How to secure your child’s financial future. Isn’t that the dream of every parent? To provide a secure financial future for their children? Just imagine how grateful your kids will be when they will be 50 years old and they will not have to work for money, Imagine how proud they will feel about you because you made some simple decisions 50 years ago. It’s an obligation of every parent to become financially literate and take action for a better future.
Most of the people get trapped in the short term goal mindset. They aim for the short term gain, the quick fix, but they should be focusing on the exact opposite, long term investing. For people that are not financially literate investing sounds like something very risky that can make them lose money.
Instead, they feel very safe having money sitting in their bank account. I am not saying you should not have money in your bank account, you should have at least 12 months of expenses as your emergency fund, what I am saying is having all your money in your bank account makes you lose money year after year.
Why you lose money?
Savings accounts nowadays offer close to zero interest rates. The present value is simply the value of your money today. If you have $1,000 in the bank today then the present value is $1,000. If you kept that same $1,000 in your wallet earning no interest, then the future value would decline at the rate of inflation, making $1,000 in the future worth less than $1,000 today.
Where to invest?
As you know I am a huge fan of index funds and ETFs! I love them because they give me peace of mind and make me sleep well at night. You don’t need to invest anywhere else. Just start investing in ETFs of well know providers, like iShares, Vanguard, State Street SPDR. I wrote an article about the longterm strategy I am using, you can find it here.
How to invest?
Make a rule that you will invest X amount of money every year. You can pick any date you want. For my baby daughter’s account, I invest every year on her birthday. I save every month $200 on her savings account, and on her birthday I transfer them in my broker’s account where I have set up a separate account for her and invest $2,400 (12 months x $200). I plan to do that every year until she is 30 years old, and if she is smart she will continue to add $2,400 or more every year.
Let’s see the results if we add consistently for 50 years $2,400 and assume an average return rate of 10%, which is the average return of the S&P500.
In the period of 50 years, your total contributions (money you have invested) are $120,000. The end balance is $3,075,118. That means that your $120,000 has produced a profit of $2,952,718!
Isn’t that amazing? Your baby daughter is now financially free, your grandkids are financially free, and all that thanks to you.
I sure hope this short article makes you realize that to secure your child’s economical future is possible and not something complicated. You need to be consistent and invest every year regardless what is happening in the market. If the market is down you should be happy and not worry since you are buying something cheaper.
Books to read
Think and Grow Rich | Buy on Amazon
The little book of common sense investing | Buy on Amazon
I Will Teach You To Be Rich | Buy on Amazon
The Intelligent Investor | Buy on Amazon
A Wealth of Common Sense | Buy on Amazon