The Sugar Daddy Podcast
Ready to normalize talking about money? Then welcome to The Sugar Daddy Podcast. Every episode will get you one step closer to your financial goals. Whether that is learning how to invest, budget, save, retire early or simply make better money choices, Jess & Brandon have got you covered in a way that's easy to understand, and easy to implement. Tune in as they demystify the realm of dollars, so it all makes cents, while giving you a glimpse into their relationship with money and each other.
Brandon is an award winning licensed financial planner, and owner of Oak City Financial, with over a decade of experience and millions of dollars managed for his clients all over the United States.
New episodes published the first three Wednesdays of every month.
The Sugar Daddy Podcast
82: How to Make Your Kids Millionaires
In this episode, Jess and Brandon dive into strategies to build significant wealth for your children through early and consistent investing, leveraging the incredible power of compound interest.
In this episode we discuss:
• Educational accounts like 529 plans
• Custodial investment accounts (UTMAs)
• Custodial Roth IRAs
• How business owners can employ their children for tax advantages
Visit prenups.com/sugardaddy to learn more about fair prenups that help couples plan for a healthy financial relationship.
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Notes from the show:
This episode is sponsored by Prenupscom. The truth is, every married couple has a prenup a set of rules that defines your legal and financial relationship with your spouse. You either choose your own rules or use what your state gives you. At Prenupscom, they write prenups that actually help couples stay married. Their specialty is fair prenups that help couples plan for a healthy financial relationship. Don't let the state decide your marriage rules. Make your own. Visit prenupscom. Slash sugardaddy to learn more. That's prenupscom. Backslash sugardaddy and get the prenup that helps you stay married. Already married, no worries, they do post-nuptial agreements too. That's what Brandon and I did after eight years of marriage. In today's episode, we are going to talk about how to make your kids millionaires. We're going to discuss things like the power of time and compound interest, the optimal accounts for building wealth for your kids, custodial IRAs, custodial brokerage accounts, high-yield savings accounts, how to employ your children in your business and so much more. If you want to make your child a millionaire and build generational wealth, this episode is for you.
Speaker 2:Hey babe, what are we talking about today?
Speaker 1:Today we are talking about making millionaires.
Speaker 2:More specifically, making your children millionaires.
Speaker 1:Yes, building generational wealth and really the importance of getting started early, because time is so, so, so important and we've talked about this a lot on social media, in our newsletter etc. It really is not a huge financial burden on you to start early and to make your child a millionaire by the time that they're ready to retire. Us are kind of trying to set our kids up for generational wealth and their retirement. So we're looking at that 60 year mark for them. But you know, the more you can contribute, obviously, the faster you'll make them millionaires. But this is really that conversation around making them millionaires with $50 a month, with $100 a month, with a little contribution here and there for birthdays, holidays etc. And we want to make sure that you understand it is attainable to make your kids millionaires.
Speaker 2:Yeah, when it comes to investing, the number one thing that's on your side is time. The longer time horizon you have to invest, the longer you have of compound interest working in your favor. So, when it comes to your kids, the sooner the better. It's going to benefit them so much more as they get older. And the thing is, too, is that, as just said, it doesn't take a ton of money when you start early.
Speaker 1:Yeah, really the starting early part is the most important. Who said, was it Albert Einstein that said compound interest is the eighth wonder of the world?
Speaker 2:That's what they said. I've never actually looked up to see if that's legitimate, because you know I can't necessarily believe everything you see on the internet, but yes, Well, in compound interest right it's it can have a negative effect.
Speaker 1:If we're talking about things like credit cards, right, when you're literally being charged daily interest on top of the previous amount of whatever your balance is and then that literally compounds, so compound interest can be negative. We're going to be talking about the positives of compound interest and time, and that's what's going to actually accelerate your contributions to make your kids millionaires.
Speaker 2:Yeah, and I would assume that most parents out there want to put their kids in a better place than maybe they were in at their age. So this conversation is going to revolve around the small things that you can do, because, you know, as millennials, we are balancing our own financial needs and financial constraints, or whatever it may be, you know, in our lives. But you can also do some of these small things to. You know, help your kids, put them in a better place, while not sacrificing some of the things that you need to do in your own. You know finances.
