Saving for your children’s future may appear to be a daunting endeavor; limited cash flow, and there are numerous unknowns regarding education. However, by beginning early and investing consistently, you can build the money to make things easier later.
RESPs and CCB are excellent ways of starting early on this journey. If you need more information on the two schemes, click here
Here are some ways you can save for your child’s future.
1. Invest in RESPs
Registered Education Savings Plans (RESPs) enable you to invest in your children’s education. Income earned on investments made inside an RESP grows tax-free.
Perhaps the most beneficial aspect of an RESP is that it enables you to participate in extra government savings programs that contribute to your children’s education fund development.
When selecting an RESP, you may want to consider creating a family plan rather than one for each child. This way, when the time comes, any of your children will have access to the same pool of funds.
2. Take advantage of government programs
These government initiatives provide extra funds to your children’s RESPs. The CESG will match up to $2,500 of your RESP contributions, up to a maximum of 20 percent of the total amount you have saved for your child’s education. It may be up to $500 every year, with a lifetime cap of $7,200. In addition, certain families that fall below the middle- or low-income limits may be eligible for additional CESG contributions ranging from 10% to 20%.
The CESG is only available to those who establish their RESP. To be eligible for the CESG, someone must make personal contributions to the RESP, but it does not have to be the parents; it may even be friends or relatives.
The Canadian government also contributes to an RESP via the Canada Learning Bond (CLB). The CLB is available to families that earn less than a certain income level. Unlike the CESB, the RESP does not require you to make personal contributions.
3. Set up a trust
A trust, which is a legal agreement in which transfer of money takes place from one person to another on specified terms, is an effective way to “manage, control, and protect funds” According to BMO, it gives parents and grandparents peace of mind knowing their children will put their money to good use.
It is essential to establish the trust correctly, with a formal agreement outlining the terms and conditions, noting that there may also be tax implications depending on how funded the trust is.
4. Payout corporate dividends
If you own a corporation or run a family company, you may save money and subsequently pay it out as a corporate dividend to help pay for your child’s education. Your child would have to own shares in your business. Make sure the child has a modest income when you take the payout as dividends so that it is not taxed at a higher rate.
5. Discuss risk tolerance with an advisor
Since RESPs are investment vehicles, you’ll want to consider the kind of investments to make. A financial adviser may recommend products that are by your risk tolerance. Regardless of how much you save, you’ll generally want to keep it safe until your child requires it.
6. Start early
It’s never too early to plan for education. Even if you can only invest a little amount initially in an RESP, you can gradually increase your child’s earnings over time.
Save money on other areas of your financial life, such as a mortgage or vehicle insurance. Then you may invest the additional funds in a secure future for your family.
7. Reduce some social expenses
Even when the world reopens, citizens are advised to practice social separation to reduce COVID-19 spread. It requires that we maintain our social bubbles during parties, meetings, and get-togethers.
As a result, you’re probably reconsidering sending your children to play centers or organizing expensive birthday parties. The one benefit is that you will almost surely save money.
For example, before the pandemic, you spent between $200 and $300 on your child’s birthday. However, whether you’re giving them a smaller or virtual party, you can likely reduce that cost to $50-$100. The remaining $50-200 may go into an RESP.
8. Help pay for their wedding
Even if your kid chooses not to attend post-secondary, their path ahead is not without financial obstacles. One of the most effective methods to ensure they begin adulthood on the best financial basis possible is to assist with the expense of their wedding.
In Canada, the average cost of a wedding is $31,685, and up to one in three persons incur debt to marry. With financial problems recognized as a primary cause of divorce, beginning married life in the red may not be the best decision.
Contributing to your child’s wedding expenses in part or whole is a generous gift and an excellent way to welcome the new spouse into your family. However, if you want to show your support without going overboard, try covering a single expenditure, including your daughter’s wedding gown or the reception bar. It is plenty to help them stretch their budget without allowing them to overspend on something that they will use for just one day.
9. Help them in buying their first home
A more practical way for parents to contribute to their children’s long-term financial stability is to assist with their first house down payment.
With the average house price in Canada already above $500,000, first-time homebuyers will need a substantial down payment to enter the residential real estate market.
A contribution to their down payment money may enable them to begin adulthood sooner. Just be careful not to assist them excessively by getting them into a property they cannot afford!
When saving for your child’s future, you’ll have various costs to select from, but it’s essential to prioritize those that will provide financial stability for your child. These saving tips at Live Enhanced may help them avoid debt and build long-term wealth independently.