How To Build A Financial Legacy Even When You’re Not Rich

How To Build A Financial Legacy Even When You’re Not Rich

Ever stop to question why you are working so hard?  Is it to live for today?  Or to save for tomorrow?  Maybe it is to leave a financial legacy for your children?  For most of us, it is probably some sort of combination of all of these things. 

We all work to put food on the table and a roof over our heads.  Most of us work to save for future expenses and retirement.  And those of us with children hope to someday be able to leave something for them.  

Whether it be in the form of money, meaningful material possessions, or something intangible such as wisdom.

A lot of parents want to be able to help their children financially.  It is universal to want to provide for your kids and help them get ahead in life.  You may be striving to give them all of the resources that you have so that they can have an easier life than the one that you had.  

Helping your kids financially can sometimes be difficult and there is always the chance that we may not be able to give them everything that we hoped for.  But with a little bit of planning there may be a way to significantly pave the way for them, financially.  

The Secret To Leaving A Financial Legacy

A few years ago, Jason and I read an eye-opening article by Paul Merriman that was initially published on Marketwatch

The article is titled: “How time can turn $3000 into $50 million.”  

Now that is an attention grabbing headline.  And you may be thinking, is that even possible?! 

Stacks of coins - the Secret to building wealth

The article explains that this small initial investment would take a lifetime to get to $50 million but that it is possible.  

The Financial Strategy:

When a child is born invest $3000 into an ETF or mutual fund (small cap value fund) and let it sit there until the child has taxable earned income.  At this point, the child (no matter what age) can contribute to a Roth IRA.  This is key, because with a Roth IRA, the child will not have to pay taxes upon distribution of the funds later.  

So at this point, you start to convert the money that you initially invested in a brokerage account into a Roth, under the child’s name.   

Eventually, due to the power of compound interest, it will grow and grow and grow.  Over time and with a lot of patience, that $3000 will turn into $4.75 million (based on a 12% return) by the time the “child” is 65, if left untouched.  

So now you are thinking…OK well that is not $50 million.  And hopefully I haven’t lost you yet.  

The article goes on to explain that the $50 million would be obtained by the time this “child” reaches the age of 95.  And this is without even adding in any additional money and also includes taking money out for retirement.   

Of course there are a lot of “what if” scenarios, inflation, and changes in tax law that could change the outcome.  And a 12% return sounds like a lot but it is definitely possible.  

The one thing that we take away from this article though is the amazing power of compounding.  

How Can You Leave a Financial Legacy?

The answer is simple.  As seen from the example above, you can contribute just a small monetary amount to a child and watch it grow.  It doesn’t even have to be as much as $3000.  Or you can give a set amount to a child upon graduating high school or college and it will still grow over the years.  

This is something that can be done for your child, grandchild, niece or nephew, etc.  

There is one important aspect that has been left out so far that is crucial to meeting the end goal of accumulating wealth.  The one step that you can’t leave out is to give your child the knowledge that they need to really take advantage of this gift. 

The Financial Plan For Our Children

So far, our kids have a brokerage account into which we have been investing money for them.  As of this date we have put in $3000+ per child for each year since birth.  They are still young so this money has the potential to grow and provide them with a lot of money in the future.  

We, of course, want to take this a step further and provide them with the financial education that they need to be successful in life.  We want our kids to not only learn about how to profit from this money but to really learn how to have good money management skills. 

They would really be missing out if they did not understand how to make their money grow over time.  

Other Ways To Create A Financial Legacy For Your Children

Financial Knowledge and Education:

Today’s school curriculum lacks financial education for kids.  It’s a sad and scary truth that if we, as parents, don’t teach our children basic financial skills that they will either never learn them or learn them the hard way later on in life. 

Financial literacy is so important to learn and can prove extremely beneficial to a person throughout their lifetime.  

Even at a young age kids can learn the basics about money.  We find ourselves in situations where money is involved, in some capacity, every single day.  Whether it’s banking, investing, purchasing something at the store or paying bills.  Let your kids see what you are doing and talk to them about it.  

The 5 basic financial habits and money management skills that you should teach your children are:

  1. The value of a dollar
  1. The difference between Wants vs Needs and the importance of mindful spending
  1. Saving and the power of earning interest
  1. Budgeting strategies
  1. Investing

In the long run the financial education that you give your children may actually be worth more than the monetary investment. 

Setting An Example Of Good Financial Habits: 

By being a positive role model for your children you will provide them with healthy behaviors to mimic.  

Children learn so much by watching those around them.  They learn basic life skills from us everyday such as gratitude, kindness, and communication.  If we are also setting a good example for them financially, they will learn from that too.  

Stacks of coins - the key to building a financial legacy

If you want your children to have good money habits then let them see you make smart saving and spending decisions.  It’s all about practicing what you preach.  

Final Thoughts On Creating A Financial Legacy

We want our children to have a better financial future than us.  We are committed to teaching them through education and example.  Our children will learn not only how to work hard but to work smarter.  We want our kids to know how to make their money work for them.  

Building a financial legacy may seem out of reach and like something that only the wealthy do.  But it’s not.  Don’t be intimidated by the thought of leaving a large sum of money to your family.  You initially only need a little bit of money to invest and a lot of willpower to leave it there to let it compound and grow.  

Making wise financial decisions today can help to build wealth and security for yourself and your children in the future.  

2 thoughts on “How To Build A Financial Legacy Even When You’re Not Rich

  1. Well said. Starting investing at the birth of every child make a lot of sense and supporting them financially when they really need it most. thank you for sharing your thoughts.

    1. It really is amazing how money can compound over time. And to think that such a small amount of money can grow into something that substantial is pretty exciting. We appreciate your feedback – thanks for reading!

Leave a Reply

Your email address will not be published. Required fields are marked *