Blog — Sisters for Financial Independence

“Parents are the ultimate role models for children. Every word, movement, and action has an effect. No other person or outside force has a greater influence on a child than the parent.”

1) Invest in Yourself

It’s important to realize that our kids need parents who are physically, emotionally and financially stable so by extension, we need to take care of ourselves first and that means investing in our well-being. Invest in yourself. When we become parents, it’s easy to want to focus all of our attention to giving all that we are to our children, after all, they are the loves of our lives. This can sometimes result in sacrificing our own well-being for their sake, but it’s time we add self-care to our list of to-dos. A healthy parent is a parent who can offer more for their children.

What can this look like? This may mean setting time aside to get physically healthy. This may mean investing in your mental health by seeking a therapist or it may just mean putting time aside to work on what brings you joy which can be a great example as your kids grow up.

2) Take Care of Your Retirement Savings

One of the greatest gifts you can give yourself and those that you love is financial security. If we don’t save for retirement, we will become a burden to our children later on so it’s super critical to take care of your retirement saving first. Retirement may be far away and that’s exactly why saving earlier is better. The power of time and compounding will help grow your money.

We all have to a plan for a future scenario where your financial freedom allows you time to spend with your kids and the grandkids without limits.

3) Get Term Life Insurance

Life insurance is all about buying peace of mind. Yes, it gets taken out on you, but it’s not for your benefit, but for the benefit of those you leave behind.

Many people don’t believe in life insurance because they are going with the outdated idea that they won’t be able to enjoy the benefits of the money, since, well, they'll be gone. Imagine though by some act of fate that something happens to you. Who takes care of your children? Who can work to ensure your family is taken care of? Who will have the means, resources and time to provide for your family? If you are from a two-income household, an income loss can be severe. It may mean the family needs to move away from the nice neighborhood with the good school district because the housing costs are too high on one income. If you are in a single-income household, it means earning income will become a necessity and it sacrifices will have to be made.

The loss of a one parent will already be devastating to children. The loss of the second parent because they are too busy working to make ends meet can be even worse. The least we can do is to reduce the financial burden that occurs today and in the future. Life insurance can provide you that cushion so something unexpected happen.

To calculate how much insurance you need, check out this calculator. Remember to include if you have other assets that can be used to keep the family afloat so in the end you may not need as much insurance as you think/

4) Fund a 529 Plan

There’s a common misconception that the 529 Plan is only for college. When in fact, it can be used for many things. If education is something you desire for your kids, saving into a 529 Plan can save you money and ensure you and your child won’t need to take out a ton of student loan debt.

A 529 Plan is a tax-advantaged savings vehicle to help pay for education. Depending on your state, you may receive a state tax deduction for contributing. Money in the plan grows tax-free and can be withdrawn tax-free as long as it’s used for qualified education expenses. It was expanded so now you can use up to $10,000 to cover tuition expenses for elementary, middle, or high school. In addition, the money in the plan can also be used for trade school or vocational school if your child decides that a trade, instead of college is for them. For any leftover funds, you can designate a new beneficiary like another child in the family.

A 529 Plan can be a great way to eliminate or reduce student loan debt. By doing so, you will allow your grown children to start their lives with as little debt as possible freeing them to do more like saving and investing which leads to more financial security down the line. A note that that anyone can contribute to a 529 Plan so if other family members are willing, this may be a good alternative to gifts.

5) Fund an ABLE Account

ABLE Accounts are tax-advantaged savings accounts for individuals with disabilities. ABLE accounts allow you to save and invest to ensure that your loved one has the funds to help with future expenses to improve health, independence and quality of life. Assets below $100,000 in the ABLE account will not be counted as a resource for Supplemental Security Income (SSI) testing. Assets don’t count for Medicaid testing. It largely will not affect other means-tested programs such as FAFSA, HUD and SNAP/food stamp benefits.

A family member can open the account for the beneficiary (individual with disability) and anyone can contribute to the account. There are some rules and limits like contributions have to be made using post-taxed dollars and will not be tax deductible for purposes of federal taxes; however, some states may allow for state income tax deductions.

Like the 529 Plan, you can invest in mutual funds and put the money in a high yield savings accounts. From there you can then withdraw for a “qualified disability expense” which may include education, food, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses, financial management and administrative services and other expenses which help improve health, independence, and/or quality of life.

Learn more about ABLE Accounts.

6) Open a Custodial Account

Another option to consider is a custodial account. This is basically a financial account that you open on behalf of your child. You have control of the account until your child reaches the age of majority which is 18 or 21 depending on the state. As the parent or guardian, you have a fiduciary responsibility to make sure the account is in the best interest of the child. You won’t be able to withdraw funds unless it’s for the direct benefit for the child, but it’s another vehicle to save and invest. Investing can allow money to grow that can be used in the future. Funds withdrawn from a custodial account are subject to taxes so keep that in mind and the balance can count towards financial aid calculations.

7) Teach Them Money

The last big thing you can do for your children is to teach them all about money. Did you know that the minimum age for opening a brokerage account is 18 years old? Did you know that 18 years old sign loan agreements that can sometimes involve $20,000 to $30,000 of debt (via student loans) without understanding the terms for the agreement? We teach our kids many things, and it’s important we also teach them money concepts. You don’t have to a be a money expert to do so. Don’t be afraid or ashamed to learn things along with your child.

We ran a series here on Sisters for FI called “Teach Kids Money” with guests posts from prominent and popular money educators that specialized in helping parents teach money to kids. Check out their suggestions.

Investing in your children’s money knowledge can lead to great returns.

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