If you could go back in time, you might do a few things differently — like most investors, for example, maybe you'd start saving and investing money earlier. If you're a parent or plan on becoming one soon, you can set a good example and do your children a favor by getting the financial ball rolling for them as soon as they're born.
Thanks to the powerful process of compounding, even investing as little as $1 per day for a child could leave them with an impressive amount of money once they reach adulthood, a sum that could help them pay for college tuition or provide seed money to start a business.
Say you open up a savings or investment account for your child when they're born, like a custodial brokerage account (an investment account for minors that is handed over to the child when they reach adulthood) or a 529 savings account. If you invest even a small amount for them on a daily basis, the potential returns can be huge.
Assuming a 7% annual return, investing as little as $1 per day could compound to $13,000 by the time a child turns 18. If you stop contributing but let the money continue compounding until the child grows up and retires, it could increase to $410,000.
And if you continue contributing daily, your child could have roughly $560,000 by the time they retire.
The more you put in, the more you could end up with: If you were to invest $10 per day, for example, the account could swell to $5.6 million by the time your child is ready for retirement.
This is why experts say that the key to growing wealth is to begin as soon as you can.
"Start early," Ramit Sethi, who is known for his site I Will Teach You to Be Rich and the book of the same name, told Grow last year. "My dad helped me open up a custodial IRA and that helped me understand the power of compound interest, starting early, and how much you can grow over time."
Video by Jason Armesto
Compounding can supercharge your saving and investing strategy, but it requires patience and discipline. You'll need to put money away regularly for a long time, and be disciplined enough not to withdraw it — even if you find yourself in a bind. That's why it's good to have an emergency fund, too.
And if you're saving for your children, you may as well start as soon as they're born. The more time the money has to grow, the more they'll benefit.
Take it from Jim Cramer, host of CNBC's "Mad Money": "The magic of compounding works best the younger you are," he said on his show last year, "because that means you have more time for your money to grow."
This story has been updated to clarify the amount of money you would have based on contributing $1 a day.
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