There may be doubts about which form of savings is best suited to save money for children. It may feel too late for the money to grow and that it is better to put them under the mattress, or that it is so small that it does not matter. But it may also be that it is easier to save money for children than one might think.
Why is saving for children important?
Having the opportunity to save for your children can be perceived as a luxury or something you can’t get started with, but creating a safe and stable financial start for their children will give them a huge advantage when it is time to, for example, in the housing market. The key to progressive savings is patience and continuity. By saving consistently each month and utilizing interest on the interest rate effect, which is well spoken of for a reason, one can calmly see their savings grow in an exponential curve.
How should I save money for my children?
Due to inflation and the prevailing interest rate climate, the saved capital loses value if you save money at the bank. For this reason, many people choose to invest money in mutual funds and shares on the stock exchange. For example, one can strategically follow a stock market index to obtain a comprehensive diversification of various equities and thereby lower risks. The OMXSPI stock market index has returned about 8% annually over the past 10 years, * significantly higher growth than having the money in the bank!
Isn’t it also better to have many eggs in the basket if one breaks? Be sure to diversify your portfolio to better diversify risk on your capital by combining equities with, for example, interest rates. Then you create a savings with lower risk and more stable returns.
How much should I save for my children?
Of course, how much money you save for your children can vary depending on what you have for the financial situation or that you currently prioritize otherwise. However, it is important to never think that it is too late or that the capital to invest is too small to be anything substantial in the long run. The result of a simple interest rate on interest rate calculation where you reinvest your dividends can get anyone thinking about it. If you want to make an interest-on-interest calculation and more clearly see the expected return with Damon Wildeve here! Adopt the adage “many streams small” and grab your savings early to get maximum development. One measure you can use is when saving for your children is the child allowance, saving some of it can make a huge difference to your child’s 18th birthday.
This week’s curiosity!
It is common to choose passive savings by investing in active funds. Several of the funds’ management fees can sometimes be perceived as almost insignificant compared to the return the funds provide, but the fees have a major impact on your return over time. To illustrate how the fees affect your return, you can assume an investment of USD 10,000 with an 8% return on 18 years. Then a fund with 1.5% management fee has taken USD 5,191 in fee and eaten more than USD 9500 of your return!