4 Things You Can Do Today to Prepare Your Child’s Investment Plans
Having a child is definitely something to celebrate. It is a sweet addition to the family and a celebration of life. Having a child, however, also comes with a lot of responsibilities and financial planning.
Health insurance, milk and diapers, pediatrician’s visits, years of school and college tuition – these are just a few common things to think about to ensure your child grows healthily and comfortably. Don’t let this list overwhelm you though; we are going to share with you 4 things you can do today to prepare investment plans for your child’s future.
1. Early planning, early start
Never let the elation of holding your newborn baby in your arms make you forget the importance of planning for the future. Child education and investment plans should be started as soon as possible. Even during pregnancy, it is important to think not only about the labor and early parenthood, but also the years following after. Let’s illustrate this with an example.
Parents A and B have their babies in the same year. They’re both planning to invest for their child’s education with an annual return of 8% p.a. Parents A start right away, contributing $300 a month until their kid turns 10, then they stop adding more money. Parents B choose to wait till their kid is 10 years-old before contributing $600 a month – twice as much! – until their kid is 18. Guess who managed to earn a better return in the end? See the table below.
|Parents A||Parents B|
Parents A contributed less money than Parents B. But they started earlier, so their money has had more time to grow. As shown in the table, they were able to gain a lot more than Parents B in the end. This is the power of compound interest – by re-investing your returns over a long period of time, the end result will be formidable. The sooner you start, the better.
2. Gain passive income
The thing about building a family is you want to spend more time with them instead of at work. That’s why you need to find a way to work less yet earn more. In other words, you need to gain passive income.
Passive income comes in many forms, but we think it’s best to earn it is through investments. Before you venture into the investment world, check your financial health first so you know where you stand and can select the best products for yourself.
3. Choose the right child investment plan
Make sure to buy health insurance for your child. You wouldn’t want to invest a huge amount of money for their education only to have to withdraw it in case of health emergencies. Putting money aside for your child’s healthy education will allow you to provide protection for your child while also growing money for their future.
Nowadays, banks and insurance companies offer various child investment plans where you pay premiums monthly or annually. Each plan also offers different benefits, so take your time to study them and choose one that fits your financial and family situation best.
You can also opt for traditional investments like bonds and stocks. These two products are great for the long term, and they can be highly beneficial to your child’s education fund. Other options include tax-deferred investment products like unit trusts or mutual funds. This means that if you invest in unit trusts, you only need to pay tax when you start withdrawing money. You may also choose to invest in P2P because it offers higher interest – up to 18% p.a.!
No matter what investment products you choose for your child’s education plan, do diversify your portfolio. No one knows what will happen in the future and diversifying is the least you can do to protect your assets.
4. Find a trustworthy advisor
All this financial talk gives you a headache? We get it. It is a lot to take in, especially since you’re also busy taking care of the baby. If you don’t have enough time to study investment products in-depth but you need someone to manage your resources, you can always talk to a financial advisor.
Hiring a financial advisor does require some extra effort, but once you find a great advisor that you can trust, they will take care of your child investment plans. A good advisor will only ask an hour or two of your time every six months to review your investment plans and discuss your next steps, but your finances will be properly managed. Your money will be in a good, professional hands.
Now, you are more prepared to protect your child’s education, health, and future. Keep learning about child investment plans and don’t forget to enjoy the magical journey of parenthood.