We want out of the rat race and to spend more time with our kids who are 6 and 3. We both work in the NY Tri State area. I work in Operations whilst my wife works in HR. We have calculated that we need $5000 a month of passive income to quit our jobs and maintain our lifestyle. This is 4% of $1,500,000 and that is our goal. Have this amount in our investment account and we take back control of our lives.
Sorry kids, no 529 for you. But I may have something better…
Yes…No…Maybe…Who knows. For those of you not American, a 529 account is a way to invest pre tax money in a kids education fund. I want my kids to grow up, take responsibility for their own decisions and manage their own debt. If they want to study at a top school and eat avocado toast everyday whilst daddy is bringing pack lunch to the office they can forget it!
Instead, I want them to be be responsible with the second most expensive decision they’ll make during their lifetime. They need to think about what career they want, where they want to study and which route to choose. Will they work during college, will they stay in state for cheaper tuition, will they not go altogether if they want a career where it’s not necessary. Do they need a $100k+ college degree to be an electrician or teacher etc. They need to own this decision and pay for it themselves.
In return, i’ll fund the first FIVE years of their 401k/retirement accounts. This will be slightly under $100k each, but I will show my children the power of compounding and what this gift will actually be giving them over the long term. It will also give them a few years to pay their debt off without falling behind on retirement accounts. If a 21 year old maxes out his/her retirement account for just five years, and doesn’t invest anymore, selects stocks as the main investment vehicle, hopefully doesn’t touch the money…it should return approx 8% and they will have $2.5 million at retirement of 65 years old.
This money will be safe and secure. If they keep adding this, it will become even more powerful. This accounts for inflation.I wrote another article about how I’m investing $100 a month per kid in the Total Stock Market account and tracking it every month. I plan on informing my kids about these accounts once they are older and can understand more about compounding and how money works. You can find that article here. By following this practice my kids should have close to $60,000 once they go to school. This will give them a good start to life.
If they follow my advice, live within their means, make smart decisions, they will have more than enough to have a happy life.