It's hard to justify spending an hour planning for something that won't happen for another ten or twenty years when you still have to make dinner, put tomorrow's lunches together, and figure out your holiday plans. And by the time you get the dishes, bath, and homework out of the way, and conquer the bedtime stalling tactics, you can barely think about what needs to be done by tomorrow, let alone in a few decades.

I understand.

The good news is that compared to the frenzied juggling that is part of most parents' lives, planning for your child's financial future takes less time and effort than figuring out how to get one kid to soccer practice and the other to the doctor (and back) all in the same afternoon. In fact, by taking just a few minutes to think about the available opportunities, you can give your child what all parents want for their children.

More.

More than what you have.

More money? Sure. But what you really want for your child are the things that more money can provide.

More time.

More freedom.

More knowledge.

More stability.

I know how you feel. This book came into being because of the hopes and fears I have for my child. In 1999 my wife Rachel and I were blessed with the birth of our daughter, Ellie. Right away our dreams and paranoia over our child's well-being went into overdrive. I remember taking our baby home from the hospital, cruising the interstate at a cautious twenty-five miles per hour, and scowling at every car that came within ten feet of our vehicle. I spent most of Ellie's first night at home hiding any sharp objects and barricading the door to the basement stairs.

Within a week I had mapped out who my daughter's friends would be, set some ground rules for dating, chosen her future college, and decided where she would eventually settle down (close enough so that I could see my grandchildren on a regular basis).

Rachel pointed out the futility of these activities and suggested I turn my attention to something that would actually help Ellie now: setting up an investment account for her.

Like most things Rachel says, this made sense. I could actually start doing something about Ellie's future.

By taking a few simple steps, Rachel and I could not only save ourselves money today and down the road, we could make Ellie's life more enjoyable, too.

And that's really what investing for your child is all about. When everything is said and done, ironically, it's not about the money! You already know that having a million-dollar net worth isn't, by itself, going to answer all of her prayers or guarantee her perpetual bliss. And I would guess that when you first picked up this book, you didn't have a vision of your child one day rolling around in a huge pile of hundred-dollar bills, giggling uncontrollably.

Your interest in your child's financial future is probably similar to why Rachel and I are investing for Ellie. What we envision for our child is a life of security, choices, and freedom.

We want her to attend her preferred college, regardless of the cost. If she decides to get married, we want her to marry someone for love, not money. When she chooses a career, we would like her to do so based not on how much money she can make, but on whether she'll honestly look forward to going to work each day. If she doesn't, she should have the freedom to change jobs or return to school without suffering from a drop in income.

We hope she can live in a comfortable house in a safe neighborhood with good schools, and be home enough to enjoy the company of her family and neighbors. If it is a priority for her family, we want her or her spouse to be able to stay home to care for their children (our grandchildren!) without worrying about the loss of cash flow.

That sounds pretty good, doesn't it? (If not, read it again while you imagine a full orchestral version of "God Bless America" playing in the background.)

But investing for a child is not only about making the good times great. It will also help avoid the terrible tragedies a lack of money can bring.

A recent poll sponsored by AARP showed that almost one in five respondents stayed in an unhappy marriage because the individual couldn't afford to live alone. Harvard professor Elizabeth Warren recently released a study of the 1 million personal bankruptcy cases that were filed during 1998. Despite being an expert in her field, even she was shocked to find out that almost half the people involved had some type of major illness or injury, and the subsequent medical expenses made the people insolvent. What is even more alarming is the vast majority of the people wiped out by these medical bills already had health insurance. But what they didn't have was a "cash cushion" to soften the hard landings life can bring.

By taking a few minutes out of your day to open this book, you have made the first step necessary to ensuring that a lack of money will never stand in the way of your child's happiness and well-being.

It's easy to see how investing for your child will give her material benefits. But the gifts she receives go far beyond the simple accumulation of money and even well past the goals of "freedom, choices, and security."

First of all, like most everything else in your child's life, you are the prime source of her education, both in what you say and what you do. And you can talk about the virtues of foresight, frugality, and denial of gratification until you're blue in the face.

