The Personal Finance Podcast - How to Build Massive Wealth for Your Children (This went Viral!)

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Starting point is 00:01:00 On this episode of the personal finance podcast, we're going to talk about how to build incredible wealth for your children. I'm your host, Andrew, founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking about how to build an incredible amount of wealth for your children. If you have any questions, hit me up on Instagram at Master Money Co or TikTok at Master Money Co. And follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast. to and if you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify. And don't forget to check us out on YouTube as well at Master Money on YouTube.

Starting point is 00:02:04 Now, today, I am going to be giving you a step-by-step guide on how to build generational wealth for your children. And you're going to be absolutely amazed at the end result of this. And I'm going to tell you step-by-step what I'm doing for my kids. This is the exact thing that I'm doing for my kids right now. So I have two kids, both under the age of four, and we are trying to build generational wealth for them. And that's part of the reason and part of the mission of this podcast is to build generational wealth. Now, we did a video about this on TikTok, and the video went viral in 24 hours.

Starting point is 00:02:35 So we, right now, I'm recording this 24 hours after that video went live and we are at 1.2 million views. And the reason why this went viral is because this is fairly simple for the outcome that's going to happen here, where you're going to have a tremendous outcome for your children, where they're going to going to be multi-millionaires just by you taking simple steps for the first 18 years of their lives. So you're going to see exactly what that means. When they're under your roof, you're going to be investing for your children so that by the time they get to retirement age, they're going to be multi-millionaires. And you can do this for each child or for all your children combined. It just depends on how much that you can afford. Now, with anything that goes viral,

Starting point is 00:03:13 specifically on TikTok, people aren't the nicest when they have comments on TikTok. So I'm actually going to handle a lot of objections on this podcast as well of people who, who have objections to the system that I'm creating, because you're going to see objections in the comments if you go check it out at Master Money Co on TikTok. You're going to see a number of objections that are just false. They are not true.

Starting point is 00:03:31 And I'll explain why some of them are not true. There's also other people on there who are just saying stuff they have no idea what they're talking about. But the key here is that you can really build massive generational wealth for your children. And that's what I want for every single person. Every single person that listens to this podcast

Starting point is 00:03:48 because we know this. Not everybody's going to do this. Not everybody wants to build well for the children. If you want your children to work and you don't want to hand them down anything, I will address that as well. Because there's a way for you to do this and not have to worry about your kids becoming spoiled brats or whatever else you think may happen. So I'm going to go through step by step exactly what I'm doing. And then I'm going to actually also give you another plan on how you can do it and reduce the taxes. And then we'll address some of the objections I'm getting as well.

Starting point is 00:04:15 So let's get into it. All right. First, I'm going to jump into the step by step on exactly what I'm doing to build generational wealth from my kids. So there are a few steps that you can follow here so that you can do this exact same thing what I'm doing for my kids as well. Now, if your kids are a little bit older, you can still do this. You can accelerate the path or you can do it for a longer period of timeline, pass when

Starting point is 00:04:38 they're age 18 to make up for the difference. But here is exactly what I'm doing. So step one, when your child is born, open a brokerage account and put $1,000, into it. You just want to consider this an expense of the birth of your child. So you can just think of this as a hospital bill if you want to, but put $1,000 into a brokerage account. Now, which brokerage account would you open yours at? I have my kids accounts at Fidelity. The only reason why I have it at Fidelity, Fidelity doesn't pay me to say this, is that they just have a lot of investing options and a lot of options where I could transfer these accounts if I wanted to. They have every type of

Starting point is 00:05:12 account that you can think of at Fidelity. Another great place to put this would be Vanguard, because Vanguard has the same type of flexibility out there and has some fantastic funds as well. And in other great place is Charles Schwab. Now, there are other great brokerage accounts out there as well. You guys know I love M1 Finance. We have them linked in the show notes below. There are also some robovisors and things like that I like as well.

Starting point is 00:05:33 But I like to keep the fees as low as possible, and you're going to see why in a second because as compound interest starts to work here, the account value is going to grow really fast. And even a 1% fee is really going to take out a significant portion of this portfolio. So if you've never opened a brokerage account before, the way to open a brokerage account is you go to Fidelity or Vanguard and you click open an account. You put your information into Fidelity or Vanguard. And then the next thing you want to do is you want to link up your bank accounts. So you're going to put your routing number. You're going to put your account number. And you're going to link your bank account into that account, into that brokerage account. And then you're going to transfer the money every single month. Now, when you transfer that initial $1,000, you're just going to do it in one big lump sum. Now, if you can get more dollars into this account than $1,000, I would absolutely do this because these dollars that you are putting into this account are so incredibly valuable. And you're going to see exactly why here when we get to the outcome in a second,

Starting point is 00:06:25 but they are so amazingly valuable. So if you can get put 1,500, if you can put $1,200, if you put $2,000, $3,000, $4,000, whatever money you have that you have available to your children and you want to put towards your children's life, I would absolutely do it up front here because the more money you put in there, the greater this account can grow. That's step one. Now part of this, people may say, well, why are you putting in a standard brokerage account instead of like a UGMA or a UTMA. The reason why is that allows me for more flexibility. And I like to have flexibility when it comes to my investments. I like that flexibility to be able to do whatever I want with the money when it happens.

