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How to Build a Nest Egg for Your Children

How Do I Save Money for My Children

Saving money is not always the easiest thing to do, especially when you have very little of it left after paying off all your bills and accounting for daily necessities.

Still, if you have children, it’s all the more important to save – not just for yourself, but for them too.

Building a nest egg for your kids will give them the financial cushion that most of us may not have been privileged enough to receive.

With a good sum of money to help them along, your children will have the financial freedom to carve out their paths in life.

They can use this money to pay for a good education, to travel, buy a home or even start their own businesses.

So if you are considering how to build a handsome sum for your children, here are a few ideas and tips you can use to do just that:

  1. Start early

Do start saving for your children, as soon as you can!

Money needs time to grow and if you do in fact start putting aside even a small sum for your children, this figure can grow immensely.

For example, if you can afford to put aside RM350 per month from the day your child is born till they turn 25 years old; it will amount to RM105,000!

Note that this figure doesn’t even take into account potential compounding interest earnings and other financial benefits.

Don’t worry if you can’t afford this amount, whatever sum you can manage, will be better than nothing.

Apart from simply saving for your children, it’s also necessary to teach them about the value of money and how to save for themselves.

Consider that if your child does not grow up with good money management skills, no matter the size of the nest egg you leave them, the possibility of it being squandered is high!

  1. Diversify savings

How and where you save is important as well. This is because each type of savings vehicle will come with a different set of benefits and drawbacks.

Diversifying your savings can help negate drawbacks and maximise benefits.

Let’s take a look at three essential savings accounts you can open for your children:

  • Regular savings account. A bank savings account is a basic and easy option, where you can flexibly make deposits and earn interests.

It’s a good idea not to store all your money in here however, as the interest rates aren’t as high as other accounts i.e. a fixed deposit account.

Also, since the cash stashed here can be easily accessed, you may be tempted to make withdrawals more often. Thus, it’s best to divide your money with other, less accessible accounts.

 

  • 1Malaysia Education Savings Scheme (SSP1M). There are many benefits to opening an SSP1M account, such as, tax relief, free Takaful (with conditions), and grant matching for those who come from low income backgrounds.

Moreover, only those with SSP1M accounts may apply to PTPTN to finance their education.

You might also appreciate that the dividend, which averages 3% to 4% (4% declared for 2017), is tax-exempt.

  • Fixed deposit account. With higher interests than a savings account, a fixed deposit is a good way to build your nest egg too.

You can put money in here for the long-term and let it grow safely and securely.

Moreover, the penalty of potentially losing interests earned for early withdrawals might deter depositors from taking money out of this account, unless it is absolutely necessary.

Because of this, the fund might stand a better chance of growing without interruptions.

Be sure to find a fixed deposit account with the highest interest rates and most favourable terms for your own financial situation.

  1. Invest in insurance

Insure your child’s future with insurance. While this might sound like an unimaginative tagline – it is good advice.

Insurance can help bolster the financial side of most eventualities.

This is why it’s a good idea to buy these three types of insurance plans when building and securing a nest egg for your children.

  • Education insurance. Along with good parenting, providing your child with an opportunity for further education is invaluable.

Buying education insurance will help lighten the burden of paying for tertiary education which is very expensive, especially if you plan to send your kids abroad.

Opt for a non-participating endowment policy if you want to play it safe; these come with virtually no-risk.

Consider an investment-linked policy if you are thinking of higher returns and have an appetite for risk.

 

  • Life insurance for yourself. If you have a family to take care of, life insurance is necessary

It’ll relieve your family with financial resources that they’ll most likely need in the event of your unfortunate and untimely death (even total permanent disability).

Depending on the amount, a life benefit can sustain your family’s day-to-day expenses and with a bigger sum, even provide for their future.

 

  • Health insurance. It’s no secret that private medical care costs are exorbitant and most do not have the resources to pay for hospital bills even for minor ailments or surgery.

Now if you were to fall seriously ill without buying health insurance, it’s possible to have your entire life savings wiped out.

You may even have to reach into accessible funds that were meant for your children’s nest egg, if you can’t pay for hospital bills or earn an income during your illness.

Thus, it’s important to buy health insurance for yourself and the whole family to help cover you financially in case illness strikes.

  1. Consider investing in non-money assets

Investing can be tricky when you don’t know a whole lot about the stock market. But thankfully, stocks, bonds and other financial assets are not the only ways to invest.

Property for instance, can be a lucrative investment option for a number of reasons.

In Malaysia, property has yet to go down; in fact, it almost always appreciates in value or at the very least is able to retain value.

With a property investment, you will be securing your money and a roof over your child’s head if need be.

However, buying property isn’t the easiest thing to do these days when you don’t have a lot of money.

Still, when buying a home for investment purposes – you don’t have to pick out the most expensive house or the one with the fanciest construction.

Even a small, basic home in a good location that you can rent out to offset part of the instalment payments, would make for a good investment.

  1. Insure your loan repayments

As much as you and most of humanity hate thinking about it, death is inevitable. Your loan repayments – not so much!

When you take out a loan, your commitments to repay it will live on, long after you have gone.

Your creditors can sue for the right to claim what’s owed from any money you leave behind.

Instead of this money going to your kids and spouse as it was intended, it could first be used to clear up your debt. After which, what’s left, if any, will go to your dependents.

For this reason, it’s important to secure the repayments of your loans and credit card debt with insurance.

It will take care of the balances due if you are unable to make repayments due to death or permanent disability.

| See also: Building A Nest Egg: Senior Citizen and Junior FD In Malaysia |

 

Quick Bonus Tip

  • Start a side business. Unless you’re earning big bucks at your day job – it’s tough to save or build a nest egg with just your primary income, more so if you are the sole provider.

Consider starting a small business to bring in a second income that can go directly toward saving for your kids. And who knows, you might like it better than your nine-to-five!

Need more grizzly-good money advice? Bookmark our blog for big tips on personal loans, fixed deposits, credit cards, travel or car insurance, and much more!

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