But when you actually set up an account for her, you set an example. You are delaying little bits of short-term gratification now, in exchange for reaching big long-term benefits down the road. Strange as it might seem, by investing money for your child, you are demonstrating the exemplary behavior that could very well keep her from squandering the money.

And the lessons you are teaching are not limited to financial issues. Whether you are saving for your child's college education, first home purchase, or comfortable retirement, you have identified a goal. You have established a long-term plan to obtain that objective, and you won't be stopped until you've reached that destination. When your child eventually decides she wants to reach a particular goal on her own, your behavior has given her a blueprint.

Thinking today about your child's tomorrow will also give her a tremendous advantage over the children of parents who choose not to put any money aside. Quick experiment: two high school seniors, same intellect, work ethic, and background. One can afford to go to college (and does). The other can't, and enters the workforce immediately. Which kid do you think is going to have the better life? Be exposed to new ideas? Enjoy work more? Earn more money? Okay, saving for your child's future doesn't guarantee a life of quality, but it sure gives her a better shot at happiness than not doing anything.

Investing for your child might seem like one more "labor of love" that we perform for our children. But taking the steps to secure your child's financial future will give you huge rewards, too.

You will first experience a payback at tax time. This book contains dozens of ways that you can use several investment vehicles to legally cut your tax bills, while at the same time increasing your family's overall net worth. It all boils down to whom you want to have your money: Uncle Sam or your child.

You will also benefit from being forced to reexamine your spending habits to decide what your priorities are. It's a natural progression of what we go through when we change our lifestyles to account for the responsibility of a child.

Before we became parents, our financial mistakes didn't hurt anyone but ourselves. Spent $200 on a pair of shoes? Eat ramen noodles for a month. Lost all your savings on a dumb stock tip? Hey, it wasn't that much money to begin with. An impromptu trip to Mardi Gras? Sure -- put it on the credit card. Why save for the long term when the long term is a long way off?

Then a new, tiny person is thrust into our lives. She relies on us for everything, twenty-four hours a day (there's a reason she's called a "dependent"). All of a sudden our boneheaded money moves are taking food out of her mouth.

Once you decide to invest for your child, you are forced to look ahead to needs that will arise ten, twenty, even fifty years down the road. As you start examining how your money choices will affect your kid's future, you will realize just how many things you can do without today in return for a better tomorrow. You'll stop before each purchase and ask, "Is it worth it?" My guess is that more often than not, your answer will be, "No." And the money will stay in your pocket, where (like so much lint) it can't help but accumulate.

Investing for your child now will aid your retirement later. That sounds crazy, but it's not too far-fetched. Depending on your child's age, putting a few thousand dollars aside now may completely cover her college fund or retirement account. Once you make the deposit, you can sit back and let the power of time grow your child's wealth while you focus your investments and your attention on securing your "golden years."

Getting your child's financial needs out of the way now will not only help you accumulate money for retirement but also give you guilt-free enjoyment of the autumn of your life. Many retired people I've worked with accumulated a decent-sized nest egg by the time they were ready to stop working. But some of them were hesitant to spend the money on anything beyond the basic necessities of life. When I would ask them why, many told me that they wanted to leave something for their children, and they were worried they might outlive their money!

By putting aside just a few dollars today, you can one day blow your wad on a condo in Boca with no fear of condemnation from your kids.

Tax breaks, increased frugality, and the ability to completely focus on your own financial goals are enough to motivate just about anybody to take action. But the intangible yield can be even more inspiring.

First, you are going to experience peace of mind like you won't believe. Shortly after Ellie was born, I had a dream that she was eighteen years old, and ready to go to college. But when I told her that I didn't bother to save any money for her, she just furrowed her brow and stared up at me in disappointment (for some reason, in the dream she was still two feet tall), not saying a word. I woke up in a cold sweat, and the next day opened her college savings account.

That's one nightmare I don't have anymore.

You'll also enjoy the satisfaction of knowing you've done the right thing for your child. And that pleasure will only grow along with the dollars, until it culminates with you handing the money to her at the appropriate time.

And that's really when you'll receive the ultimate reward: your child's appreciation and gratefulness for your foresight and discipline.

You already have the three most important tools needed to secure your child's financial future: a lot of your love, a little bit of money, and this book.