Speaker 1:Exactly. We're like we're not putting away a thousand dollars a month for each of our kids or anything like that, but we are automating our contributions and, honestly, you know the amount of money that we're putting away for them right now. We don't miss that money and we know when we do see that come out. Man, we are setting our kids up for success so they don't even know how good they have it.
Speaker 2:Yeah, so also. The thing is, too, is kind of shifting the conversation when it comes to just your entire family. So, especially when your kids are young, they get so many gifts, whether it's their birthday, christmas, whatever it may be, they get so many excessive gifts that they don't need and a month or two later they've forgotten about the toy or whatever it may be, especially when they're little. You know, think about when your kids are maybe one or two years old.
Speaker 1:They prefer just to play with the box, and a lot of the gifts are kind of you could put a marble in a water bottle and they'll play with that for longer than the expensive stuff we've been buying them.
Speaker 2:Yeah. So it's kind of shifting the conversation with your family instead of, you know, maybe getting them all these gifts hey, why don't you contribute to their 529 plan, why don't you contribute to their Upma account? Because the reality is is that with these gifts, it's going to have a much bigger impact in their life when they're older. Bigger impact in their life when they're older when you have grandparents or uncles that are contributing to these accounts that when they get older, the compound interest on them is going to help them maybe buy their first home, maybe allow them to not have to make decisions about job choices solely based upon income standpoint. So it's having that conversation with your entire family, because we definitely have this conversation with our family where the grandparents sometimes want to buy too many things.
Speaker 2:We're like, hey, let's kind of hold back on all these little toys. They have more than enough toys. Our kids have way too many toys and give money to these different accounts so that one it's going to be something that's beneficial to them in the future. But then also, along the way, we're going to have conversations with our kids from a financial literacy standpoint, as far as understanding personal finance. Once they have a better grasp of basic math, start understanding compound interest. So I'm going to sit down not I, we are going to sit down and go over these accounts with our kids and like, hey, this is what investing in the stock means, this is what investing in an ETF means, and teach them along the way so that they know significantly more than we did at that age.
Speaker 1:Have you been listening to our podcast and wondering how am I really doing with my money? Am I doing the right things with my investments? Am I on track to reach my financial goals? What could I be doing better? If you answered yes to any of these questions, then it's time for you to reach out to Brandon to schedule your free yes, I said free 30-minute introduction conversation to see how his services could help make you the more confident moneymaker we know you could be. What are you waiting for? It's literally free and at the very least, you'll walk away feeling more empowered and confident about your financial future. Link is in our show notes. Go, schedule your call today.
Speaker 1:Spend money on these big, lavish things, make most of the contribution to these accounts. Or, you know, in some cases, experiences swim lessons, sewing lessons, maybe it's a magazine subscription things that you know they're practicing their reading, they're they're, you know, upping their literacy, etc. Experiences like museum memberships, you know all of that is, I think, more meaningful than just more stuff. But even if you wanted, you know all of that is, I think, more meaningful than just more stuff. But even if you wanted, you know, to have them unwrap something you know the dollar, the Dollar Tree is a great place for that.
Speaker 1:And then, like Brandon said, these accounts, when you can tell them you know, hey, look at how much money you're going to have by retirement. You know. Here's the importance of getting started early. You can then teach them those lessons and hopefully they'll take that forward, because that is truly how generational wealth is built. You can't just transfer the money, you have to transfer the knowledge as well.
Speaker 2:Yeah, so we're going to start with talking about some of the different accounts that you can use to help accomplish these goals, and the pros and cons and the specific reasons for these different accounts. All right, so first we're going to start off with the 529 plan. The 529 plan is an educational account. You're putting money away in an account where it's already been taxed and it's growing, tax deferred, which means you're not paying taxes on it while it's growing, and then when you pull the funds out to use them for qualified educational expenses, you are not taxed on any of the growth.
Speaker 1:So essentially kind of what it is is a Roth IRA for educational purposes, and we have an entire episode on 529. So if you want to dig deep into that account, definitely go listen to that episode. We'll make sure to link it in the show notes. I want to point out too, because one of my concerns quote unquote with the 529 was well, what if our kid doesn't end up going to college? Or what if they end up getting a ton of scholarships? And because of the updates that they've recently made to 529s, that no longer has to be a concern of ours.
