"One million dollars?" you say. "Where on Earth would I get that much money?"
Well, what if I told you that not only could you give your little treasure $1 million (or more), but that you wouldn't have to do a day's work to earn it either?
It's true. No catch. All it takes is a little planning and the miracle of compound interest.
Compound interest is what millionaires have been using for centuries to get rich and stay rich. Haven't you ever wondered how all those rich people can spend their days playing golf or on their yachts? Here's how they do it and how you can, too.
Let's say you really want to make sure your child never has to worry about money the way you have had to. So, you work really hard to get out of debt, and then save up just a little down payment for his or her future, say $2,000.
Now, let's say you put that $2,000 into a fairly conservative, tax-deferred mutual fund, perhaps one that is linked to a major stock index, like the Dow Jones Index or the S&P 500. Then, you just sit back and forget about it.
That's right. You don't have to do another thing. Compound interest will do all the work for you.
At a conservative 10.5 percent average gain per year, (the Dow Jones has averaged 10.5 percent over the last 30 years) your modest $2,000 will grow by $210 in the first year.
That $210 is then added to your initial sum, making your investment $2,210 at the start of the next year.
This, in turn, grows by $232, giving you a total of $2,442 by the end of year two. Adding back the gain each year is called "compounding."
It doesn't sound too exciting yet, does it? But what if I told you that by the end of year 65, when your child may be worrying about how they are going to retire on what's left of our Social Security, that tiny $2,000 will have grown into a whopping $1,316,977!
Imagine the peace of mind that will give your child, knowing that they won't have to scrimp and save during their retirement, or worry about medical bills or the costs of nursing care. Instead they can enjoy their golden years to the fullest.
What if you added a little more to your child's fund every year? Say $100 on each birthday up till the age of 20? You'd be amazed what $100 will do. At age 65 it will have added over half a million dollars to their pile ($541,995 to be exact).
Of course, there are some things to consider when making an investment of this nature (tax implications etc.) and you should always consult a lawyer, investment advisor, financial planner or other professional in your state before making any decisions.
You will also need to consider the psychological effects such a security blanket may have on your offspring. Will it make them less industrious? Will they respect money less? Will they not bother to learn about the responsibilities involved with money?
All these issues can be addressed and solved. For example, you might put the investment into a trust fund and not tell them about it until they have become responsible adults.
As long as you take everything into account, this could be the second greatest gift you could ever give your child. The first, of course, is your love.
Myvesta.org is a national, nonprofit financial solutions organization headquartered in Rockville, Md. Founded in 1994, Myvesta.org has helped more than four million people through its programs and educational resources. The organization is committed to helping people resolve past financial mistakes, manage current financial responsibilities and find financial peace of mind. Myvesta.org's programs and services include debt management, crisis resolution, online bill management, creditor problem resolution, coaching and Financial Recovery Counseling. Prior to April 2000, Myvesta.org was known as Debt Counselors of America ®.
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