And that's about it. You certainly don't have to be a millionaire to make your child one. As a matter of fact, research shows that four out of five American millionaires are the first ones in their family to reach that level of wealth.

You don't have to be an investment wizard, either. You only need the same level of intelligence necessary to accomplish typical financial tasks. Things like paying taxes, buying a car, and getting a mortgage. If you've done any of these in the past, you can start your child on the road to financial independence.

You do need to spend a few hours reading this book. Lock yourself in your bedroom. When your kids start pounding on the door and screaming your name, you are perfectly justified in yelling back, "Leave me alone! I'm trying to make you a millionaire!!"

But once you finish the book, you don't need to spend a lot of time watching the tech stock television channels or reading the financial section of the daily newspaper, either. We're talking long-term goals. Short-term news won't affect you, so paying attention to it won't do any good. You can quit surfing the Web, and go play outside with your kid instead.

You do need a little discipline. But not "Marine Corps" discipline. Just enough to get going on the steps that make the most sense for you and your family. It's the same self-motivation that gets you to the supermarket each week so that your family doesn't starve.

And you will need to be flexible. There will be obstacles on your child's path to financial independence. People change, new laws appear, and fresh opportunities arise. But reviewing your situation for a few hours once a year -- I like to do it around tax time -- is more than enough scrutiny.

Investing for your child is a journey. Unlike many trips that involve our children, this one lasts a long time and it's enjoyable. This book will serve two purposes for your trip. First, it is a guide to reaching your overall goal of your child's financial independence. It chronologically maps out the steps you should consider at each stage of your child's life, from her birth to your death.

Second, each of the eleven investment chapters provides a discussion of a particular vehicle that can help you and your child reach a specific destination. The background, benefits, and drawbacks of each method are presented to help you decide which approach is best for you and your family.

As with any trip, first determine where you're going by deciding what you want to achieve for your child. Protecting your kid if you're not around? Definitely. Paying for college? Probably. Funding a comfortable retirement for her? Who wouldn't want that? Helping her buy a home? Hey, it might prevent her from moving back in with you.

Once you have established your destination (or destinations), you can decide what means of transportation and routes are the best ones to get you where you want to go. And when you are investing for your child, you will find that a single investment can be applied toward several different objectives, and an objective can be reached by using several different investment vehicles.

An exciting feature of investing for your child is that you can harness the full strength of the most powerful ally of savers and investors: time. The more time you have, the less money you need. It helps to consider the connection like a seesaw:

Childhood development experts tell us that much of how we turn out as adults is determined by the time we are two years old. I like to take that one step further and say that we have the power to form our children's financial futures, especially by taking action in the first few years of their lives.

If you want to make your child a millionaire in ten years, you need to deposit almost $400,000 today in an account earning 10% annually. But if you have fifty years, you only need about $8,500. And if you have enough money today, you can even make a single deposit into the vehicle appropriate for each one of your goals and be done with it.

How much should you put in? That depends on a few variables, including the rate of return your money earns, taxes, and the rate of inflation (both in the rise of prices in general, and in the cost of your particular goal). Unfortunately, nobody knows what those numbers are going to be in the future.

But you can make projections using different hypothetical figures. For instance, let's say that you want to make a deposit today so your child can go to college in eighteen years. You would need to know the following numbers:

• 1. The cost of the college education today (let's say $40,000).
• 2. How much that cost will rise each year (guess about 5%).
• 3. At what rate your money will grow (figure 10%).

Once those numbers are in place, you can determine that you would need to deposit about $17,000 today.

How did I come up with that figure? I used my trusty Texas Instruments BA-35 Solar calculator. I love it so much that I get jittery if it's not within arm's reach at all times. You can buy it or one like it for about thirty bucks, or you can use the online calculators that most financial service and mutual fund companies provide on their Web sites.

I could just about hear you groan as you read "$17,000."

Whenever anyone tells you these kinds of scary numbers, it makes you want to stick your fingers in your ears and sing "La la la" out loud until the person drops the subject. Especially if, like most of us, you don't have these big sums of money just lying around doing nothing.

But, of course, you have an alternative to securing your child's financial future through one big deposit. You can make several little ones. Time helps this method of investing, too, as the more time you have, the more little deposits you can make. You don't have $17,000 right now to fund your kid's college costs? Fine. Start saving a little over $5 a day at the same rate, and you'll still get there.