Speaker 2:Yeah. So if you have any money in a 529 plan that is unused currently, you can roll over up to $35,000 into a Roth IRA for your child, which could essentially be a retirement account for them to help continuously growing tax free.
Speaker 1:And I do know, and you have to be, you know, you have to really read the fine print here but you can also use the 529 for housing expenses, among other things. So it's not just tuition, but you just, you know again, read the fine print, make sure that you're keeping all your receipts. But there are a lot of options for how to use that money. So if they get a bunch of scholarships great, maybe they want to live in an off-campus apartment. There are options for that as well, and I think even meal plans. Again, if you do it kind of the right way.
Speaker 2:Yeah, you just have to look at the specific details on what is a qualified educational expense that you can use a 529 plan for.
Speaker 2:Now I also want to shift the conversation to currently with people with student loan debt. It is one of the biggest things that is hindering our current generation from being able to build wealth, because they have these large student loan debts and they have large monthly student loan payments and thus that money that otherwise could be going towards investing is going towards paying off student loans. So one of the best things that you can do for your child is set them up from an educational standpoint, where they don't have student loans. So, although this might not be in your thought process a traditional wealth building account because you're putting money into the account and then you're using it for educational expenses what it will allow your child to do once they graduate from college is that they don't have student loan debt, so that $1,000, $2,000 a month student loan payment they will not have, and they could put that money towards their 401k plan, towards an IRA, towards accounts that is going to help them in the future as far as growing their wealth.
Speaker 1:As somebody who has $100,000 of student loans or had, and we're still paying on my student loans, yeah, that makes a significant difference. So if you can get your child through college or tech school or trade school, whatever their educational path is, without them coming out with a bag of loans, I mean talk about setting your kid up for success.
Speaker 2:Yeah, I mean honestly that's one of the best things you can do is that your child goes to college. You can get them through without having any type of debt once they come out.
Speaker 1:Yeah, and I mean, I have federal student loans still left and the interest on that is 6.8%. So right now I'm trying to figure out what to do with that. And again it's one thing I'm just like man when are we going to be done with this? I'm ready. I'm just ready for my lottery win, so I can pay this off.
Speaker 2:We don't even play the lottery, so it's going to be kind of hard. Yeah, that's true, that's going to be difficult.
Speaker 1:Okay, let's talk about the UTMAs.
Speaker 2:I know we talk about for the custodial brokerage. So we use an UTMA account, which stands for Uniform Transfer to Minor Account, and it's a custodial brokerage account, meaning that it is in your child's name. However, since they are a minor, you are on the account as well and you are in charge of the account until the child is either 18 or 21, depending on what state you're in. So it works very much the same as any type of you know other investment account as an adult would use. Like I said, the difference is that it's taxed a little bit differently. If you were to have any type of taxable transactions in it. It's taxed at a lower tax bracket since it's for your child.
Speaker 1:Are there any drawbacks to an ETMA?
Speaker 2:The only drawback that I would say is that once your child either reaches 18 or 21, depending, only drawback that I would say is that once your child, either reaches 18 or 21, depending on, what state you're in. The account's theirs. The account is theirs, it automatically transfers over. So you don't have any control on that aspect.
Speaker 1:Now what I would say is, is that, hopefully, in that scenario, what we're doing is is that we are going to educate our kids along the way so that they have the knowledge that is needed to make good decisions. What happens? You know how sometimes people are like okay, add your teenager as an authorized user on your credit card. Don't even tell them, make a couple of transactions, pay it off to help build their credit, that kind of thing. Once the UTMA transfers to your 18, maybe 21 year old, like could you? I mean what if you don't tell them that it exists? What? What happens?
Speaker 2:Well, okay, so the difference is there is that one, if you're doing any type of transactions that trigger any type of taxation like what.
Speaker 1:What would that be so?
Speaker 2:for example, let's just say you invested in one fund because the way that a custodial account works is that the money that goes into it you've already paid taxes on while it's in the account and you haven't made any type of transactions that cause a tax event.