Starting point is 00:06:59 So what I do is I put the brokerage in my name. And then in Fidelity, you can actually change the name of each account. So I have one with my first son's account's name. I have one with my second son's account name. But it's in my name. And then I put both of my children as the beneficiary for each of their individual. accounts. That's how I have it set up. If you want to put it in a UTMA or UGMA, you can. But the difference with that is there's a lot more rules involved. Like sometimes you have to give it to the child when they turn

Starting point is 00:07:27 21. So now the account is under their control when they turn 21, which as we know, some children are not the most responsible with their money at that age. Some are. So it depends on how they're raised and how their financial stability is. But I like to have that flexibility knowing, hey, if they're not as responsible as I would like them to be when they turn age 21, and this is just being real here. If they're not as responsible as I'd like them to be when they turn 21, then I'm going to go ahead and keep those funds in my name and then leave them as the beneficiary and show them exactly what this account can do if they keep it invested. So that's how I have it set up with the accounts.

Starting point is 00:08:00 I don't like to overcomplicate it. I like to keep it flexible. And then you can transfer it into whatever other type of account you want to if you choose to do that. Step two, every single month add $100 to this account. So every single month you're going to add $100. Now, you could do it with 50 and still get a tremendous result. If you can't afford 100, do it with 50.

Starting point is 00:08:20 If you can't afford 50, do 25. If you can't afford 25, do 10. You know why? They have such a long time horizon to let this money compound that it absolutely will make a difference no matter how much money you put in there. Even if you put five bucks a month in there, you will absolutely be life-changing.

Starting point is 00:08:37 Now, some people on TikTok in the comments are saying, I don't have an extra $100 to give to my kids. And some people are saying some mean stuff about their kids in there. But if you break this down to a daily goal, it's an extra $3.33 per day that you are putting towards your kid's financial future. And when you see the outcome, it's an absolutely amazing thing that you're going to be able to give your kids over that time frame. It's a very small amount to sacrifice when it comes to the larger goal. But like I said, if you really can't afford it, if you can't afford that extra $100. And a lot of people can. If you have multiple kids,

Starting point is 00:09:11 I understand what it's like to struggle. I understand it can be tough out there. So what you do is you just lower the amount that you're giving your children, or you combine, say if you have three children and you really can't afford $300 a month because that's a lot of money to be able to contribute to your kids, then what you want to do is just combine them all into one. So if you can put $100 for all three kids or $50 for all three kids or $25 for all three kids, this will all make a massive difference at the end. Now, what are you invested in? I have mine invested in the S&P 500 ETF. So I like Vanguard ETFs. You can buy whatever S&P 500 ETF you like. or whatever investment you like.

Starting point is 00:09:47 But mine is going to be in the S&P 500 ETF. The reason why is that it gets a 10% rate of return over time. Historically, it's got a 10% rate of return. Now, do you need a factor in inflation? Yes, you do need a factor in inflation, but we don't know what inflation is going to be in the future. I know historically inflation the last 20, 25 years was an average of like 2%, but I don't know what it's going to be in the future.

Starting point is 00:10:09 So there are ways to combat inflation, whereas a lot of people are like, where you're not factoring in inflation into that 10% rate of return. So here's what you do. A way to combat inflation is to increase the amount that you're investing every single year by the previous rate of inflation. So if inflation was 2% and you're contributing $100 per year just to make this easy, next year you would contribute $102. So now you're contributing this exact same amount of purchasing power into that account.

Starting point is 00:10:36 If the rate of inflation goes to 9% the year after that, then what you would do is take 102, the current amount that you, are putting into the account, and you're going to multiply it by that 9%. So say, for example, it's 102 times 0.09, then you're going to get an extra $9.18 for the next year that you're contributing. So you're going to contribute $11.11.18 in year two. And that is how you combat against inflation. Now, if you think inflation is going to be 10% every single year, I don't think that's likely,

Starting point is 00:11:06 but I don't like to predict things, as most of you know. Like I said, on average, it was about 2% every single year. So you are actually investing the same purchasing power over time to get the same results so that they have the same purchasing power over time. Now, you're going to stop at your 18 as you're going to see here in a second. So it's not going to be exactly the same, but it's going to help you hedge against inflation. Because if you want to take the real rate of return, what you truly do is you take the average rate of inflation after all of those years and then subtract it.

