3 Step Plan to Help Your Teen Save $1,000,000 by Age 65
The power of compounding can make a lifetime of difference for a young adult. For example; saving $350 every month from age 18 to age 65 would grow to just over $1 million assuming an average 6% rate of return*. So why don’t more teens do this? It’s easy to see just how powerful compounding can be when implemented from a young age, but it is harder to make and stick to a plan that achieves those results. Luckily, we have a 3 step plan to help any young adult build a path to the millionaires’ club.
1) Set savings goals
Decide how soon you can start saving (ie. age 18), what age you want to stop at (ie. age 65), how much you can save each month (ie. $350) and what average rate of return you realistically can achieve (ie. 6%*). Use this calculator to enter the previous details and see how much your money will grow to.
2) Ensure adequate cash flow
Calculate the amount of monthly income needed to meet your savings goals and cover any expenses such as clothing, social activities or major purchases. A great tool to determine this amount is to use a simple budget to record cash inflows and outflows (including money saved). Learn more about 5 simple steps to create a budget.
3) Find income sources
Once it’s known how much cash inflow is needed per month, it’s time to figure out where that cash flow is going to come from. Between school, extra-curricular activities, volunteering and a social life; finding time to fit in a part-time job can be more than tough. One option, which is a great opportunity to foster the entrepreneurial mindset, is for your teen to get creative and start a “business” in their neighbourhood. Here are some “business” ideas to kick start their brainstorming:
- Collecting returnable bottles
- Doing yardwork (shoveling snow, raking leaves, mowing lawns)
- Washing cars
- Walking dogs or pet sitting
- Selling homemade goods (crafts, cards, baking, etc.). This is a great option around the holidays or via a road-side stand.
- Creating an online Etsy.com store to sell crafts (such as artwork, jewelry, clothing, knitting, etc.)
- Starting and monetizing a blog
- Running errands and helping with tasks
- Selling home-grown organic fruits, vegetables and herbs
Creating and controlling your own income is incredibly rewarding and can provide the opportunity to develop persistence, creativity and discipline. Due to the flexibility, it can be a better fit for some young adults’ schedules than a part-time job at another organization. Remember to do some initial research to ensure your teen is abiding by any rules, regulations and/or laws that might affect the activities conducted by the business.