Financial security for our children’s future is very important to us. We have two small boys and developed a clear plan that allows us to save €5,000 every year for our kids while still keeping our own financial goals in mind. By using ETFs and living a minimalist lifestyle, we manage to invest the child benefit wisely and lay the foundation for our children’s financial freedom. Me and my kids will pretty likely retire in Germany and here – I have to be honest – it is not likely that we will get a high retirement payment from the government, even though we pay a certain amoutn of our salary every month to the fund. So we had to come up with our own plan B and you should as well!
Our Process: Investing Child Benefit in ETFs
Every month, we receive a total of €500 in child benefit for our two children (€250 per child) from the German government (I know, not every country has this genius invention). We invest this money at the beginning of each month into various ETFs. Our investment strategy includes a mix of:
- Emerging Markets ETFs: These offer high growth potential by investing in developing markets.
- MSCI World ETFs: These invest globally and offer broad diversification.
- Individual dividend-paying stocks: These provide additional income through regular dividend payments.
Of course, we assume that we don’t need this money for other expenses related to the children. It’s “extra.” We achieve this through a conscious and minimalist way of living, buying second hands clothes and toys for the kids and limit our freetime rather to free activities instead of expensive trips and events.
Minimalism with Children: How we save in everyday Life
Since our children were born, we’ve only bought secondhand items. Whether it’s clothes, toys, or furniture – secondhand (or upcycling) is always our first choice and we only buy it brandnew if we really can´t find it preloved. This not only saves money but also protects the environment. For birthdays and other celebrations, we’ve made it clear from the beginning that we don’t want physical gifts for the kids. Instead, we appreciate experiences or monetary gifts, which we also invest for them. I even sent the bank details of my childrens ETF´s investment fund to the party guests to make clear that we´d rather prefer the money for their future instead of useless stuffies (I know, that might hurt or offend some people at the beginning, but this is the only way that makes sense for us as a family).
Why ETFs and not other Investments?
ETFs (Exchange Traded Funds) are low-cost and simple financial products that offer broad diversification. They spread risk by investing in a wide range of stocks and usually have lower fees than actively managed funds. One of the most attractive aspects is the compound interest effect, which can lead to significant gains over time.
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Financial Freedom for the Whole Family
Everyone should decide for themselves how to use money for their children. We’ve consciously chosen to invest in our children’s financial future and see it as our responsibility to provide them with a solid financial foundation. When our children turn 18 and can access their savings, they’ll have a great head start in life thanks to this strategy.
Let’s say we invest €250 per child every month and achieve an average annual return of 5%. After 18 years, each child would have around €76,000. This provides an excellent foundation for university, training, or starting a career. And it also supports our own financial freedom, as we won’t have to fund their education well into old age.
The power of compound interest
Compound interest is one of the most powerful tools in investing. By reinvesting the interest earned, your capital grows exponentially – and your children still have pleeeenty of time! The earlier you start the better. This is how you build generational wealth. Albert Einstein even called compound interest the “eighth wonder of the world.” Over the years, this effect can lead to substantial wealth, especially in long-term investments like those for our children. Just make sure that they don´t get everything at once once they turn 18, they might „overspend“ everything you saved so far for them without intention.
Teaching Financial Responsibility
Another benefit of our strategy is that we teach our children financial responsibility from an early age. They learn that money isn’t just for spending, it can also be a tool to secure their future. This is valuable knowledge that will benefit them as adults and for many years to come.
Conclusion
Our method of investing child benefit in ETFs allows us to save €5,000 per year for our children. Through a conscious and minimalist lifestyle and smart financial decisions, we’re laying the foundation for their financial freedom. At the same time, we’re relieving ourselves and securing our own financial future.
If you want to learn more about our journey toward minimalism and smart money choices, visit my Pinterest channel Moneymalism.
With this approach, we’ve not only strengthened our children’s financial foundation but also clearly defined and implemented our own financial goals. Minimalism with kids, smart investing, and financial freedom, these are the principles that guide us and that we’re happy to share.