Speaker 2:You're not paying any taxes because you have unreal you would have unrealized gains in that scenario okay but if you were to purchase one fund and it has some growth and you decided to you know sell that fund to purchase another one, that could be a taxable transaction and you would have to file the taxes in that given year in order to pay the realized gains.
Speaker 1:In that scenario, what if we're just doing a standard S&P 500 index? If you?
Speaker 2:don't make any changes to it, then there's no taxation. But the biggest thing is that if there is any type of taxes that are owed on the account in a given year, once the child is 18 or 21, they need to file those with their taxes. Oh, I see so they're going to be sent the form regardless. So even if you don't have any taxable transactions, you might get a 1099 for the account, just saying, like you know, there's no taxation on it. You don't know any taxes.
Speaker 1:Okay Now could you still contribute to that account, or?
Speaker 2:does it like your child, or does?
Speaker 1:it like lockdown.
Speaker 2:Oh no, you could. You can 100% choose to contribute to the account.
Speaker 1:Okay, I mean, obviously, I'm just kind of talking through some scenarios. Obviously, the ideal situation is you've been educating your child along the way about these various accounts, you've been prepping them to make them understand that this account is going to come to them at X age and that the idea is that, you know, you put a little bit of babysitting money, you put a little bit of coaching.
Speaker 2:Referee money into that account? No, we're not. So we'll get to that. We're not going to put that money into that account.
Speaker 1:Oh, okay.
Speaker 2:Okay.
Speaker 1:All right, I'm just saying we want to continue to fund the account.
Speaker 2:Well. So the way that we use our UpMoney account with our kids and here's a real-world scenario is that you could contribute $100 a month to the UpMoney account from the day that they're born. So your child's born, you contribute $100 each month. If you're able to go ahead and automate it, make your life significantly easier. Now let's just say you contribute $100 a month for 18 years until your child is 18 years old. That means that you've contributed $21,600 over the course of 18 years of that account. However, at the age of 18, if you were investing it the entire time in an S&P 500 fund and we're going to use a rate of return of 8%, very conservative the account at 18 would have $44,940.29. All right. Now, if you do not contribute a single dollar more, only the amount that you put in that $21,600, you don't contribute anything else. At age 60, that account is going to have a little over $1.1 million in it.
Speaker 1:I mean, that's significant.
Speaker 2:That's all awful You've only contributed $21,600. Yeah, and that's the power of compound interest and starting early. As I said before, the number one benefit you have to investing is a longer time horizon.
Speaker 1:So you interrupted me because you were going to say they're going to be a millionaire even if you don't contribute anymore.
Speaker 2:Well, I also interrupted me because you were going to say they're going to be a millionaire even if you don't contribute anymore. Well, I also interrupted you because you were talking about if your child is working and bringing in an income, what account that should go into. I would not put that into my account. I would put that into a custodial Roth IRA for your child.
Speaker 1:Oh, okay, can we talk about? That Is that the account where on Instagram it's like make, make your baby a millionaire and like make them an employee.
Speaker 2:Yes.
Speaker 1:Okay, yes.
Speaker 2:So if your child has some form of earned income let's just say they have babysitting money, they work at Chick-fil-A, whatever it may be if they have actual earned income they can contribute to a custodial Roth IRA. It's the same ideas like a Roth IRA for an adult. Only difference is this is for a child, so you know if they have income coming in they could contribute the same. You know maximum contribution that you can as an adult up to $7,000 into the IRA. Now the difference is is that if you try, if your child does not have earned income, you cannot contribute to a custodial Roth IRA for them.
Speaker 1:Follow the rules, people.
Speaker 2:So if your child is not working at all, you cannot contribute for them to this account is okay.
Speaker 1:Clarifying question is this a w-2 income or like somebody you know? You're helping somebody clean their yard and it's kind of under.
Speaker 2:It doesn't have to be a w-2, okay, you do, but like for the purpose of that, you do want to keep clean records in case, for some odd reason, that there is an audit.
Speaker 1:You know so if somebody, if like your son not to be gender specific here, but let's just say roman starts mowing lawns, the idea would be for him to leave a lecture.