Starting point is 00:11:31 But we don't know what inflation is going to be. So to run these models, we have to do it at a 10% rate of return and you can take inflation on the back end. Now, if you want to do it at an 8% rate of return and you think inflation is going to be 2% over the next 50, 60, 70 years, more power to you. It's much better to be safe than to be sorry, especially when it comes to investment returns.

Starting point is 00:11:51 So if you want to reduce it by that 2%, you can absolutely do that. I have no issue with that whatsoever. So that is something that you definitely want to look into as well is figuring out what your rate of return is going to be. In mine, I'm putting a 10% rate of return in the simulation, so you can see exactly what the outcome is going to be with a 10% rate of return,

Starting point is 00:12:09 because I'm just taking the historical average, of the S&P 500. I don't like to predict things, so I'm taking what has happened. That's what I like to do. Now, we have a list of index funds and ETFs that we like. I will link it up down below in the show notes that you can check that out.

Starting point is 00:12:25 And when Index Fund Pro comes out, which is our course that's going to be on index funds and ETFs, we're going to have a master list of all the ones that we absolutely love and the ones that I specifically invest in in that course. But we're going to make a free version available to you as well, some of the best core ones that we like. So now, let's jump in. into step three.

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Starting point is 00:15:37 creates the clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center. Find your advisor at IDPrivatewealth.com. So step three is the bonus phase. So with step three, and this is key, is that every birthday and every Christmas add $250 to the account. So there's a couple of ways to do this, but this is to add additional funds for the first 18 years into that account because doing this makes a massive difference. So what I like to do is every birthday, I add $250. And every Christmas, I had $250. Now, like I said, if you can't do $250 on each of those holidays, then adjust to the number to whatever you can actually do. If you can do $50, do you can do $100, do $100.

Starting point is 00:16:24 If you could do $200, do $200. Or if you just want to add the full $500 on their birthday every year, then do it that way. You can do whatever way you want, if you want to front load that money. but getting that extra 500 bucks a year into that account is incredibly important. You can also do it monthly where you add an extra $143.3. I don't do public math, but it's somewhere in that range, $143 a month instead of $100 to get to that number. But doing this is going to give you the additional bump you need to really build massive wealth for your children.

Starting point is 00:16:54 Now, here's what's going to happen when you do all of this, those three steps. So step one is to open the brokerage account and put $1,000 into the brokerage account. If you can put more, put more in. Step two is every month at $100 to that brokerage account, and I like to just automate this every single month. And then step three is every single birthday and every single Christmas or whatever holiday you celebrate at the end of the year,

Starting point is 00:17:15 add an additional $250 to make an additional $500 per year. So you're going to do this up until the age of 18. And at the age of 18, if they got a 10% rate of return, there'd be $86,189 in that account. Now, there's a lot of crazy things happening here, One of which is to get to that $86,000, you only contributed $30,000 of your total contributions. So your money, your $30,000 made $55,000 in contributions. Now remember that $30,000 number because over the course of 18 years, you're going to give your kids $30,000 to make it up to $87,000.

Starting point is 00:17:51 Now, there's a reason why I like to have this account in my name and I don't want to give it to them too early and you're going to see why is it compounds over time here. because $87,000 to someone who's 18 seems like a lot of money. But it's life-changing money if they leave it in their account until they get to retirement age. So here's the crazy part. And we're going to get to the punchline here in a second. Because by the time they turned age 65, if you never contributed another dollar again to this account. So by the time they turn 18, you're not going to contribute another dollar unless you want to. If you don't contribute another dime to that account, by the time they turn 65, they would have 7.6.

Starting point is 00:18:28 million dollars in that account. So you contributed and sacrificed $30,000 so that by the time they turned age 65, they would have $7.6 million in that account. This is absolutely incredible. And this is the power of compound interest over time. If you would not trade $30,000 for $7.6 million, I don't know what to tell you. Because this is absolutely incredible and an amazing gift that you can give each of your children or all your combined. That is the amazing power of investing your money early. Is giving your kids this gift. Now, what is $7.6 million going to be worth in 65 years? Nobody knows that. So if you do the hedging against inflation thing where you're adding money over time, you can do that. Or if you want to over-contribute and you want to keep contributing for 30 years and doing the inflation hedge,

