Tips to Save Money for My Children – Part II

What are the important aspects of “kiddie taxes”?

Before explaining the concept of kiddie taxes, allow me to explain the situation that led to the issuance of these types of special taxes. There was a time when parents used to opt for investment plans (primarily in the form of stocks) by the name of   their child. Their children could in turn attain profit from the same because of the reduced taxes. However, according to the newly introduced “kiddie tax”, they will have to pay taxes equivalent to their parents. Nevertheless, this policy is only valid until the child reaches 19. Once the age limit is crossed, the tax amount is altered in order to tally with the child’s rate (which, by the way, is lower than the former).

The system was introduced when congress realized how investment options were being misused by a small section of the society.

What are the important features of Education IRA? Am I eligible for the program?

Firstly, it is improper to mention the program as the education IRA as it was replaced some time earlier with Coverdell ESA. The program is straightforward and is primarily intended for those parents who seek to give higher education to their children. It is often considered as an investment option – but it comes with the additional advantage that no form of taxes will be imparted when the program lapses ultimately the parents are bestowed with the entire sum. An age limit of 18 is presently set for this program and once the child reaches the age, the parents will have to stop making the payments.

The payments that are made on the behalf of the Coverdell program must be in cash. No other form of payment is accepted into the program. Many technicalities are associated with the paradigm, and it is hence better to contact an investment expert to understand the underlying concepts. High interest rates are provided over a period of 10 years. In order to illustrate the affectivity of the program, allow me to cite a suitable example. If you start the program by investing just $500, in 10 year’s time the amount might camouflage itself to $5000! Do you realize the potentiality of the program?

Help Me. I was foolish enough not to save any considerable amounts for my child’s college education. What am I supposed to do now?

Well, like they say better late than never! Here are some strategies that can be exercised so that you will be able to make the ends meet by the time your child is about to enter college!

  • Start saving now. Reduce the overall expenditure levels of the house. Start monitoring the bills and lower the consumption levels of household accessories. Never indulge in activities that will part you away from your hard-earned money.
  • Start making extra money. It is better to opt for a second job. I do realize that life is tough, and you will have to work hard to make the ends meet. If viable, allow the child to earn and start a savings bank account for him.
  • As a last resort, you can try for loans or grants, although the chances of obtaining one are slim these days. Maintain a good credit history and you might be given the green signal and ultimately the loan might be sanctioned.

Tips to Save Money for My Children

What is the best time to initiate money saving procedures for my child?

There are many pre-defined rules that must be considered before initiating money saving procedures for your toddler. Answering the query at hand – the sooner the better it is! Time is precious and with the passage of time, the cost of living is increasing rapidly. If you can initiate the investment procedures on this day, you might never have to repent on some other day in the future.  Here are some advantages of starting the procedure at an early stage:

  • The sooner you start, the skimpier will be the amounts required to save! Yes, this is true – if you are thinking about investing at a later date, you might have to spend more. The present economic condition of the country is grime, and I would never want to play with the future of my child.
  • The existing investment option, which is available in numerous forms, might not work out to be feasible later. Financial institutions are tightening their grip over their existing clients.

In what manner will my child’s college education cost me?

  • The cost is directly related to the type of college that is opted for the child. The fee’s structure of private colleges is always to the higher side. You might be able to find some respite, if you opt for state funded colleges. You will have to shell out approximately $34000 annually if you prefer private colleges. On the other hand, you will have to part away with just $14000 if you seek the aid of state education. In fact, the $34000 (mentioned above) is just an approximate cost – I have come across certain private colleges charging precisely $55000 per annum!
  • It is not a bright idea to fund the entire college education with your savings. The government has come up with certain financial aids to ease the financial burden. If possible, choose these grants because you will be able to procure $10200 for each year (if your child is attending a private college) and $3700 (if your child is attending a state-funded college). Bear in mind that these costs are merely approximated, and you will have to consider these costs to increase in the coming years. Okay, what is the approximate rate at which the cost might increase? Economists have put this rate at 7 percent by the year.

In what way should I start expending for my child’s college education?

Well, this delicate issue must be handed appropriately to realize the maximum benefits. One will have to consider the simple fact that investments might or might not grant you any returns. Hence, it is better to start investing with smaller amounts. Once you start realizing the profits, it is better to invest more into the same paradigm. In addition, there are no pre-defined rules that must be considered. Yet, I will be highlighting certain methods to be thought about if you are looking for realizing maximum profits.

  • Investing on bonds – If you are looking for a perfect investment solution, then this is the way to go.  Two types of bonds might materialize ahead of you; they are Series EE bonds and US Government bonds. I will be explaining these in depth in the following sections.
    • Firstly, we will consider Series EE bonds. Here are certain factors that must be considered while choosing to invest on these bonds. You will be provided with a fat interest rate according to the nature of bond opted and, the same interest amounts can be used as a whole (without any kind of taxes) for educational purposes. Bear in mind that the name of guardians must be placed in the bond.
    • Secondly, we will consider the US Government bonds. As I had mentioned earlier, this type of bonds works out to be highly feasible for funding the college education of your child. Keep a sharp look out for the date of maturation of the bond. It is better to withdraw the amounts once this maturation date is reached. Else, you will have to face significant losses. Unlike the previously mentioned bond, taxes will be charged for the amounts withdrawn through this system.

Various other investment schemes might also suit the discussion at hand. Opting for certificate of deposit or municipal bonds is also recommended.

