When you have a child, you can be overwhelmed by the amount of responsibility that you have for your child’s life. One of the most popular topics that parents seem to have questions about is making sure to save something for their child’s education.
Before we go any further, it is important to know that saving for a child’s education is not the most important financial consideration that you have. As a parent, it is natural to want to make sure that all of your child’s needs are met. However, you do not want to spend all of your resources on your child’s education if you have more pressing needs. I, like some financial experts, advise parents to really focus on making sure that they are financially stable before they begin saving for their child’s education. I know it is unpopular, but there are some steps you should take before you save for your child’s education.
Pay down your debt
Debt, including that good debt (typically student loans), is something that you should try to live without. I am glad that one of the latest trends in the United States is eliminating credit card debt. Carrying too much debt could be a financial disaster for your family. One large debt that people typically spread over many years is their mortgage. If you have a mortgage, you should still look into paying that off as soon as possible. While a thirty year mortgage is the typical loan term, you should really try to pay your home off in fifteen years. If you do not have a mortgage, you should really consider the mortgage that you can afford. If you can, wait to get a mortgage until you have at least a 30% down payment. If you get a mortgage loan select a term of fifteen years. It will significantly reduce the amount of money that you pay in interest.
Save For An Emergency
Before you fund your child’s education, you should make sure that you have money for an emergency. I think that you should have at least six months of an emergency fund just in case. This might seem like a large amount of money, but a six month emergency fund is really necessary in these turbulent times. You do not have to save all of the money at once but you want to make sure that you have a substantial cushion for an emergency. Before getting a mortgage, you should really try to save nine months of expensive.
Make Sure You Are Saving Enough For Retirement
Many people believe that their child’s education should come before the amount of money that they save for retirement. However, this decision can cause a ton of problems for you later in life. As a parent, you need to make sure that all of your retirement needs are taken care of. If necessary, you should consult a financial planner to determine whether you are saving the proper amount of money for your retirement. Although you may think that you will have plenty of time to save for retirement, you should make sure that you save money as soon as possible in order to take advantage of compound interest.
Make Sure You Have Insurance
There are so many people that do not have the proper insurance that they need. Make sure that you have health insurance. As a parent, your ability to take care of your child depends on your health.
You should also make sure that you purchase life insurance. People with families need to make sure that their families will be cared for if they are not alive. Buy a term policy rather than a whole life insurance policy. At first glance the whole life insurance policy seems like the best thing to do but over a period of time, it will actually end up costing you more than a term policy would cost you.
Regarding life insurance, it is important to remind you that you should not rely on a life insurance policy to fund your child’s education fund. I know financial institutions are advertising them as the next best thing for a college savings account, but they are not. After paying for the premiums and the length of time that you have to have the policy, you can usually do better by putting the money into an education fund (like a 529 if you live in the US).
But What About…
If you have not accomplished all of the above tasks, I would strongly recommend that you use all of your expendable income to help you get on track. I know it may seem harsh and you probably imagine a lot of different situations that make you the exception to my advice, but there are so many older parents that regret following this advice. If you use all of your extra income to make sure that you are financially secure, you may be able to help your children at a later time. It is also good to be financially secure so that your children do not feel pressured to meet your financial obligations when you are older.
Ways to Fund a Child’s Education Without Stopping Your Goals
Now, I will admit that there are a few ways that you can use to generate money to save for your children. One of the ways that you can do this is by signing up for Upromise. If you sign up for Upromise you will get a percentage of your purchases back which you can put in an education account for your children.
You can also ask relatives and friends to place money for your child into an account rather than giving them gifts that they don’t need. In the long run, the child will end up appreciating the gift more than they would appreciate a toy.
Please take the time to make sure that you are financially secure before you begin saving for your child’s education.