How to Start Building Wealth at a Young Age Colorado

Steps

1. Save money in a savings account. Shop around for the best rate.
   • If a child save $4.00 per month at 1.0% interest, it will be worth $505 at the end of ten years as opposed to $480 if you saved at home in a jar.
   • If a child save $4.00 per month at 2.0% interest, it will be worth $531 at the end of ten years as opposed to $480 if you saved at home in a jar.
   • If a child save $4.00 per month at 3.0% interest, it will be worth $559 at the end of ten years as opposed to $480 if you saved at home in a jar.
2. Buy bonds. The treasury department sells a variety of investment products.
   • Series EE savings bonds can be purchased directly from the treasury online or from your bank. They pay interest at a fixed rate (announced May 1st and November 1st each year). Interest accrues monthly and compounds semiannually (every six months). Bonds held less than five years are subject to a three-month interest penalty. The minimum purchase is $25 for a $50 EE Bond when purchasing paper bond certificates. They are available in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000.
     • At the end of a year, a child who saves $1.00 a week for investing can buy a $100 bond for $50. At 1.4% interest, it will be worth $57 in ten years, but regardless of the interest rate, it is guaranteed to reach $100 in 20 years, effectively creating a return of 5%.
   • I bonds can be purchased directly from the treasury online or from your bank. They pay an annual interest rate that reflects the combined effects of a fixed rate and a semiannual inflation rate. Interest is added to the bond monthly and is paid when you cash the bond. Bonds held less than five years are subject to a three-month interest penalty. The minimum purchase is $50 for a $50 I Bond when purchasing paper bond certificates. They are available in denominations of $50, $75, $100, $200, $500, $1,000, and $5,000
     • At the end of a year, a child who saves $1.00 a week from for investing can buy a $50 bond for $50. At 4.84% interest, it will be worth $74.26 in ten years or $99.21 in twenty years.
3. Save up for your first share of stock. If you only get five dollars a week in allowance, you could save a dollar a week for a year and be able to buy one share of Revlon, Atari, Sirius Satellite, Denny's, Six Flags Inc, Sun Microsystems, TiVo, LeapFrog, Ford or La-Z-Boy (among others). Read more at One Share dot com.
4. Save up for your first direct stock purchase. If you can save up $50-$1000, you can buy Kellogg, McDonalds, Hershey, Home Depot, or Disney (among others) directly from the company without opening a brokerage account.
5. Open a Roth IRA. A Roth IRA is an individual retirement account (IRA) allowed under the tax law of the United States. Named for its chief legislative sponsor, U.S. Senator William V. Roth Jr. of Delaware, a Roth IRA differs in several significant ways from other IRAs.[1] It is the magic of compound interest that makes this such an exciting investment for the very young.
   • If a 15-year old contributes $2,000 a year until she is 18 and makes an average annual return of 9% on her investment, She'll have more than $370,000 saved by the time she is 60.
   • If a 15-year old contributes $2,000 a year until she is 60 and makes an average annual return of 9% on her investment, She'll have more than $1.2 million saved by the time she is 60.

Tips

• Review your investment, your income, and your interest earned with an accountant after some time has passed. Do this periodically as you become older and are contributing more. See How to calculate return on equity
• Just let your money grow. Try not to spend any of your IRA money or interest. If you never touch it, it will be worth a tremendous amount when you get older.
• Determine the yearly cost of any Mutual Fund against creating your own Mutual Fund of Exchange Traded Funds ("ETFs"). If the latter is selected, always look for the cheapest ETF's to own and don't select narrow focused ETF's. The investment firm you choose can help you with this option.
• Try doing some research on investing and impress your parents with a briefing. They might even give you enough to start a small investment fund. It doesn't take much. Maybe $1000 or less.
• It's a good idea to build a relationship with an accountant early. Accountants can help prepare your taxes, keep track of all of your financial area, and ensure you are investing properly.

Warnings

• Transfer fees at One Share dot com are very high; however, the stock certificate is likely to increase in value as a collectible. Research this investment carefully.
• You must have a paycheck in order to invest in a Roth IRA. You cannot invest money earned through babysitting or cutting the neighbor's lawn unless you file an IRS Schedule C (Profit or Loss From Business) with your (the child's) tax return.
• If you wait until you are older to get your ROTH IRA, you may be out of luck. Only people who earn less than a certain amount of money per year are eligible for this investment option.

Sources and Citations

• American IRS Fact Sheet on Roth IRA
• Direct Stock Purchase Plan: The Hershey Company
• Direct Stock Purchase Plan: McDonald's
• Direct Stock Purchase Plan: Kelloggs
• Direct Stock Purchase Plan: Home Depot
• Direct Stock Purchase Plan: Disney
• Why You Need A Roth IRA by Erin Burt, 03/09/2006

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