Mike Earl, CFP®, CPWA®
Earlier this year, I took my daughter Evelyn to our first “Daddy/Daughter Dance” at Life Time Fitness. While I was merely an accessory as she twirled and twirled on the dance floor, it was a wonderful night for us.
Evie turns 4 next month. About a month before the dance, my wife Krista bought a dress with Evie at Costco to wear for the dance. Evie called it her “ballet tutu dress”, and she proudly wore that dress nearly every day in the weeks leading up to the dance.
Someday, I’ll be walking my little girl down the church aisle on her wedding day. [insert deep sigh] One of the habits outlined in Stephen Covey’s classic book The 7 Habits of Highly Effective People is to begin with the end in mind. With our daughter, part of that habit means looking ahead to the day she leaves us and unites her life to her future husband. While our roles as father and mother won’t end at that point, we want to be thinking now about the kind of woman we hope she will be on her wedding day – and about the kind of man we hope she will marry.
When Evelyn was born, my wife and I opened a custodial account for her – and we nicknamed the account “Evelyn’s Wedding Fund.” Newsflash: weddings are getting pretty darn expensive here in the US of A. Estimates vary, but one site found the average Minnesota wedding to cost about $19,000.
But I trust that Evie has inherited her parent’s frugal genes, so I’m sure her wedding will cost less than average. Right?
We decided to contribute $25 per month to her account, and we invested the account aggressively in 100% US-based stocks. Today that account has about $1,400 in it. Not much, right? Yet at the current pace, the account could wind up with about $20,000 in it when Evie is 25 years old (based on a 7% rate of return and consistent contributions of $25 per month):
This is a hypothetical illustration and is not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions.
Of that projected $20,000 balance, more than 60% of that value would consist of growth over time. This is the epitome of getting your money working for you.
When saving for future goals, it can be tempting to have a “go big or go home” mentality. That is, folks often skip doing the little things right, because it can feel like those little things are not moving the needle in their finances.
Here are 3 reasons why little changes in your financial life can be so powerful over time:
The math tells us so. Most people are familiar with the Power of Compounding, but the only way to take advantage of it is by getting money invested each month – consistently, and for a long period of time.
It builds new habits (like building new muscles). Your financial behaviors lead to financial habits, and those habits determine where you wind up financially. By making small changes over time, you get stronger and stronger in your financial life.
Incremental changes are easier to make than big changes. When you slightly increase your savings rate, your giving rate each year, and your debt pay-down rate each year, you really won’t have to adjust your lifestyle that much – since the change comes on so gradually.
And lest you worry about my children’s future college costs, know that we are also contributing money each month toward 529 accounts. 😊
What does this mean to you, our client?
We will be alongside you, suggesting modest changes to improve your financial life. If you can keep an open mind and make attempts at incremental change, you will reap bountiful rewards over time.
Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.