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| Teaching Your Kids about Money Management and Investing: a Financial Guide for Your Child (continued) |
How to Invest Your Savings
You decided to start on the road to financial independence. Great! Now you need to decide where to invest
your money. Start with a simple savings account which pays you interest. Eventually you should have
several accounts with goals you established for each.
Account #1 – saving for my future. This is a retirement savings account and shouldn't be touched for any
reason until you are ready to retire. It is extremely difficult not to touch these funds and this will require
some discipline on your part. One way to help you with this goal is to open another account which you can
use for current spending needs.
Account #2 – current spending needs. This account can be used for the things you want to buy within the
next few weeks, months or year. This is your fun account. The problem with this account is that it is difficult
to build up any substantial amount. That is because you are always spending the money. That’s OK. That
is why we set up different accounts. This leads us to account #3.
Account #3 – longer term, large item purchase needs. This account is for things like a video game
console, dirt bike, car, etc. Determine the larger items you desire to purchase over the next 3-5 years and
start saving for them now.
More accounts can be added if you have sufficient income. For example: saving for a house can become a
separate account because it requires such a large sum of money for a down payment. It is no big deal to
open several investment accounts. Don’t be embarrassed because you are starting with several small
accounts. If you follow this advice you will be well on your way to more substantial investments in just a
few years.
Where to Invest Your Savings
You need to find a place that will start an account for you with a small initial deposit. There are many
financial institutions that will open an account for $1,000 and some will take as little as $100. Try going to
your local bank or credit union to see what the minimum is to open an account and what they pay for an
interest rate. You need to be earning some kind of interest even if it is only a few percent. As your accounts
grow you will have other opportunities to earn more. You can also open an account online which makes
things really convenient. That way kids can save money at home in their tin can and as it accumulates
parents can deposit the funds and electronically transfer funds to the kids accounts. It is really simple.
Just type in “savings account” or “investment accounts” into your favorite web browser to find a “no fee”
account which pays you interest.
You can also set up monthly or quarterly investments to a mutual fund for as little as $100. Make sure the
mutual fund you choose matches your investment objectives. There are different mutual funds for
conservative, moderate, growth, aggressive growth and every combination in between.
Compound Interest is the One of the Miracles of the Investment World
Make sure any investment you make earns interest. This is especially important for the long term
retirement account you establish. It is also important not to lose your money. If you invest $1,000 and it
drops 50% to $500 then you will need to earn 100% on your money to get it back to the original $1,000.
Choose your investment funds wisely.
The longer you let your money compound the faster it will grow. At first you earn interest on the money you
deposit but before long you will be earning interest on your interest and then that interest will start earning
interest. That’s called compounding and it can be very powerful. Try it, but be careful because it can be
habit forming. Once you see your accounts growing you will become a different person. Over eating,
gambling and drinking are bad habits most parents would like their children to avoid. Saving money with
set goals and compounding your interest is one habit most parents will be glad to see their children
develop. Start Your Savings Plan Now!!!
You decided to start on the road to financial independence. Great! Now you need to decide where to invest
your money. Start with a simple savings account which pays you interest. Eventually you should have
several accounts with goals you established for each.
Account #1 – saving for my future. This is a retirement savings account and shouldn't be touched for any
reason until you are ready to retire. It is extremely difficult not to touch these funds and this will require
some discipline on your part. One way to help you with this goal is to open another account which you can
use for current spending needs.
Account #2 – current spending needs. This account can be used for the things you want to buy within the
next few weeks, months or year. This is your fun account. The problem with this account is that it is difficult
to build up any substantial amount. That is because you are always spending the money. That’s OK. That
is why we set up different accounts. This leads us to account #3.
Account #3 – longer term, large item purchase needs. This account is for things like a video game
console, dirt bike, car, etc. Determine the larger items you desire to purchase over the next 3-5 years and
start saving for them now.
More accounts can be added if you have sufficient income. For example: saving for a house can become a
separate account because it requires such a large sum of money for a down payment. It is no big deal to
open several investment accounts. Don’t be embarrassed because you are starting with several small
accounts. If you follow this advice you will be well on your way to more substantial investments in just a
few years.
Where to Invest Your Savings
You need to find a place that will start an account for you with a small initial deposit. There are many
financial institutions that will open an account for $1,000 and some will take as little as $100. Try going to
your local bank or credit union to see what the minimum is to open an account and what they pay for an
interest rate. You need to be earning some kind of interest even if it is only a few percent. As your accounts
grow you will have other opportunities to earn more. You can also open an account online which makes
things really convenient. That way kids can save money at home in their tin can and as it accumulates
parents can deposit the funds and electronically transfer funds to the kids accounts. It is really simple.
Just type in “savings account” or “investment accounts” into your favorite web browser to find a “no fee”
account which pays you interest.
You can also set up monthly or quarterly investments to a mutual fund for as little as $100. Make sure the
mutual fund you choose matches your investment objectives. There are different mutual funds for
conservative, moderate, growth, aggressive growth and every combination in between.
Compound Interest is the One of the Miracles of the Investment World
Make sure any investment you make earns interest. This is especially important for the long term
retirement account you establish. It is also important not to lose your money. If you invest $1,000 and it
drops 50% to $500 then you will need to earn 100% on your money to get it back to the original $1,000.
Choose your investment funds wisely.
The longer you let your money compound the faster it will grow. At first you earn interest on the money you
deposit but before long you will be earning interest on your interest and then that interest will start earning
interest. That’s called compounding and it can be very powerful. Try it, but be careful because it can be
habit forming. Once you see your accounts growing you will become a different person. Over eating,
gambling and drinking are bad habits most parents would like their children to avoid. Saving money with
set goals and compounding your interest is one habit most parents will be glad to see their children
develop. Start Your Savings Plan Now!!!
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