With the birth of a baby, hard times begin for his parents. In addition to changing diapers, those more responsible want to save a little something.
Once a ducat was placed in the cradle, later a passbook, today it is most often building savings. However, it is not the only possible tool for the offspring to value some money for the beginning of life. Two indicators are key in this case. One of them is at least the estimated amount of funds that we want to save the offspring and for the further allocation of financial products so that they can bring the desired benefit.
If you have devoted grandmothers and grandfathers who want to contribute a little to their grandson, it is advisable to adapt the entire strategy of financial products accordingly. Thus, a fundamental variable comes into play, namely whether the money will be paid from close relatives once or regularly. Disciplined grandparents are the best option for saving for your child. They contribute in smaller amounts, but regularly and in the long term.
Before you go to the bank or invite a financial advisor home, ask your parents if they want to save for their grandson. You can have a similar conversation with other members of your family (uncles, aunts, other relatives). However, it is not customary for an aunt to send money to her niece for her future life. A more common case is that the grandmother saves money for her grandchildren.
Building savings versus mutual funds
Building savings is probably the easiest financial product to understand for all involved. The “tithe” security in the form of state support for each incoming deposit up to a total amount of CZK 20,000 per year is also an attractive savings product for traditional grandparents.
If grandmothers and grandfathers give you all the money in cash, further planning with them is much easier. You can thus deposit part of the money to a savings account or term deposit, or to the above-mentioned building savings.
An equally interesting way to prepare a small financial foe for a suitable financial start in life is to establish an equity open-end mutual fund. The advantage is a sufficiently long investment horizon and also the fact that you can postpone only as much as you currently have. In combination with building savings, mutual funds are a suitable complement.
An alternative to mutual funds are life cycle funds. They can work in the same way as funds, but with the difference that after choosing the appropriate investment strategy, you do not have to monitor investments as closely as you would with traditional fund investments.
Term deposit as a store of value
Suppose you save for your offspring at least until you are 18 years old. From his birth to his adulthood, three six-year cycles will pass in the form of the building savings period. In view of the declining trend of building savings revenues over time, it would be a shame to keep money under one building savings contract. There is no need to re-extend by increasing the target amount. After six years, you will terminate the contract and create a new one.
In practice, you will have three financial products. Building savings as a basic tool for conservative appreciation of funds. Then there is a term deposit, the interest rate of which should exceed inflation and withholding income tax. Thirdly, open-end mutual funds or a life cycle program.