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Creating a financial foundation for your kids is important. These are some accounts that will help you build it.
Types of Investments Young Parents Should Consider
Figuring out exactly how much you can save for your child’s future is daunting. You probably know diversifying your investments is wise, but you also want to get a return on the money you put down. As your kids grow and change, some of your savings strategies will grow and adapt. Here are six types of investments to consider.
Life Insurance
While life insurance isn’t the first thing that comes to mind when you think of saving for your child’s future, it’s an important investment for your entire family should you pass away unexpectedly. The funds from your policy will help cover your final expenses as well as any bills you leave behind, including those that go toward your children’s well-being.
Finding the right life insurance policy can feel overwhelming, so use an online calculator to get an idea of what your monthly rate might be, and then get quotes from at least three different providers. Once you know what you’ll pay into your life insurance policy each month, you’ll know how much you can put toward other investments.
Savings Accounts
Savings accounts through your bank are probably one of the first types of investments you’ve used, but the interest rate isn’t very high. Look for a couple of important things in a savings account. Find an account that doesn’t include extra fees. Don’t submit to withdrawal limits, and invest in a strong bank. Some savings accounts let you invest your money in the currency of your choice. Consider setting up one of these with your kids to teach them principles about money. The financial lessons you teach them when they’re young will impact how they view money for the rest of their lives.
College Savings Plan
A 529 college savings plan is a flexible savings account that lets you take advantage of tax benefits. You can think of a 529 plan as an IRA for your child’s education. The earnings you make from interest on the account are tax-free. There are different kinds of 529 plans. For example, if you choose to do a self-directed 529 savings plan, you can choose the state you want to invest in even if your child doesn’t go to school in that state. A 529 plan is one of many kinds of tax-advantaged savings plans available to the public.
Retirement Accounts
There’s a good chance the company you work for has some sort of 401(k) plan set up where they match some amount you invest. This is pretty much free money, and in many cases, it’s a good plan. However, your tax bracket or other financial circumstances sometimes create a situation where maintaining an IRA would be more beneficial.
You can set up some IRAs in a way that allows you to take tax-free money out of the account if it’s being used specifically to pay for your child’s college education. For some people, this could be one of the best ways to invest in your child’s economic and educational future.
Real Estate
Typically, buying a home can be a great long-term investment for you financially, and it can provide a solid foundation for your family. When considering buying a house, do all the necessary homework before you start looking at listings or even contacting a real estate agent. Knowing about your credit rating and how much house you can afford is a good place to start.
Many prospective home buyers stay in cheaper apartments while trying to save money for a down payment on a house. This can be a good strategy when trying to afford your first home.
Another kind of property venture is called a real estate investment trust, or REIT. You put money into the trust, which invests your money in real estate properties and pays out dividends to shareholders like you. Investing in real estate can feel risky, especially after the real estate bubble burst of 2008. REITs keep your money safe because they’re aggressively managed.
There are ways you can ensure that your money stays safe with an REIT. Forbes suggests looking at funds from operations for a particular trust over the past couple of quarters. This can help you figure out safe and profitable investments.
Mutual Funds
Mutual funds allow you to easily diversify your savings, which can prevent major losses if the economy weakens. There are different levels of risk you can incur based on the type of fund you invest in, and the rate of return varies as well. Mutual funds are typically safer than other investments like hedge funds and are regulated by the US Stock and Exchange Commission.
Regardless of your current savings status, there are always things that you can do to start making progress now. It’s never too late to start investing, even in small amounts. Remember, you’re planning for the financial security of your family, and every little bit adds up. When it comes to money, do what you can with what you’ve got now.
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