Speaker 2:So the thing I would do differently is that, since we have more information, we have more knowledge.
Speaker 1:If they want to have a business set up, to set them up in an llc okay you can do that I mean that feels like a lot for like something he might do over the summers.
Speaker 2:What I'm saying is that well also, I want to use it as a lesson also.
Speaker 1:Okay, Lots of lessons for our kids y'all.
Speaker 2:The thing is we have so much more access to information and we know more than our parents had access to that's true. So why not pass this down to our children at an earlier age? So they have a significantly higher knowledge base than we did. So I would walk them through like, hey, if you want to start it? Like just also like not saying that they have to start a business, but like walk them through what it would be like so they have a better understanding. Like, hey, maybe this is a path that I do want to pursue, you know, but the idea here is that if your child has earned income, they can actually contribute to a custodial Roth IRA, and I would recommend doing that over the custodial brokerage account. Reason being is that you have more tax advantages with a Roth IRA.
Speaker 1:Okay, what are those?
Speaker 2:There are no tax advantages with a custodial brokerage account, not my account.
Speaker 1:Okay.
Speaker 2:So with the custodial Roth IRA it works the same, where the money that you're putting into it you've already paid taxes on, so the contributions have already been taxed. While it's in the account, it's growing tax deferred. You're not paying any taxes on the growth and when you go to pull it out in retirement, you are able to pull the money out with no taxation on the growth.
Speaker 1:If needed again. Just random question could you pull money out ahead of retirement in either of these accounts?
Speaker 2:Well, with the Up the account, there are no limitations to when you can access the money. It's just like a regular adult after-tax brokerage account.
Speaker 1:Okay.
Speaker 2:You have no restrictions on when you can access the money.
Speaker 1:Okay, so that's a benefit?
Speaker 2:Oh, 100% a benefit. And with the custodial Roth IRA it works the same way as a Roth IRA, where you can have access to the contributions because you've already paid taxes on that.
Speaker 1:Okay, just not the growth.
Speaker 2:Yeah. So I mean like without penalty, yeah. So another thing you mean like you're in college, you can 100% use some of the contributions that you put in to pay for college expenses, if you want to.
Speaker 1:Okay.
Speaker 2:All right.
Speaker 1:Okay, now when you were.
Speaker 2:I do want to point out one thing when you were talking about the whole thing. As far as you know, if you have a business owner, how to, you know, hire kids? This is one of the things that people do do. So, if you are a business owner and you do have children, and they're of a certain age, because, like you know, like blue ivy going on tour with beyonce.
Speaker 1:Yeah, that was 100.
Speaker 2:I guarantee you that was 100 strategic from a tax standpoint yeah because if you're able to hire your child into your business and, like I said, it has to be legitimate in the sense of like you can't have a one-year-old like running your social media account didn't drake, have his kid like, draw his album cover art it has to be like what I'm saying.
Speaker 2:It has to be legitimate in regards to what that child could actually do. Okay, okay, you know so. For example, like if your child's extremely young, like like, for example, with us with the Sugar Daddy podcast, we could use our kids in our social media marketing and that would be considered baby modeling and we could pay them as part of our business. Now, the reason you do that is because if you're going to contribute to any of these other accounts, why not contribute it with money that is not taxed?
Speaker 2:Yeah is not taxed. So, for example, you can actually pay your child up to $15,000 for 2025 if they're under 18 and they don't have to pay taxes on that and the income that you're paying them is a tax deduction for the business. So it's 100% tax-free that you're able to have this money and then you could put into these various accounts, so you could pay your child $15,000. You could put the $7,000 into a custodial Roth IRA, because they are working income, and the remaining amounts you could put into the account.
Speaker 1:Oh yeah, and it's all tax free, yeah, so, and again, you want to have proper records and have them listed as an employee, I mean you definitely. You don't want to cut corners here.
Speaker 2:I always say set it up properly. So, for example, if you are going to pay them on a biweekly basis, you know they have their own checking account, put them on the payroll, pay on a biweekly basis, the same amount into their checking account and then from their checking account. Then you can go ahead and contribute it to, whether it's the custodial Roth IRA or the Upland account.
