Learning Finances

Creating An Income Stream

Life is complex and we never know what will happen from one day to the next.  So I thought a long time ago that instead of saving money for a future inheritance for my kids, I would create them an income stream and educate them on how to keep it flowing.

The income stream that I create won’t make them rich unless they contribute to it and make an effort to manage it wisely.  I know the value in having a person hustle to make a living and challenge themselves.  Just giving money to your kids or an income stream in my case, could limit them in their efforts to make money in the future.  Kids need to learn what it takes to get ahead, and if money is just given to them that defeats the lesson.  Besides money earned is much more rewarding than money received by other means.

The First Money Stream

At this early stage, the income stream I created for them is basically of the Stock Appreciation and Dividends type.  It has done well considering how little I contributed to it and the dramatic volatility in the stock market, but since this isn’t money needed to survive and kind of hidden from view, I can let all the chips ride or wait out downturns with no effect whatsoever!  My kids don’t even know that they have this money, and I don’t plan on telling the until them are 21.

After investing in more risky stocks and basically breaking even, I decided that the extra risk isn’t necessary for them.  After all, they won’t need the money until they are adults.  So I’m now investing in energy stocks and low beta stocks that have a decent dividend yield.  It’s a delicate balance though, I don’t want the kiddie  taxes kicking in, so I don’t want the dividends total to be over $900 a year.

Actually up to $1,800 wouldn’t be too bad either, my kids don’t work, so the additional $900 above the first $900 is only taxes at 5% (so far).

Why Create Income Streams?

Uncertainty!  Who knows what tomorrow will bring, so why not create a base to build upon?  This income stream won’t make them financial independent from a job or entrepreneurial pursuit.  But it will teach them about investment and put a little spare change in their pocket when they are an adult (if they want to use the stream for that purpose).

I’m actually hoping that they continue to build on the small base that I have created for them.  Hopefully they can become wealthy and financial independent with some smart, hard work on their parts!

-MR

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