Financial Planning For Your Baby

You just had a baby? Congratulations! How do you come up with a financial plan for a baby?

You can start by checking out an interest compounding calculator. I chose this one today only because it came up in a search. You can pick numbers that make sense to you, but the important thing is to create a plan and a goal.

So, for the sake of example, let’s enter $100 starting balance and a plan to save roughly a dollar a day ($30/month) from the date of your child’s birth with an average 6% annual interest compounded monthly, and set the calculation period to 65 years. By the 18th year the account will be worth $11,972.38 based on $6,580.00 in deposits and $5,392.38 in interest. This is where it starts to get interesting because at 21 years, the value of the account is $15,513.09 based on $7,660.00 in deposits and $7,853.09 in interest. For the first time, the interest generated exceeds the amount deposited and from that year on, the amount of interest continues to exceed the deposits. After 65 years, the account is worth $293,878.41 based on only $23,500.00 in deposits and $270,378.41 in interest. The interest is now ten times the amount of the money invested.

Of course at some point you can hope that your child will start managing the account and will be able to put in more than a dollar a day, but the important thing at any age is to be smart and come up with a plan, and to teach children the importance of being responsible with their money.

Good luck!

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