Speaker 1:Okay, For the custodial account and the Roth IRA. Where can people open these?
Speaker 2:You can open them at your Charles Schwab Fidelity, your local bank.
Speaker 1:Okay, any recommendations?
Speaker 2:I mean, you know me, I'm a Charles Schwab guy. That's where our accounts are at. Yeah, okay, it's pretty easy. I think they have a good user interface. They're pretty user-friendly user interface. They're pretty user-friendly and if you ever need customer service, I feel as though they've done a better job as far as the customer service experience than maybe some of the other financial institutions.
Speaker 1:To be honest, Okay, no, that makes sense.
Speaker 2:And this is coming from somebody who has worked in the back at Fidelity.
Speaker 1:Yeah, what do you say to the people? You know a lot of people are opening up, like the debit cards for their kids and high-yield savings accounts. I know you have strong opinions about kids having high-yield savings accounts. Do you want to get into that?
Speaker 2:I think it starts with the goal of the money in the account. So if your child is saving money let's just say hypothetically, your child is in eighth grade, ninth grade and they want to start saving money up for a car, so they're going to buy a car in the next maybe three, four years that money shouldn't be invested because it's not a long enough time horizon that I would recommend investing it so that money it's a short-term goal could definitely and should go into a high-yield savings account. All right, Okay.
Speaker 2:Now, for example, example, if we're talking about money that they have no intention of using, you're putting this away for them to grow, for future use when they're older. Not a high yield savings account at all. 100 put that into an investment account. So if you're like I said that, 100 a month, 100 a month that you're saving for your child, do not put that into a high yield savings account. Right now we're getting you know around four percent on a high yield savings account, whereas you can at least double that on a yearly basis in an investment account.
Speaker 1:So what about their? Their actual spending money, though? Right when it's like all right, maybe you're getting money for chores, money for your birthday? It is money that you know you do want them to either save and or have access to for spending.
Speaker 2:Yeah, well then that's going to be your high yield savings account, because it's still a short term goal. I always say that kind of like the rule of thumb they have is, if you are going to use that money in less than five years, you don't want to invest it.
Speaker 1:Okay.
Speaker 2:And if you're going to, you know, have a longer time period before you're going to access it, then go ahead and invest it.
Speaker 1:What about? I know things are difficult now too, because you know, I mean, there's times where we would see our parents like either writing a check or spending cash. Our kids only ever see a swipe, a card, so they don't really see that tangible money exchange. Do you have any thoughts on how to, like, teach them or keep track of? You know? Hey, I have this amount, whether it's in a high yield savings, maybe it is a debit kind of account, debit card kind of account.
Speaker 2:The budgeting apps Okay, honestly, the budgeting apps. You know, if they have their checking account, they have their savings account, you know. Create a profile on one of the chosen budgeting apps, link the accounts and they can see all the information there. Now, if you want to go old school and you know, show them all that stuff, that's up to you. I'm more of the mindset that I want to teach them the way that it's actually going to be used in real life.
Speaker 1:And which is going to be digital.
Speaker 2:Yeah, nobody's. You know opening up their checkbook and you know balance, quote, unquote, balancing their checkbook the old way, that's just yeah, it's unnecessary. So you can still teach them all those lessons just utilizing the technology that they would currently use.
Speaker 1:Are there any pieces of?
Speaker 2:I do want to say, like, maybe taking your child into the bank once or twice, just show them how to actually interact and ask for money and stuff like that, because I definitely think, in a such a digital world with social media and stuff like that, where we don't have to have these face-to-face interactions, I think there was something definitely lacking in their ability to have these interactions when needed. So I think, hey, you know, if your child wants to buy something, maybe take them to the bank and have them just simply withdraw the money as cash a time or two, just so they could see what happens.
Speaker 1:Okay, yeah, I like that. I think that makes sense. Any advice for parents looking to set up these accounts and, you know, optimize, make sure they're contributing every month, you know strategies.