Starting point is 00:19:21 you could do that. But there are people saying things like that's going to be worth a loaf of bread, which is absolutely not true. Let me tell you why that's not. true. You can go through the course of time and say somebody who was born in the 1950s. They went through the 1960s, the 1970s, the 1980s when inflation was absolutely rampant and interest rates on houses were between 10 and 13% that you were paying on your mortgage. Through the 90s, the 2000s, the 2010s, all of these various things happened. Multiple recessions, multiple bear markets, the Great Recession. Black Monday happened through that time. There were so many bad things that happened. And if you take it

Starting point is 00:19:56 historically throughout that time, those people who just continue to invest, month in, month out, didn't touch their money, let their money grow over time, came out very, very wealthy. Bear markets are part of this. Recessions are going to be part of this. You have to keep your money invested over that time frame to reap the rewards and reap the return. Now, what is $7.6 million is going to be worth when someone turns 65? Nobody knows that. And anybody who tells you they know that, you're going to have to write them off because nobody has a crystal ball on what inflation could be. But would you trade $30,000 for $7.6 million in the future so that your children can have some sort of financial future in the future? Absolutely. I would do that all day long. Another objection

Starting point is 00:20:38 that we have is that I don't want to spoil my kids, I don't want to give them this money, and they won't work hard. So a key of this is, in my situation specifically, my kids don't know this exists. Well, they're under the age of four, but they're not going to know this exists for a long time. And it's going to be one of those things where this is going to be a gift that they kind of find out about either later on in life or at the time that my wife and I pass away. Because this is something where if you do not want your kids to know about this, but you still want to give them this gift, they don't have to know about this. That's your choice and your decision. Now, there's a number of things that you can do here. You can put them as a beneficiary of the account.

Starting point is 00:21:16 You can put it in your trust or your will to make sure that that account goes directly to the correct person that it needs to go to, which is the importance of setting those up correctly, so that this money goes to exactly to the proper person that you wanted to go to. So that is one of the major things that you can do to make sure you set it up properly. Now, how can you run this calculation yourself? So we have an investment calculator that we're building out on the new master money website. And once that's done, it'll be on there. But the one I'm using for this one, I will link up in the show notes as well.

Starting point is 00:21:43 So you can look at the compounding and how this works for yourself as well, check the work, whatever you want to do to see, hey, if I adjust these numbers, what would happen? What if I put $200 a month in there? What if I put $50 a month in there? What would happen to the wealth growing and the wealth building potential? Or maybe you want to reduce the rate of return to see what would happen. You can absolutely do this in your calculation as well, to be safe. So all of these are going to be available to you.

Starting point is 00:22:05 I will link up the calculator that I always use for this podcast down below. And then once our new calculator is available, I will link that up below as well because we are going to add some additional features to our calculator that is more so for compounding and rates of returns and things like that. So that is one of the cooler things that you can do as well as you can run this calculation so that you can see for yourself exactly how to do this. Now, one caveat to think about as well is taxes. So how do taxes play into this? When they withdraw the money, aren't they going to have to pay taxes in a standard brokerage account? Yes, they absolutely will. So one thing you can

Starting point is 00:22:39 do to combat this, and we will have a future episode on this, is you can open a Roth IRA. Now, the thing about a Roth IRA with your kids is they have to have earned income. So you're going to have to have a business or some type of LLC or some way that they earn income. They can also earn income from just mowing lawns and washing cars if they're older. But if they're younger, you're going to have to pay them within your LLC or a business. So you can find ways to do that. There's a number of different ways to do that. We will cover that in an episode because that is a very long topic as well. But you can do this in a Roth IRA where then you can contribute the money that has already been taxed. The money grows tax free. And then they can pull the money out tax

Starting point is 00:23:12 free. So that $7.6 million could actually be withdrawn tax free. And you only had to contribute $30,000 to get that $7.6 million tax free. So that's something you might be able to do as well, and they can continue to contribute to that Roth over time. So this is something that has incredible wealth-building potential. And if you can teach your kids how to build wealth and how powerful this could be, and if they add to that account over time, specifically if it's in a retirement account or something like that, by the time to turn age 65, they can have life-changing money there for them. And all because you made the simple sacrifice to do this early on. So we will link everything up down below that we talked about in this episode. If you guys have any questions, hit me up on TikTok at Master Money Co or Instagram at Master Money Co.

Starting point is 00:23:59 And don't forget to leave a five-star rating and review on this podcast if you've gotten value from this podcast. And if you know another parent who would benefit from this, please share this episode with another parent because this is powerful information that could change people's lives and build generational wealth for their children if people learn how to do this. So we're so incredibly excited to share this with you guys. Again, thank you so much for listening to this podcast and listening to this episode. I truly appreciate each and every single one of you. And we will see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time.

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The Personal Finance Podcast - How to Build Massive Wealth for Your Children (This went Viral!)

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