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Here's how to help your child retire with £14,409,795.24 using the Warren Buffett approach


By Sam Instone - November 24, 2020

When you become a parent, you realise life is so much bigger than yourself.

Your priorities change and goals become clearer.

It's a responsibility that's often as difficult as it is rewarding.

But like everything in life, made easier when you plan ahead.

Beyond your children's basic needs, schooling and university, extracurricular activities and social clubs; there's also the legacy you want to leave behind for them.

You want to ensure they're set up for their future so they don't have the same financial concerns you had at their age.

All the goals you have for them can add up though.

In fact, they may seem overwhelming,

Where do you start?

The simple answer is - start today with whatever you can put aside for them after your living expenses and investments are taken care of.

Then, let that investment get to work with the power of compounding on its side.

It's how most great fortunes are built and it’s far more powerful than you might imagine.

As you know, compounding is the return on your returns.

So let's put this into perspective.

On the day your child is born, you invest £5,000 using a low-cost, systematic investment approach.

Let’s say that investment returns 10% per year.

On the first day your child can legally retire (their 55th birthday) they’ll have £1,195,892.17 in their account.

That’s right.

Over £1 million from that initial investment left over the long-term in a globally diversified portfolio of low-cost funds to ensure maximum returns.

 

Now for the real eye-opener...

Let's say you put aside £500 every month for your child, from the day they're born up until they're 21.

They then carry on investing the same amount monthly until they're 55.

By the time they retire, they'll have £14,409,795.24 (again assuming a 10% return).

You could be setting your child up to become the next Warren Buffett, simply by putting aside a few hundred pounds a month and remaining consistent for a few decades.

Proof that a little can go a long way!

The next step is to ensure your child is able to manage that level of wealth.

You need to make sure they understand the basic principles of investing from a young age so they can have a healthy relationship with their money.

Experts say that children can grasp basic money concepts by the age of 3 and, by age 7, many of their money habits are already set. 

These initial years build the foundation for your child's financial future.

Here are some of my favourite books for your children.

They weave the importance of good financial habits into fascinating stories.

For kids: 

The Squirrel Manifesto by Ric Edelman and Jean Edelman

Teaches kids, and parents the value of spending money, saving for the future, and giving to charity through beautiful illustrations.

Those Shoes by Maribeth Boelts

Teaches children to be considerate and mindful about the economic situations of others that may not be as fortunate.

Bunny Money by Rosemary Wells

Contains a valuable lesson about math, even if your child's not old enough to understand addition and subtraction.

If You Made a Million by David Schwartz

Discusses saving, investing and debt in a fun way for your kids.

The Penny Pot by Stuart Murphy and Lynne Cravath

Helps children understand the value of money, mental math and generosity.


For teens and young adults: 

Millionaire Teacher by Andrew Hallam (a personal favourite)

Shares Andrew's personal learnings about investing, indexing and living the best life you possibly can.

Rich Dad Poor Dad For Teens by Robert Kiyosaki 

Engages younger adults and teens by explaining the language of money.

Loaded: Money, Psychology, and How to Get Ahead without Leaving Your Values Behind by Sarah Newcomb 

Shares valuable financial lessons on how to maintain a good relationship with money.

Financial Basics: A Money-Management Guide for Students by Susan Knox 

Empowers your child to find their own way and become masters of their money.

The Richest Man in Babylon by George Samuel Clason 

Teaches your child to invest money intelligently.

If your children prefer apps over books, they are many they can use and learn from:.

iAllowance

For tech-savvy parents who want to teach their children about earning, saving and spending - while making their own lives a little easier. 

Bankaroo

For children aged 5-14 to discover how to set goals, log usage of funds toward one-time activities and track past activities.

Savings Spree

For kids to learn how the choices they make each day can add up to big savings or big expenses.

Acorns

For parents and children to grow their knowledge and money together, and introduce the importance of investing.

I hope this inspired you to save for your children's future.

I know sometimes it can feel as though you're balancing the demands of work, life and family with your own personal needs.

But everything can be achieved - as long as you have a plan.

If you have any recommendations to share with our AES community, please comment below.

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