I had a crazy idea yesterday. Let’s imagine that a blessed baby was born today. For lack of better name, we’ll call him Baby Gronk.

The parents of Gronk aren’t rich, but they are wise. In particular they are wise hen it comes to personal finance and compound interest.

These parents decide that they are going use that personal finance wisdom to spoil Gronk by covering some of his major life expenses on the day he is born. (For the person of this article, we’ll push aside that Gronk should learn to “financially fly on his own.”)

The question is, “How much should they put aside for Gronk?”

Gronk’s parents proceeded to make a bunch of assumptions, many of which will turn out to be wrong. That’s the nature of predicting the future. Their plan is to use the information they have at their disposal to make the best possible estimates and adjust as time marches forward.

They also realize that if their calculation is a little off, Gronk will pitch in the difference. They aren’t going to let a quest for perfection stop them from a great attempt.

**First Car (Age 16)**

Gronk’s parents have set up a budget of $6000 for his first car at age 16. Using the rule of 69/70/72, they realize that their money may reasonably double when Gronk turns 8 (a growth of ~8.5%). They also realize that it may double again when he’s 16.

Working backwards from their budget, they decide to put aside $1500 hoping that it turns to $3000 (age 8) and $6000 (age 16).

**College (Age 18)**

Gronk’s parents decide to make this calculation easy and limit this expense to tuition. (And one blogger is very happy that this fictional family made that decision.)

The big question is whether Gronk’s parents want to fund in-state public college or private college. The price difference between the two is huge. Public in-state tuition is ~$9K while private is ~$31K. Multiply that out by four years and it is either ~$36K or ~$124K.

Since the calculations are so different, Gronk’s parents decide to do the math separately.

Age 18 is very close to the age 16 exercise with the first car above. However, it’s just different enough that Gronk’s parents decide to break out a calculator instead of the rule of 69/70/72. They use the “y to the x” to calculate compound interest. They specifically type in “1.085”, “y to the x”, then “18” to arrive at 4.34… a key number we’ll use. The 1.085 comes from projecting a 8.5% growth on the current investment (the “1”). Why pick 8.5%? Your guess on the growth of the market is as good as mine. I used a convenient number from the previous example for consistency, but feel free to substitute your own.

This tells us that every dollar we invest will yield 4.34 dollars… giving our assumptions and uncertainties in the market. We can mentally check this using the above example of doubling, and doubling again. Double a dollar once and you get two. Double it again and you get four. In this case we have a little more time (two years) so it’s a little more than doubling.

Now that we know we can grow one dollar to 4.34 in 18 years, we just need to divide our total expenses…

… for public in-state college, we’d need to roughly put aside $8,300.

… for private college, we’d need to roughly put aside $28,571.

What’s interesting to me is that this almost comes out to exactly one year of tuition. In fact, if we used an expected return of 8% it comes out to exactly one year of tuition.

Finally, to decide how much to put aside they flip a coin. Heads, they go with the in-state public tuition numbers and tails, they go with the private tuition numbers.

They flip the coin and it comes up…

**Wedding (Age 25)**

The average cost of a wedding varies greatly. Since Gronk is just a baby, the parents use this to estimate $30,000, a nice round number.

They use the same math as in the previous example and realize that at 8.5% growth a dollar is worth $7.69 in 25 years. This means that they need to put aside ~$3900 at birth to pay for the wedding.

(We’ll ignore traditions of the other side of the family paying for it. Additionally, we’ll presume Gronk’s parents want to pay for the whole wedding instead of half.)

**Down Payment for First Home (Age 25)**

Who buys a home the same year they are married? I’m not sure and neither are Gronk’s parents. Sometimes people buy homes before they get married and sometimes they get married before they buy homes.

Since we have the same age and the same interest rate, we have the same growth of a dollar – $7.69.

Gronk’s parents decide to put in the 20% down-payment and not buy the house outright. (They’ve spoiled him enough, don’t you think?)

They think a starter home should cost around $200,000. This depends greatly where they live and what they agree is a starter home. The parents budget $40,000 which is 20% down on that $200,000 home.

Anticipating a dollar grows to $7.69, they realize that need to only invest $5200 to cover the $40,000 down payment.

**Retirement (Age 70)**

Up to this point, many would say that Gronk’s parents are ridiculous. They don’t care. Instead they say, “In for a penny, in for a pound!”

They estimate that Gronk will want to retire at age 70. That’s where the trend is nowadays with improved health care. They start with the rule of 4% that says, you can withdraw 4% of your investments to live on indefinitely.

They realize that they need to get him 2 million dollars at age 70 so that he can have $80,000 a year (4%) to live off of. (Yes, health care is expensive.)

Getting Gronk 2 million dollars sounds absurd, but Gronk’s parents realize that time is on their side. At 8.5% a single dollar grows to $302 in 70 years.

They divide $2,000,000 by $302 and realize that they only need to put in $6622 at his birth to cover his entire retirement.

### Conclusion

Smart readers should be screaming “Shenanigans!!!” I didn’t factor inflation in any of the examples above. You got me. The idea of this exercise was never about accuracy. It’s impossible to accurately plan out a person’s expenses at birth. Instead, it was about illustrating an idea.

If Gronk’s parents were able to put aside around $19,000 at Gronk’s birth, he’d have most of life’s major milestones covered. Surely $19,000 is not petty cash, but it certainly doesn’t seem like a crazy amount to cover some of life’s greatest expenses, right?

Laura says

OMG! I have so totally done this for our son! That is I’ve hypothesized. We don’t have the money to follow through. It’s amazing how little it costs to put your kids on the right foot. If we had discovered FIRE earlier we so would have done this for the wedding and house at the very least. He needs to earn his own car and my husband is going to teach at the University to get free tuition for him.

We have stated logging his earnings. He’s 4. He gets a quarter for each piece of trash he picks up in the yard before we mow. He has about $35 so far. Once he has $250 we will start his Roth. He won’t have as much as your example but he will have learned the pride of accomplishment.

Nikki @ MBAsahm says

I LOVE this. Love, love, love. We’re working really hard to make sure we have enough for our kids to go to college and in my mind I really want to cover a lot of these other costs. It’s so important to put money aside early!! You did a great job illustrating this. Brilliant!! <3