Speaker 2:Well, the first thing is, you know kind of deciding which account would work best for you, and that's going to be based off of what your goal is. So, for example, if you are looking to put away money for college education, then obviously the 529 plan is probably the way you want to go. So you want to look at what are the benefits of your state's 529 plan, because, as our episode earlier that we said we have on 529 plans, I'd go listen to that because it gives you all the details of what you really need to think about with a 529 plan. But the idea here is think about your end goal and that's going to help you determine which account is best for you. Once you determine which account is best for you, so let's just kind of switch it over to.
Speaker 2:We're going to do the UTMA account because it gives us a lot of flexibility as far as you want to choose your provider. You know, are you going to go with Charles Schwab or you're going to go with Fidelity, whatever it may be. All these accounts you can open up online and I it's a step-by-step process and I honestly think it's a very simple process Once you have an understanding of what account. It is that you want to open hopping online. Creating an online profile and opening up is very simple.
Speaker 1:Okay, Um what else? I would also say automate it.
Speaker 2:So any type of contributions that you have, because what I've run into sometimes is that people have an idea in their mind like, oh, I want to contribute $200 a month, but you're currently not able to contribute that based upon the money they have, and they don't contribute anything. And it's a weird phenomenon, but I've seen it enough that I know that it's very common where, if you can contribute $25, $30, $40, $50, something, $10, something is better than nothing, and what you can do is that you can gradually increase that as you are able to do so.
Speaker 2:But, don't have this hard set number in your mind that you you know. I want to contribute $500 to the account, but I can't do it now, but I'm gonna wait until I can.
Speaker 1:No contribute the $10.
Speaker 2:You're missing out, like compound interest, is your best friend in this scenario. So anything that you could contribute and I would say, be conservative. So like, for example, if you you know $25 and that $25 feels fine after a few months, maybe you can increase it. But automate it to make your life significantly easier. And I would also here's a little little call out for people that's a little bit more granular.
Speaker 2:Most people are familiar and they hear about ETFs, exchange traded funds and the reason being is that they're very inexpensive when it comes to the fees associated with participating in that fund. However, you cannot buy fractional shares of an ETF, so ETFs have a price, just like a stock has a price. So, for example, an ETF may maybe have to put $200 into it to buy one share of that ETF. I would recommend using mutual funds for this. Reason being is that you can easily automate how much you want to contribute to the account and then automatically have it invested in, say, an S&P 500 mutual index fund. So it's one less step for you to do, because normally you have to link your accounts and the contribution can be automated and it comes in, but it comes in as cash, and then you have to take another step in order to actually invest it.
Speaker 1:That's the part where people get stuck and they've been contributing and then that lump sum amount of money has been just sitting there in cash, which means it is not growing, so you're not getting the benefit of the compound interest.
Speaker 2:It's even worse than not having it in a high yield savings account.
Speaker 1:Oh yeah, oh heartbreaking. We've heard heartbreaking stories about that.
Speaker 2:Yeah. So what I would recommend doing is utilizing a mutual fund. For that reason, because you can buy fractional shares of a mutual fund. So if a mutual fund says that, in order to buy, a full share is $100, if you put in $50, you could buy 0.5. You can't do that with an ETF.
Speaker 1:People have to select that when they set up the account.
Speaker 2:Correct. So when you set up the account, you can automate the amount that you want to contribute on a monthly basis and you can also, like you know, kind of determine what day you want that amount to be, you know, taken out of your account. So you can kind of look at what your bills are what makes sense.
Speaker 2:But then you can take the next step and say, hey, this is the fund that I want to invest in and we use, I use a S and P 500 mutual fund, um and uh index mutual fund and you have to. You can automate it so that once the money is contributed to the account then it's automatically buys that fund.
Speaker 1:So it's not sitting there in cash. Correct You're not missing out on the growth.
Speaker 2:Okay, so it's a call out because, like I said with the ETFs, if you only have $50 going in and the fund is $200, you can't buy it.
Speaker 1:Yeah, so we did talk about obviously also asking for gifts right, for birthdays, christmas, etc. If your kids are going to be expecting gifts or people want to contribute in some sort of a meaningful way, this is absolutely a way to do it. We also talked about that financial education piece, especially with the account where it's going to get handed over at 18 or 21. You just don't want to hand somebody a lump sum of money at that point. It's very likely that that would be the largest amount of money that they've seen. And they're like oh, I can go ball out. And no, you have to teach them like, no, we're going to leave this right here and we're going to let it grow. And here's the reason why.