And best of all, by saving money in little, regular steps, you won't miss it. I've helped hundreds of people set up systematic programs to save for their retirement, or their children's futures. At almost every initial meeting, the client hems and haws when I ask him what he's going to set aside. He's thinking, "I'm barely getting by now. Where am I going to come up with another few hundred dollars a month?" I assure him that he won't even notice the money being taken out, but he doesn't believe me. Finally, I point out that he can always reduce or even eliminate his contribution if he wants to.

Over the last thirteen years, I can think of only a handful of people who reduced the deposit amount, and just a couple who eliminated it altogether. But almost all of the other people have told me that after a month or two, they don't miss the money one bit!

Another interesting thing happens to you when you start and maintain a program of regular saving. By the time you have accumulated enough money to fund your goal, you'll realize that you still don't need the amount that was going toward your systematic investing plan. You will have the luxury of pointing your ongoing deposits toward another investment goal.

Where Is the Money Going to Come From?

"Okay, Kevin, we've set the goals, and we have lots of time on our side until the goals need to be reached. There's just this one teensy-weensy little obstacle left before we can secure our child's financial future: we don't have any extra money!!!"

Yes, you do. You have tons of money that you spend every month. It's just a matter of deciding what your priorities are, and where your child's future ranks in relation to those expenditures. Should you shut off your electricity so that you can put a few hundred dollars a month into a mutual fund? No. That would be more traumatic to your child than not having money for college tuition. And you should probably continue to pay your taxes, as even a short-term prison sentence would deprive you and your child of each other's company.

The average American employee works about three hours out of every eight just to pay taxes. Yet that same worker can make a kid a millionaire in fifty-three years by investing just five minutes of wages each day at a 10% annual return.

But you do have something called "discretionary spending." That is money that isn't going out for necessities, but it's still going out. And the road to your money goals (including your child's financial independence) goes right smack-dab through that discretionary spending.

Many times people will call me and say, "We make a decent living, but we can't seem to find any money to invest. Can you help us out?"

I sure can. But the solution is a lot like good exercise: it hurts a little while you're doing it, you are relieved when it's over, and afterward you are the better for it.

Showing Yourself the Money For one month, write down all the different ways, down to the last penny, that money leaves your household: taxes, groceries, mortgage, car payments, credit card payments, everything. If you throw a nickel into a fountain for good luck, it goes on the list, too.

At the end of the month, take a sheet of paper and divide it into three columns. (If you have something like Quicken for your computer, this will be even easier.) Make a list of all the expenses on the left side of the paper. Put the largest at the top, and the smallest at the bottom.

Then sit down with a calculator, and start at the top of the list. Go over each item. Ask yourself, "Is this item absolutely crucial to our existence?" (Note: If you are married, you are fortunate to have a person in your household who will be more than happy to give you plenty of feedback regarding the frivolous expenditures you make on your behalf. If he or she is like my wife, this may even be something of a hobby.)

If you can't possibly survive without the item, leave it on the left-hand side for the time being. If you can exist without it, write the amount in the middle column. Do this for the rest of the list. After you get to the bottom, total up the numbers in the middle column.

You now have a sum that is probably several hundred dollars, and it represents the source for the funds necessary to secure your child's financial future.

But you don't have to give up all of these creature comforts. This isn't about living like a Survivor contestant just so your kid can go to Harvard. However, you do need to decide what you can forgo now so that your financial goals for your child can be realized.

If you still can't come up with anything, you can use what

I call the Painful, Powerful Prioritization Process. Just go through the middle column line by line and make this statement (out loud) each time: "Spending $143 per month on my cell phone is more important to me than sending my child to college." Or "Having my nails done professionally means more to me than making my child financially independent."

If you can speak the words out loud without laughing at the absurdity, keep the item in the middle column. If your self-respect disappears before you finish the sentence, sheepishly move the item to the column on the far right.

If you are doing this exercise with your spouse (and you should), it can quickly degenerate into a "Your-stupid-ways-of-wasting-money versus my-stupid-ways-of-wasting-money" confrontation. You may want to agree in advance that each of you will reduce your own discretionary expenses by an equal dollar amount or percentage.

