a need.

Use tools like Personal Capital to analyze your spending patterns. Personal Capital allows you to add all your financial data in one place–making it a powerful option to gauge where you stand.

Once you know all your expenses, organize them from highest to lowest expense. When you can’t cut more expenses, call your service providers to negotiate a lower price. If you’re not good at negotiating, use services like Trimm to lower your monthly expenses.

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How to Save Money Each Month

By this point, you know the average amount of money you should have saved for retirement based on your age.

But, breaking this down into monthly goals can be challenging. Here are some rule of thumbs to follow:

Aim to contribute 10%–15% of your salary each paycheck. Review your progress each week.

Why so often? The reality is that life gets in our way and you will have many financial setbacks. Your goal isn’t to be perfect but to get back on track instead.

Reviewing your finances weekly lets you know where you stand with your retirement. This doesn’t have to be a long process either. All it takes is login in Personal Capital to view your net worth and check how much you have saved for retirement.

Turn saving into a game and aim to save more each month. It will get challenging but you’ll get creative and find more ways to save.

Top Money Saving Challenge Tips

To prepare for your financial future and not be another statistic you need to be different.

How?

By adopting new habits that’ll help you become a saving machine. Here are some ways you can save more:

Automatically Contribute Towards Retirement

If you’re working for a company, you can automatically contribute towards your 401k. If you’re not currently contributing more than 10%, make this your goal. Contribute 1% more today and automatically increase this amount a year from now.

Odds are that you’re not going to be negatively affected by contributing 1% more. Many times we spend our money on things we don’t need. Contributing more towards retirement is a great way to secure your financial future.

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Use the Right Tools to Know Where You Stand

Once you’re contributing more towards your retirement accounts, gauge your progress. Make use of finance tracking apps to help you view the big picture of your retirement.

When I’d first signed up for the app Personal Capital, I didn’t know I had a negative net worth. Despite saving thousands of dollars, my debt brought my net worth to the negative. Knowing this motivated me to save more and spend less.

Now, I have a positive net worth. But, it was because I was able to view the big picture using the app. Find out what your net worth is using a finance tracking app and you may surprise yourself.

Bring in Experts to View Your Blind Spots

If you have too little or too much money saved, you should consider hiring financial experts.

Why?

You may need someone to hold you accountable to help you reach your financial goals. Or, you may need help managing your money as effective as possible.

Regardless of the reason, getting help may help improve your financial situation.

Before you hire an expert, find out which areas you need help the most. For example, if you’re constantly overspending, find a debt counselor. If you’re struggling with choosing the best investment options, hire a financial advisor.

Speed up Your Retirement Contribution

After learning how to manage your money well, the next best thing is to earn a higher income.

You’re capped at how much you can save but not much you can earn. Even if your employer isn’t giving you a promotion, you can still take charge of your financial future. How?

By starting a side-business.

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This will be something you’d work on after you’ve finished your day job. Once you start earning income from your side-business, you’ll be financially better off.

The best part is the more work you put into your side-business,[1] the more potential it has to earn more money.

So start a side-business in an area you’re familiar with. For example, if you enjoy writing, do freelance writing for small e-commerce businesses.

Once you’re earning a higher income, you can contribute more towards your retirement. Don’t wait for the right opportunity to secure your financial future, create one.

Reach Financial Freedom with Confidence

What if you were able to retire tomorrow with no problem, all because you’d have enough money saved up and little to no debt left to pay off? How would you feel?

My guess is that you’d feel happy and relieved.

Most Americans are falling behind their retirement goals for many reasons. They’re not prepared, they carry bad money-habits and are thinking short-term.

For you to retire successfully, you need to work backward and adopt better habits. Contribute more towards your 401K and focus on growing your income.

If you do, you’ll save money and pay debt faster.

Don’t beat yourself up if you’re behind your retirement goals. Take the first step today towards a brighter financial future. Isn’t retirement worth the hard work and sacrifice to be at peace?

Featured photo credit: Huy Phan via unsplash.com

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