I have a cousin who have a 8yrs old girl and I would like to put some money in investments and make it grows so when she is 18 and done with high school. I can give her this money.I'm not sure if mom is going to be doing well(money-wise) this is JUST in case type.
She can used it for a used car/college books/ or have a small place for herself while she trying to figure out what to do with her life.
I just want to do something nice and helpful without hurting too much of the family pride.
Any advices?? Please and thank you :-) You first have to determine exactly what you want to give the person you are giving to. That is important because it determins the amount you need to put away now. Let's say that you want this person to have something valued at $5,000 in today's terms 10 years from now (this could be $5,000 cash, a used car, etc.) So you know what it would cost today, but what about 10 years from now? You can probably use an inflation factor (the amount that costs rise) of 2 to 4 % each year. Depending on a lot of things, that number could be too high or too low, but historically this should be safe. If you use 3%, then for each year that passes between now and the time the money may be needed you would add 3% to the previous year amount. The first year is easy, just add 3% to $5,000 (take $5,000 and multiply it by 1.03) and you get $5,150. In year two you would multiply 3% to the previous year amount of $5,150 and would get $5,340.50. You would do this each year for ten years. The number you would end up with would be the cost of a $5,000 item in 10 years, assuming an annual inflation rate of 3%. Once you have that number you can perform a "present value" calculation using a discount rate (the amount you think you could earn, on average, over the 10 year period) to get the amount you should put away today. Present value calculations can by found by googleing it or by using the functions on microsoft excel. way too much |
