Tag Archives: rich kids

Skipping the Inheritance, Creating Income Streams For My Kids

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Money Smart Kid

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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Giving My Kids A Head Start In Building Wealth

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I would like for my son and daughter to have a shot at becoming wealthy when they are older!

So what is a middle income earner like me to do?

My “Work in Process” Plan

Basically to contribute $2,000 per kid until they are 21, then hope they build upon the base that I created for them.

Here is the basic calculations table that I created to help them:

Age Amount Int. Rate Interest Earned
6 $2,000.00 0.06 $120.00
7 $4,120.00 0.06 $247.20
8 $6,367.20 0.06 $382.03
9 $8,749.23 0.06 $524.95
10 $11,274.19 0.06 $676.45
11 $13,950.64 0.06 $837.04
12 $16,787.68 0.06 $1,007.26
13 $19,794.94 0.06 $1,187.70
14 $22,982.63 0.06 $1,378.96
15 $26,361.59 0.06 $1,581.70
16 $29,943.29 0.06 $1,796.60
17 $33,739.88 0.06 $2,024.39
18 $37,764.28 0.06 $2,265.86
19 $42,030.13 0.06 $2,521.81
20 $46,551.94 0.06 $2,793.12
21 $51,345.06 0.06 $3,080.70
22 $56,425.76 0.04 $2,257.03

Now I know some of you might be thinking big deal, 56k isn’t that much.  And you would be right.  But it’s not a bad chunk of change either!

I would hope that they continue to build it, but if they don’t, at least that would be a great down payment on a house.

Another option would be to keep the money for them and let them draw a little at a time.  This would be messy and my kids might start to build a dependency on me.  I don’t want that to happen.

I have to admit, another part of me just want to sock  extra $2,ooo a year into my account and let that  amount grow!  Just to see what it does!

Either way, I’ve alread started it, and so the numbers that go to age 10 has already been accomplished.

This is still a “WIP” task, I’ll update this in a future report.

-MR

My Thoughts on Allowances For Less Than Rich Kids

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Allowance

 

With allowances, it seems like I hear the same broken record erh CD that keeps playing the same song: “3 separate banks, 1 for savings, 1 for spending, and 1 for charity“.  It’s always the same message over and over.  And of course it’s always an even split between the three (so 33% each).

I’m going to challenge this “taken for gospel” line of thinking!  First, I think that this Mantra should really only apply to the rich folk (if they want to)!  Their kids are probably getting over 5 times as much as my kids for allowance.   So paying 30% to charity probably wouldn’t faze them much.

So I decided to bend the rules and give my interpretation of what the allowance percentage each socio-economical (upper middle, middle and poor) classes should pay.  We already discussed the rich up above, but I would like to say, I honestly don’t believe the majority of them force their kids to dole out 30% to charity either!

Upper Middle Class:

This group is the impressers!  I’m sure they are the closest group to contributing the full proscribed 30% allocation that they believe the rich follow.  And since they can afford it, they can do as they believe.  I would guess that the average 10 year old in this group could potentially make anywhere from 50 to maybe 100 dollars a week.

Middle Class:

This group is the silent masses, they represent around 60% of the population.  Most of us that do give allowances to our kids, give a dollar amount of the age of the child.  so my 6 year old gets $6 and my 9 year old gets $9.  I’m sure a good percentage of us follows that 3 by 30% rule, but not me.  My kids split the allowance around 50% for savings, 50% for spending.  They also get piggy bank money, and 50% of that goes to charity.  We only give to charity at Christmas time.   If you take the sum of all their money, The charity portion averages out to be about 10% to 20% of all of the money they get from allowance and the old piggy bank.

Why Christmas?  Because for one, this is the time to be charitable!  We all have that extra warm feeling in our heart and soul to go that extra mile to help our fellow human beings (or at least that’s the way I feel).

Working Poor and The Poor:

These groups, if they do give an allowance, most likely give less that a $1 per age.  And even then they really shouldn’t!  They just can’t afford it.  They shouldn’t have to feel the guilt associated with the 3 by 30% generally accepted rule.

So the next time you hear that liberal message on how to divy up your money… ask yourself, does it make sense for you and your family at this particular time in your life!

Tell me what you think?  Does what I say make sense, or should I force current societies socialist views on the distribution of wealth to  my kids?

After all, how can I teach my kids to work for a dollar, when he would be literally giving away his money to people that don’t?  What kind of screwy financial lesson would that be?!?

-D