Why do you invest? The obvious answer is to generate a return, but why do you want a return? Are you generating a well-padded future for your retirement? If you’re like most people, retirement is a main reason to pursue investments like a long-term CD and a 401(k). Although far in the future, the returns are virtually guaranteed, save a complete economic collapse.
Investing in your retirement is essential, but it’s not the only reason to invest. If you’ve got a family, it’s a smart move to invest your money in their family’s future. Here’s why:
- You’ll leave something for your kids or spouse when you pass away
If you’ve got a significant sum of money sitting in the bank, it would be wise to invest it for the future of your family. Even without a will, most of the time your immediate family members will be awarded your property by the court. However, even with a will, this process can become complicated. If you want specific children or your spouse to inherit your investments when you pass away, you have to do more than write your will. You need to specify them as beneficiaries.
Despite common belief, your kids don’t automatically inherit everything when you die, and your will isn’t the principle governing document of your estate. As CG Trust explains, if you own real estate, have a life insurance plan, or mutual funds, you designated a beneficiary when you signed the contract. Unlike probate assets, when you die, your designated beneficiary will receive that asset.
To guarantee your investments go to the intended family members, make sure you update beneficiaries on any contracts you’ve signed.
- Your kids will need a college fund
By the time your kids turn 18, they’ll be looking for ways to fund their college education. They’ll never cover expenses with a part-time or even a full-time job. College is expensive. The average tuition for a 4-year institution between 2015-2016 was $26,120 per year. It takes students an average of six years to earn a bachelor’s degree. That doesn’t include textbooks, supplies, room and board, food, transportation, and other expenses.
Start generating a college fund for your kids as soon as possible to generate a larger return. Ideally, you’ll want to start saving $500 per month when your child is born, and find an investment where you’ll earn a minimum of 5% interest. NerdWallet published the details regarding several college savings plans that can help you achieve this goal.
Can’t save $500 a month? It doesn’t matter how you start – just start. For example, it’s okay if all you can do is open a savings account to stash away extra funds at the end of the month. If you deposit $100 into that savings account each month for five years, you’ll have $6,000.
Take that $6,000 and invest it in CDs. Some CDs don’t require a minimum deposit, and still have a fixed rate for a fixed term. For instance, Barclays and Capital One both offer CDs with no minimum and still allow you to earn interest. The longer your term, the higher interest you’ll earn. If your child is still in diapers when you invest in a short-term CD, you’ve got plenty of time to reinvest to keep their college fund growing.
- Your kids will need funds to get out on their own
When your kids turn 18, they’ll probably be excited about moving out on their own. They’ll need a financial boost from you to make it work. Some teenagers won’t mind sharing an apartment with several friends to get cheap rent, but that will get old quickly.
Invest some money now so you can give your kids a head start getting out on their own. They don’t need to live in a fancy house, but it will help if you can subsidize their rent by a few hundred dollars each month until they get completely on their feet.
Just be sure not to give your kids direct access to the funds. It’s in their best interest if you maintain control and provide the funds on an as-needed basis. Besides, if they go straight to college, you can use the funds to cover their housing and food.
Invest for your family
If you’ve got a pile of money under your mattress or a growing savings account that doesn’t earn interest, consider moving those funds to investments that provide worthwhile returns. Your family will thank you later.
Author: Oliver Curtis
Hi there. I’m Oliver. I’m just a young boy from the outskirts of… Okay, that’s a lie, I’m not a young boy anymore, although I certainly feel that way at heart.