3 laws of money for a stable financial future of the child | Business

Balance of expenses and income

When talking about the balance of income and expenses, we recommend discussing 3 main situations and their different consequences. Proper financial management is based on a balanced ratio of income and expenses. In order to accumulate financial assets and realize your various goals, your income must be greater than your expenses. The remaining free funds must be used for saving or investing.

The meaning of saving

In order to save, it is necessary to properly distribute your income. It is usually recommended that approximately 50% monthly income would be allocated to necessary expenses, about 30 percent. – for hobbies or free time, and about 20 percent set aside for various purposes.

You can discuss your family budget with your child and discuss how it is usually divided. Visualized information is always easier to understand, so you can try Swedbank’s budget planning tool together with your child “My Budget”where you’ll see all your expenses broken down into categories.

You can learn more about the income distribution principle by watching this Swedbank video:

VIDEO: Lessons differently | Budget planning (Part I)

Long-term investment benefits

Saving money can be done in various ways – keep it in a simple piggy bank, bank account or enter into a term deposit agreement, for which interest will be paid every certain period of time. In order for the available funds to bring even higher returns, they can be invested in various financial market instruments. With patience and long-term investment, even a small amount of money can eventually turn it into a fairly significant financial asset. The so-called cumulative interest effect also helps to achieve this, i.e. when we reinvest the received return and thus grow the value of the investment much faster.

For example, if you set aside 10 euros for investments every month, which you will direct to shares of companies traded on the stock exchanges, and assuming that the long-term annual return could be 9 percent, over a period of 30 years, your invested amount would reach more than 18 thousand. euros. If you deposited the same 10 euros per month in cash or left it in a bank account where no interest is paid, you would save 3.6 thousand during the mentioned period. euros.

The purpose of this information is to reveal investment opportunities to you, therefore the information presented here cannot be interpreted as the highest or lowest return on investment during the specified period. The above returns do not guarantee future results. The calculation of the results does not take into account the influence of possible trade taxes. Please note that investing involves risk. The value of investments can both decrease and increase during the investment period. Historical results do not guarantee future results.