Speaker 2:But also here's. The reality, too, is that even if you were handing over a large sum of money to a 35 year old that has no financial literacy, they're probably going to do the same thing and blow the money.
Speaker 1:We've had those people on our podcast.
Speaker 2:It's not even necessarily the age thing, it's the understanding and the education.
Speaker 1:Yeah, absolutely so. The education is huge. And then I know this is something we've talked about and again we've had an episode on but making sure that these accounts are protected in the event of an emergency. You know something happening again, building that generational wealth and not letting it kind of slip through the cracks. So potentially putting these accounts into a trust, or what do you recommend there?
Speaker 2:I mean, I'm not going to recommend anything at this point because it depends on your situation.
Speaker 2:Okay, and you're not an attorney, correct and so the trust you know that can be beneficial, but also just simply making sure that you have the beneficiary set up correctly on the account. It's one of the things that I go over with my clients on a yearly basis just to make sure that all the beneficiaries on all the accounts are updated and they are accurate on who they want to be the beneficiary. So that can go a long way in and of itself.
Speaker 1:Yeah Again, want to be the beneficiary. So that can go a long way in and of itself. Yeah Again, especially if you've had changes in your relationship, your partnership, maybe you are now divorced, et cetera. I mean, things change, so updating your beneficiaries on an annual basis is definitely encouraged.
Speaker 2:And at the end of the day, like we want to stress, doing something, just doing something, is significantly better than doing nothing.
Speaker 1:You always talk about building that muscle too, right, like even automating your contributions is building that muscle. Because now you know, hey, I've got $10, $15, $20, $100 coming out of my account every month to go into this account. Oh, I got a big pay raise or I changed careers, et cetera. Now I can contribute 2% more, 5% more, 10% more. But you are getting into that habit and what I will say is when you do that, you're not going to look at this account on a daily, weekly, monthly basis, but when you do log in to see the account and you see whoa, I've contributed two, three $4,000 in X amount of time. You're not going to miss that money, but you're going to be very proud of the fact that you have accumulated that and it didn't really impact your day to day.
Speaker 2:And think about how different your life would be if maybe your parents, like our parents, didn't have access to this information. So I don't fault them in that aspect, but think about, like, if your parents had this information, they did this for you. So, like you know, like I'm about to be 42 years old, so if my mom had done this, I could have almost half a million dollars right now because of that, just simply because of those, you know, those small contributions, and I mean I wouldn't, it wouldn't be like I can't, I don't, I'm not working anymore. I would still be working, but I'm not working anymore. I will still be working, but it would make a big difference in regards to some of the decisions we can make.
Speaker 1:But $500,000 sitting in an account now that we're not trying to touch for X amount of years, that's a good starting point.
Speaker 2:Yeah, so absolutely, and so, like any of you guys listening to this episode, if you have any questions or anything of that nature, please do not hesitate to reach out to me. These are things that I help my clients out with all the time, so if you need some help opening the account, whatever it may- be.
Speaker 1:You know. Slide into our DMs, schedule an appointment whatever you need, yeah, but if you have kids, hopefully you want to make the millionaires build that generational wealth bucket for them and hopefully this episode was helpful. Make sure you share it with a friend or family member and we will talk to you soon. Don't forget. Benjamin Franklin said an investment in knowledge pays the best interest. You just got paid Until next time. Thanks for listening to today's episode. We are so glad to have you as part of our Sugar Daddy community. If you learned something today, please remember to subscribe, rate, review and share this episode with your friends, family and extended network. Don't forget to connect with us on social media. At the Sugar Daddy podcast. You can also email us your questions you want us to answer for our past the Sugar segments at thesugardaddypodcast at gmailcom, or leave us a voicemail through our Instagram.
Speaker 2:Our content is intended to be used, and must be used, for informational purposes only. It is very important to do your own analysis before making any investment based upon your own personal circumstances. You should take independent financial advice from a licensed professional in connection with, or independently research and verify any information you find in our podcast and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