By the time you total up the numbers in the right-hand column, you will have more than enough money to start saving for your child's benefit.

And the opportunity is not confined to just your regular monthly expenses. I like to run three or four times a week (I figure it's a cheaper stressbuster than alcohol or psychotherapy). Although I live in an area with some spectacular running trails and paths, I began lusting after a $2,000 high-performance treadmill about the time Ellie was born. Rachel and I could have easily afforded it, and I had made all kinds of mental justifications as to why I "needed" it: it's my only vice, I could run at home, any time of the day, health reasons, blah, blah, blah.

But about the same time as I was deciding which one to buy, I made the calculation that $2,000 could make Ellie an after-tax millionaire by the time she turned sixty-five. I tried to follow through with purchasing the treadmill, but my heart just wasn't in it anymore. Now Ellie has $2,000 in her Roth IRA (in Chapter 8 you'll find out how I achieved this), and I'm still running outside. Wisconsin winters can make this a pretty chilly form of exercise, but I am warmed by the thought of making my daughter financially independent.

The dollar amounts don't have to be this dramatic to make a difference. Any time you're contemplating a purchase of anything over a few hundred dollars, or you have a daily expense of a few dollars, stop for a minute. Pick up a calculator and figure out what the cost of this splurge will be today, and what the money earning 10% annually might buy for your child in twenty, thirty, or fifty years.

It's your business what you spend your money on. Rachel and I have cable Internet access at our house, along with about a dozen premium channels. Our monthly bill is starting to rival our mortgage payment. You might think that we are wasting our money on this, and most sane people would agree. But we don't go to movies in theaters, and we tape a lot of the movies to watch together after Ellie goes to sleep.

And we feel we have enough money working toward our financial priorities. If you are in the same situation and you feel you have enough money to meet the long-term financial goals for you and your child, spend away.

But if you are feeling too strapped to follow any of the investment ideas in this book, you need to at least stop for a second and examine what is important to you. If you take that inventory of where your money is going and still find you can't possibly make a change, fine. At least you tried. But my guess is that you will discover hundreds of dollars each month going down holes that, in the long term, rank near the bottom of your priority list.

It really comes down to this: Do you want to have a little bit of stress now, or a lot later? Can you drink the free coffee at work, or are you willing to tell your eighteen-year-old child that she "can't go to college because back when you were little Mommy and Daddy simply couldn't get through the morning without a custom-made double espresso."

Despite all the good things we get during the accumulation phase of investing for our children, the great, glorious prize comes at the end of the journey. I have a client who, through hard work and disciplined investing, was able to buy a new house for his daughter. I still remember how proud he was when the sale was completed. I don't think I've seen a bigger smile on someone receiving a six-figure sum of money, much less a person writing a check for that amount.

But securing your child's financial future might actually give you a new worry. And it involves the murky, undefined area that all parents deal with: Am I giving my child just enough to survive and thrive, or is it too much? How do you start investing for your child, grow your small savings into a larger amount for her, and then give her the money without making her spoiled and lazy?

Don't worry.

Money won't build or destroy your child's character. Money will reveal it.

I have been closely involved with thousands of people from hundreds of families, from all walks of life and all levels of wealth. In my experience a lot more people have been helped by having the seeds of financial independence planted by their parents than have been hurt by it.

Why might this be hard to believe? Because well-balanced, independently wealthy people who continue to live in moderation look just like everybody else! These are the "millionaires next door" we've heard about. They drive sensible cars, live in comfortable, practical homes, and even continue to work at jobs they find rewarding. Their identities and self-worth have nothing to do with their money, so they don't feel the need to wave their wealth in our faces at every opportunity.

Some of the nicest people I know are wealthy, and I've met some insufferable egomaniacs who are dirt poor. You could transpose the bank accounts from one group to the other, and I bet everybody would still act the same as always. For better or worse, money isn't going to change who our children are or how they behave.

There is a natural arc to the process of investing for your child. There is usually little or no money at the beginning, yet with disciplined saving and investing, the sum begins to grow. Eventually the "accumulation" phase ends, the value of the investments peaks, and the "distribution" phase begins. And the key to raising a well-adjusted and financially secure child lies in gradually growing her knowledge while you grow her assets, and then progressively releasing more money as she matures.

