[UNITED STATES] In today's fast-paced world, financial literacy has become an essential skill for success. As parents, we have the unique opportunity to set our children up for a prosperous future. This article explores how one father is paving the way for his daughters to become millionaires by age 30, offering valuable insights and strategies that any parent can implement.
The Power of Early Financial Planning
Brennan Schlagbaum, a 32-year-old CPA and founder of Budgetdog, has a clear vision for his daughters' financial future. "My wife and I reached our goal of becoming millionaires in 2022, after five years of paying off over $330,000 in debt — including our house, cars, engagement rings, and student loans — and investing our money, largely in index funds," Schlagbaum shares.
This experience has motivated Schlagbaum to create a robust financial plan for his daughters, Logan (3) and Ellie (1). His strategy revolves around three key accounts:
- 529 Plan
- Taxable Brokerage Account
- Roth IRA
The Three-Pronged Approach to Wealth Building
529 Plan: Investing in Education
The 529 plan is specifically designed for educational expenses. Schlagbaum explains, "My wife and I want to contribute 60% of the cost of a four-year public in-state college and to have them take accountability and cover the other 40%, whether it be through scholarships, working, or other methods".
Initially, the plan was to contribute $250 monthly to each daughter's 529 account. However, due to Logan's diagnosis with Dravet syndrome, they've adjusted their strategy, redirecting her funds to a brokerage account until her future needs become clearer.
Taxable Brokerage Account: Flexibility for the Future
The brokerage account offers flexibility in how the funds can be used. Schlagbaum and his wife contribute $250 monthly for Ellie and $500 for Logan. "We want to let the money that's being invested for them grow for quite some time, so they probably won't touch the brokerage account money until they're 22 and fully in the adult world," he notes.
Roth IRA: Early Start on Retirement Savings
Perhaps the most innovative aspect of Schlagbaum's plan is the Roth IRA for his young daughters. "The Roth IRA is for retirement purposes and requires earned income. Our daughters are young and don't have much income, but I pay them for the photoshoots they do for my business," he explains.
This approach not only sets up retirement savings early but also teaches valuable lessons about earning and saving money.
The Magic of Compound Interest
Schlagbaum's strategy heavily relies on the power of compound interest. "Compound interest is honestly the eighth wonder of the world; time is money," he states. By starting early and consistently contributing to these accounts, the potential for growth is significant.
Assuming an 8% annual return, Schlagbaum projects that each daughter could have over $1 million by age 30. This projection underscores the importance of early and consistent investing.
Fostering an Abundance Mindset
Beyond the numbers, Schlagbaum emphasizes the importance of instilling the right mindset about money. Having experienced financial hardship in his youth, he aims to cultivate an abundance mindset in his children.
"I don't want my kids to have a scarcity mindset," Schlagbaum explains. "I want my daughters to realize that value creation is more important than trading time for money".
Teaching Financial Responsibility
While providing a substantial financial head start, Schlagbaum is careful not to create entitled "trust fund babies." He aims to teach his daughters that money is a tool, not a goal in itself.
"I'm not of the belief that you should just hand your kids money. I think that creates what most people view as a 'trust fund baby' who wastes their family's money, and that's not what I want," he clarifies.
The Importance of Open Communication About Money
Schlagbaum advocates for transparency when it comes to family finances. "I think it's a really good idea for my kids to understand how much I make and how much we spend," he says. This openness helps children develop a realistic understanding of money management from an early age.
Balancing Financial Support with Personal Responsibility
While providing significant financial support, Schlagbaum also emphasizes the importance of personal responsibility. For instance, with college expenses, he plans for his daughters to cover 40% of the costs themselves, encouraging them to seek scholarships or work to contribute to their education.
Strategies for Parents to Implement
Start Early: The earlier you begin investing for your children, the more time compound interest has to work its magic.
Diversify Accounts: Consider a mix of education-specific accounts like 529 plans, flexible brokerage accounts, and retirement accounts like Roth IRAs.
Teach Financial Literacy: Involve your children in age-appropriate financial discussions and decision-making.
Encourage Earning: Find ways for your children to earn money, even at a young age, to contribute to their Roth IRAs.
Model Good Financial Behavior: Children learn by example, so practice good financial habits yourself.
Balance Support with Responsibility: While providing financial support, also teach the value of personal financial responsibility.
Adjust as Needed: Be prepared to modify your strategy based on changing circumstances or needs.
The Long-Term Vision
Schlagbaum's approach is not just about creating wealth; it's about providing opportunities and teaching valuable life lessons. "Our goal with our investments for our daughters is to position them for success and give them opportunities that we may not have had growing up," he explains.
By implementing this strategy, parents can potentially set their children up for financial success while also imparting crucial lessons about money management, responsibility, and the power of long-term planning.
While Schlagbaum's million-dollar plan for his daughters is ambitious, it offers valuable insights for all parents. The key takeaways are to start early, invest consistently, diversify accounts, and most importantly, teach children about financial responsibility and the power of compound interest.
Remember, the goal isn't just to create wealth, but to raise financially literate and responsible adults who understand the value of money and how to use it wisely. By following these principles and adapting them to your own family's circumstances, you can set your children on a path to financial success and independence.
As Schlagbaum wisely notes, "I'd rather give my kids now than wait until I die... I think it's better to give it to our kids now, so that we can teach them how to treat money and how saving and investing has given them opportunities".
In today's complex financial landscape, equipping our children with these tools and knowledge could be the most valuable inheritance we can provide.
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