Over the last few days, I have realized that I have made another financial mistake. The two savings accounts I set up for my two girls when they were born have vanished into thin air.
We decided to put £20 a month away for each of our girls. We had no idea what interest rate they would get and now I have no idea what company we used. Looking through my bank statement’s there are no direct debits for £20 so putting 2 and 2 together, I am thinking that the investments no longer exist.
This clueless approach to money is very typical of me (hopefully in the past) and it is something I am working on moving away from.
The two savings accounts were set-up with the intention of helping the girls out when they come to buying their first car or if they decide to go to University.
Although we will try and help them as much as we can, I have changed my approach when it comes to investing. Instead of saving and giving them a couple of thousand pounds on their 18th or 21st birthdays, I want to encourage them to become long-term investors.
My obsession with money (sorting my shit out) started just over 12 months ago. It took me about 4 months to understand the fundamentals of investing and make a decision on where to invest my money. I now have a stocks and shares ISA and a stocks and shares SIPP. They are both held in a Vanguard fund that mirrors the stock market in various markets and various locations around the world.
My two little priorities have no stocks and shares fund. Shame on me, they don’t even have a shitty little savings account with a shitty little interest rate.
Maybe it’s because I have been focused on sorting my finances out, or that our budget is quite tight, or even that it has slipped my mind for the last 8 months. But not investing for my two girls is not good enough.
With our mortgage quite high, having to have 2 cars, my ISA and SIPP, overpaying one of my rentals and a few other bills make our budget very tight. But again, I refuse to use this as an excuse.
They will both get £100 a month into a fund that I choose for them. At 11 and 8, they are too young to choose themselves. Turning them into long-term investors is going to be gradual. I will be trying to educate them over the next few years as I continue to learn myself.
The fund I have chosen for them is a Vanguard fund that tracks the stock market. Basically it will be made up of a large number of companies, and they will have a small slice of each company.
Very similar to my ISA stocks and shares fund, they will be investing in a ‘Life strategy 100 fund’. My fund is made up of 80% shares and 20% bonds (Life strategy 80/20 fund). The all share fund is riskier than my fund but they do have a higher risk tolerance as they are much younger and hopefully, will be investing for the long-term.
If my eldest decides to cash in at 21, her end capital will be £16,579. That is after 10 years of investing £100 pcm and assuming an interest rate of 7% (this figure is based on historical figures). At the same age, my youngest would have an end capital of £24,168 at 21. This is after 13 years of investing £100 pcm and assuming an interest rate of 7%.
The challenge is turning them into long-term investors so they can really benefit from compound interest and be practically retired in their early 40s.
If my two little investors fully understand money before becoming adults, it will make a massive difference to their financial security and hopefully financial freedom.
You always want more for your children and what I want is for them to have choice. Not to be in a means to an end job or be under financial pressure. This is the first step in encouraging them to be long-term investors that have the freedom to choose what they want to do in life.