Childcare is expensive. The national average daycare cost for a single child is $1,230/month according to Care.com. For two kids, that’s about $2,500. When young families ask me what the heck they’re supposed to do about that, it’s hard to suggest that the cost isn’t a huge burden, because it is. BUT, the great news about kids is that they grow up. And those daycare costs stop!
NOW DON’T GET ME WRONG. Other costs start. Soccer cleats and field trips and birthday gifts and dance team. But none of those are QUITE as suffocating as childcare. And during the five years your kids are in childcare, you’ve got some time to grow your career and your income. If new parents can set a goal to cashflow those new expenses with their new income, that can free up the full amount of daycare to go to building wealth.
How did Tyler and Taylor swing a SEVEN PERCENT return, you ask? Well, since it’s inception in 1976 the first US stock market index fund, VFINX, has provided an average annual return of 11.02%. If 47 years of data isn’t enough for you, you can backfill the data with the S&P 500 and it’s equivalent going back over 100 years. That list of stocks have still performed around 10% per year. Inflation historically eats away 2-3% of that growth, so when Taylor and Tyler are sitting on $2.9M, that’s using a reasonable inflation-adjusted projection of 7% real growth.
It’s not magic. Well, it kind of is actually. Compound growth actually seems like magic, as it can turn regular monthly investments into huge sums of money over time. The hard part is living below your means. The easy part is clicking a few buttons to put that money to work for you. Don’t skip the easy part!
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
Jeremy
