#35 - Compounding $1 a day

10 Secrets Every Parent Needs to Know About Saying No | All about Ikigai | Six threads better than a college degree

Apr 02, 2021

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From My Blog - Compounding $1 a day
Interesting Reads from the Internet:
- 10 Secrets Every Parent Needs to Know About Saying No

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✒ From My Blog

Compounding $1 a day

This morning I woke up to yet another awesome letter “The Power of Compounding” from Bob Seawright. The essence of compounding is starting early and not interrupting it unnecessarily.

As I was reading Bob’s letter, I was thinking how late I got into compounding with my money. As a parent, I want to give my children one advantage of compounding “starting early”. How can I help my children get started early into saving and investing?

What If I invest $1 a day until they turn 19. What will it become when they retire? I got to work and calculated everything. If we invest $1 a day, we will be investing $365 a year. If we invest $365 every year until they turn 18, at 10% interest, we would have invested $6,935.

That $6,935 will turn into $20,540.37 on their 19th birthday. If they never interrupt and let it compound until they turn 65, they will have a cool $1,811,609.40. That’s right $1.8M.

With just $1 a day and a total contribution of $6,935, we can give them a retirement gift of $1.8M. That is the beauty of starting early and not interrupting the compounding.

Not all of us are lucky enough to start early. I am a parent of two children. My son is seven and my daughter is two. If I start now and invest $2,920(8 * 365) today and continue to invest $365 a year until he turns 19, he will have $1.5 for his retirement. And for my daughter who is two, If I start now and invest $1,095(3 * 365) and continue to invest $365 a year until she turns 19, she will have $1.7M

Of course, It wouldn’t be $1.8M at 65 if they interrupt the compounding and withdraw the funds.

“The first rule of compounding: Never interrupt it unnecessarily” - Charlie Munger

We have seen time and again that personal finance has more to do with psychology than intelligence. That is the part of finance we need to teach them.

And our schools don’t care to teach them these important subjects of personal finance. It is up to you us, parents to teach them these important life lessons.

We need to teach them the importance of starting early. Saving before spending. Avoiding debt. And the discipline of not interrupting the compounding.

Investing $1 a day is the simplest solution to give our children an early start with compounding.

PS – Use this google sheet I put together to calculate compound interest returns by age and contributions to certain years.

🌐 Interesting Reads from the Web

10 Secrets Every Parent Needs to Know About Saying No

Kids only listen to us because of who we are to them.
Kids accept our direction when it's part of the routine.
Kids accept our requests when they realize, through experience, that the limit is firm.
Kids accept our limits when we accept their desires, and their anger, sadness or disappointment about our limits.
Kids follow our requests when they don't feel pushed around.
Kids follow our requests when we transform them into something fun and inviting.
Kids follow our requests when they're age-appropriate.
Kids accept our limits when they see that we care about their happiness.
Kids accept our direction because they trust us to make rules that support their well-being.
Kids accept our NO because they feel our deeper YES.