Whether you are expecting a baby or just had a baby, I can tell you one thing; your life has changed forever and so has your way of money management.
For me, having a baby completely changed my outlook. Prior, I was so self-involved in what I thought was important; going shopping, organising weekends away, planning what felt like huge purchases (cars and holidays). It wasn’t a bad thing, it was just my life at the time.
Fast forward a few years and I now have a baby. It has made me realise that a whole other person in this world relies upon me for everything; food, clothes, happiness, education and more. I want to provide it all and more.
Shortly after the little one arriving, I found myself wondering how I could start saving or investing for my baby. In fact, I made a conscious decision a few months before their arrival that I would never find myself strapped for cash again when it came to important expenses for my baby; namely education.
This made me question; what is the best investment you can make to save for your babies future? While there is no right or wrong answer, here is the strategy I put in place for myself.
I set a savings / investment goal
My goal? To save for my childs education. I worked on the assumption that I would only need the money once they reached the age of 12-13 (the first year of high school).
How would I achieve this goal? A combination of saving money, directly into a high interest account, while methodically using the money to buy batches of shares in strong Australian stocks. Perhaps even a few technology companies in the US that I believed in (think Tesla and Paypal).
I setup a high interest savings account in my babies name
I went to BankWest and opened a special kids savings account directly in my babies name (and my name). The interest rate is very high, giving me almost double that of a normal everyday high interest account. The only catch is each month I am limited in the amount I can contribute (before the money gets put into a separate, lower interest account).
This works well for me; I get a good interest rate and it fits my limited budget I have to save. Cash flow is tight and this strategy to save for my child is a marathon, not a sprint.
I then set a timeframe for when I’d first need to ‘touch’ the money
Given my goal was to save for his higher education, I decided that I would promise myself not to touch a cent until his 13th birthday. Even then, my underlying secondary goal was to find myself in a financial position in 13 years time whereby I didn’t need to access the money at all – I could instead keep growing it onwards to a future goal, of helping have a deposit for his first house or similar.
In this time frame, it’s imperative that I never touch this money. Not even a dollar.
I setup a regular contribution from my salary, directly into his account
Each month, I contribute 5% of my pay. Whenever I can, I add a few extra dollars. My goal isn’t to be cash flow poor now, it’s to methodically and consistently grow my babies savings account over the long term. This means that the key to achieving this is to never falter – just keep saving.
I aligned my family and friends for contributions
There are 13 birthdays and 13 Christmas days in this time frame. Given our extended family consists of roughly 6 people – we discussed with them that we would be very appreciative if they ever wanted to contribute directly into the little ones savings account as a way of helping us save.
They loved the idea and it has seen a few very proud contributions from grand parents and uncles alike.
They still give gifts, however it’s normally something a little smaller (like a race car or foam sword to play with on the day) combined with a contribution towards their education fund.
I now have a working model to save money, grow money and invest the money
Give or take, it’s working out that every 12 – 18 months there is enough money in the account to buy shares. Every time the account hits $5,000, irrespective of what the share market is doing – I buy shares in two different companies.
One that pays regular dividends, another that I truly believe in (no speculation) – companies I think are changing the world and doing good things (just like I hope my baby will!).
I won’t speculate, but consider this
If we average $5,000 a year for 13 years, that equates to $65,000 before any dividends, growth or interest. In all honesty, my hope is to contribute more than $5,000 a year and combine that with earnings/dividends to reach an account worth roughly $100,000. Now wouldn’t that be helpful come high school?