  • Certificate of deposit – Most of us are already aware of this simple, yet efficient manner of moneymaking! The certificate of deposit (or a CD as it is commonly known in the financial circles) is analogous to a savings bank account. Interest rates will be added up to the existing amount, and you will be able to withdraw amounts at preset intervals.
  • Municipal bonds – If you are blessed with high-income levels (and if you happen to be paying ever higher income taxes), then this is the best manner to proceed with. One should have a clear understanding of the taxable and non-taxable amounts that will be bestowed to them at later stages.

Here is another method that is commonly practiced by many, these days. Well, I am speaking about the stock market returns. As with any other investment option, you must have ambient risk tolerance levels. If you are afraid of the included risks, it is better to opt for a mutual fund program. Bear in mind that it is going to take some time in order to realize the profits. Therefore, it is better to opt for a suitable program at an earlier date probably when the child is enjoying its first year!

Raising A Child – Part II

What is the approximate cost to be borne by me between the ages one to six?

An additional overhead that will have to be taken into consideration during this period is the cost associated with pre-schooling. According to the type of day care center or pre-schooling institution that is opted by you for the child, you will have to pay $10000 to $12000 (annually). Keep a sharp look out for the terms and conditions listed on the health coverage because you will be able to save considerably (once again), by opting for the right comprehensive package.

What are the costs that should be undertaken between the ages six and twelve of the child?

During the initial years, you will have to be worried about your health care package. However, when the child is nearing 12, he or she will not be prone to diseases (like they used to be). The immunity system of the child might receive that much needed boost during this time, and hence you will have to pay considerably lesser! The main expenses for the child during this stage will be clothing and of course entertainment. Opting for a private school for the child might seem like a bad idea then.

How can I keep a check on the amount spend on my child between the ages thirteen to eighteen?

It goes without an explanation that the entertainment needs of the child increases largely during this time. The child will be aware of the fashion changes occurring in the neighborhood and will compete with their friends to “look flashy”. The food and clothing requirements of the child will surge past the $3000 mark. The same holds true, if the child asks for a car; also please add the cost of the gas along with auto insurance (which must be remitted yearly).

How should I impart money-saving techniques to the child?

Even from a very early age, it is the duty of the parents to generate awareness about money-saving techniques in their child. Never impart high amounts as pocket money because you are inviting more trouble by doing so. Open up a savings account in the nearest bank and make it mandatory to deposit the pocket money or any other extra savings in the bank account. Giving a credit card to the child must be thought about seriously, likewise!

Raising A Child

What is the average cost that is associated with raising a child?

The typical cost for raising a child might vary according to the present economic status of the inhabitant’s country! In other words, it is quite difficult to provide an outline of the costs that might incur to you, while raising your first-born. Economists always work with the aid of estimates – they have lain out certain estimates and in the following sections, we will be looking at an in-depth analysis of the same. As we proceed with this brief discussion, you will realize that rising up a child is not an easy task.

Here is a news flash that might provide some relief to those who are expecting their first child in the coming months – the amounts spend on your first child will be always high. Clothing and other accessories that are being purchased for the first-born can be re-used for the rest of the children. Meticulous levels of planning are desired because you are meant to spend a minimum of $298,680 until the child reaches 17. Once the child is admitted to a college, the cash requirements will soar to even higher levels. If we add additional overheads like paying the mortgage amounts, we are looking at wholesome amounts!

What is the approximate cost that be incurred to me on my child’s first year?

I do not intent to dampen the spirits, but do you know that on an average, you will be charged approximately $8000 for a normal delivery? Of course, you will never have to pay the entire cost – yet you will have to realize that insurance companies might impose at least 30% of the said amount. Once the baby is taken to the home, the real expenditure starts.

The costs of baby layette are always on the rise. If you have bestowed the same upon someone else recently, you might have a rundown of the associated charges. Experts have put this cost at $1200 – include the cost of the crib and other accessories like the table used for changing the nappy in this $1200. Once into the open market you will realize that baby clothes happen to be highly expensive and at a minimum, you will have to spend approximately $300 for your newborn child. We must never forget the high chair or the infant car seat that is also mandatory for “housing” the baby properly!

Subsequently, we will consider the cost of baby foods. One might realize that baby foods are available in two forms – the ready to serve and the other kind that will require you to spend some time preparing it. On an average, the yearly cost of baby food might be around $1200; but this is highly dependent on the type of food opted for the child. By that time, you will be investing on lots of feeding bottles and nipples for these bottles. The clothing of the mother must be altered to incorporate additional “facilities” to breast-feed the child at appropriate intervals.

Quit gasping, because more is yet to come. The diaper costs for the very first year might run to approximately $800. Well, this can be grouped with the baby food category; according to the brand, the costs might rise or fall. One will have to consider the day care facilities, which might be around $12000 annually. It is better not to seek the aid of nannies, for the time being,   because they usually work out to be highly expensive than day care centers. This is primarily due to the “individual undivided attention” imparted to the child.

Well, hither is another news flash; $50+ must be paid every time the baby is taken to the hospital for the monthly checkup routines. As mentioned earlier, insurance companies might provide relief under such strenuous conditions. HMO is the best manner to proceed with because you will be forced to shell out a maximum of $10 per visit to the doctor. Medicines are not free, so are the charges related to handing out a prescription for the child. The baby is going to spend a certain duration alone with his toys, oh – did I forget to mention that? Please add in the cost of the toys, and you are looking at approximately $500.

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