Have you ever wondered where the term “nest egg” comes from? Not surprisingly, it’s a farming term. In order to motivate hens to begin laying eggs, or to lay more of them, farmers placed eggs (both real and fake) in their nests.
In finances, this term refers to any funds set aside for a specific purpose, so they can grow and be used later in life.
When you’ve heard the term nest egg before, you may have thought only of retirement savings. This is just one of the many purposes for which people start and contribute to a nest egg.
Nest eggs can be created for funding any large investment, including your child’s education. College is expensive. Personally, I want to learn my from own experience of being forced to rely on student loans when it comes to planning for my own children.
Children are too young to be worried about saving for their futures, so it’s our job as parents to begin the process for them. That way, they’ll be well on their way to financial stability as they grow into adulthood. Starting to build a financial nest egg for them while they’re still in the nest not only creates a more hopeful financial outlook for their future; it’s a perfect opportunity to teach them good financial habits.
Here are a few practical ways to start a nest egg for your children:
1. Save what you can, when you can
When your family is young, there are so many demands on your money; there won’t be money laying around begging to be invested in a nest egg. You have to take the time to plan a nest egg savings category into your budget, even if it’s small. (Remember that even a small investment grows exponentially over time with the wonder of compound interest!)
Be sure to take advantage of tax-deferred or free accounts designed specifically for college savings.
2. Encourage financial responsibility in your children
Teach your children to save money from gifts and other small jobs, instead of spending it, but don’t force them to. Forcing kids to save their own money for their college fund isn’t as effective as encouraging this behavior and emphasizing the positive results. The desire to be involved in their own finances will lay the ground work for their adult attitude toward saving.
3. Contribute toward the nest egg in lieu of short-term gifts
You shouldn’t deprive your child of gifts, but if it’s a choice between something that’s momentary or something that’s lasting, consider investing in their future. They may think of you as a tightwad now, but they’ll definitely thank you later!
Have you started a nest egg for your kids? How do you find the money to contribute to it?
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.