You can certainly accumulate money for your kid without her knowing about it. But by slowly bringing your child into the mix, you can teach her and help her make decisions.

It's never too early to start investing for your child, and it's never too early to start teaching her, either. Ever since I was able to get Ellie to stop putting coins in her mouth, we have gone through a saving ritual when I get home from work.

Before I change into my "play" clothes, I give all my spare change to her. She cups her tiny little hands around the coins, dutifully carries them over to a five-gallon jug in the corner of the room, and drops them in with the rest of the previous deposits. She's at the point now where when we are on a walk and she finds a coin on the sidewalk, she turns to me excitedly and says, "Put in jar?" and then carries the dime or nickel all the way home.

Now, I could probably get that change in the jug a lot faster on my own. But by involving Ellie, I have shown her how her actions can help the pile of money grow, and now she buys into the idea of saving and accumulating.

Once you have decided to relinquish control of the money to your child, you can help her keep her financial balance by starting small, and making the amounts larger as she grows older. It is much better to allow her to "grow into" her money, rather than just surprising her with a gigantic check, bellowing, "Congratulations!" like some Ed McMahon impersonator.

Think of providing financial security for your child in the same way you would teach her to ride a bicycle. You would never prop a toddler on the seat of a mountain bike and let go. When she is ready, you purchase a small bicycle equipped with training wheels. You explain to her how the pedals work, how to steer with the handlebars, and how to apply the brakes. You teach her to go slowly, watch for cars, and obey the traffic laws. Eventually you take the training wheels off, and you run behind her as she pedals, holding the seat to keep her steady. Soon you release your grip on the bike. She may ride a few yards before she falls over, and she'll probably get a few scrapes and scratches in the process. But after a while, she can ride farther and farther without falling, and, in time, she gets the hang of it. She is ecstatic, and I'm guessing you are pretty proud, too.

Depositing funds in an investment account is like buying the bicycle. It doesn't do much good to just give your child the bike without teaching her to ride, and it won't help to use the financial strategies in this book without teaching her the principles and standards needed to manage money responsibly.

I would even argue that instruction along the "arc" is at least as important as investment when it comes to raising a financially secure child. But just by virtue of being her parent, you are already demonstrating the values she will need to manage her money effectively. If you need a little help, turn ahead to the section "Ten Things You Need to Know" (see page 35).

Whether you have saved any money for her yet or not, you are already "investing" in your child: your love, your time, and your energy. Just by becoming a parent, you've committed to putting a lot of money toward your child's future. It costs anywhere from $150,000 to $300,000 to raise a child to age eighteen, according to a U.S. Department of Agriculture study.

Dr. Benjamin Spock's best advice to parents was to "trust yourselves." And those words of wisdom also apply to securing your child's financial future. Don't be paralyzed by the fear of picking the wrong investmentment vehicle. Doing something is much better than doing nothing.

And not only is investing for your child much less stressful than "not investing," it can also be more enjoyable than investing for yourself. It doesn't matter if the stock market crashes the day after you open an account for your child. Depending on the goal, your kid has a horizon from several years to several decades in the future, so the pressure is off. Putting money aside for your kid isn't about what Greenspan, Microsoft, or some foreign dictator is going to do. It's about what you are going to do.

But the clock is ticking. The longer you delay taking action, the harder it will be for your child to become financially independent. A dollar a day saved at 10% annually gives a newborn baby over $2.4 million at age sixty-five, but waiting until the child turns five will give her almost a million dollars less at retirement.

Still, if your child is five, and you haven't done anything, don't worry -- you can still reach $2.4 million when your child turns sixty-five by upping the daily deposit to just $1.63!

In thirteen years as an investment adviser, and talking to thousands of people about their money and their lives, I have never heard anyone say these two things:

You knew that making your child financially independent was the right thing to do even before you picked up this book. You just needed to know how to do it. Combined with lots of love and a little money, the information in this book will give you everything you need to get tax savings and peace of mind now, and to provide your child with a secure and enjoyable life later.

Copyright ©2002 by Kevin McKinley