How can this be enough to fund a scholarship in perpetuity?
The Trinity study looked at 'safe' withdrawal rates from retirement portfolios. They found it was safe to withdraw 4% of a portfolio consisting of stocks and bonds. I cannot immediately find exactly what specific investment allocations they used, but note that they found a portfolio consisting largely of stocks would allow for the withdrawal of 3% - 4% and still keep up with inflation. In this case, if you are able to fund $30,000, the study claims it would be safe to withdraw $900 - $1200 a year (that is, pay out as scholarships) while allowing the scholarship to grow sufficiently to cover inflation, and that this should work in perpetuity. My guess is that they invest such scholarship funds in a fairly aggressive portfolio. Most likely, they choose something along these lines: 70 - 80% stocks and 20 - 30% bonds. This is probably more risky than you'd want to take, but should give higher returns than a more conservative portfolio of perhaps 50 - 60% stocks, 40 - 50% bonds, over the long term. Just a regular, interest-bearing savings account isn't going to be enough. They almost never even keep up with inflation. Yes, if the stock market or the bond market takes a hit, the investment will suffer. But over the long term, it should more than recover the lost capital. Such scholarships care far more about the very long term and can weather a few years of bad returns. This is roughly similar to retirement planning. If you expect to be retired for, say, 10 years, you won't worry too much about pulling out your retirement funds. But it's quite possible to retire early (say, at 40) and plan for an infinite retirement. You just need a lot more money to do so. $3 million, invested appropriately, should allow you to pull out approximately $90,000 a year (adjusted upward for inflation) forever. I leave the specifics of how to come up with $3 million as an exercise for the reader. :) As an aside, there's a Memorial and Traffic Safety Fund which (kindly and gently) solicited a $10,000 donation after my wife was killed in a motor vehicle accident. That would have provided annual donations in her name, in perpetuity. This shows you don't need $30,000 to set up a scholarship or a fund. I chose to go another way, but it was an option I seriously considered. Edit: The Trinity study actually only looked at a 30 year withdrawal period. So long as the investment wasn't exhausted within 30 years, it was considered a success. The Trinity study has also been criticised when it comes to retirement. Nevertheless, there's some withdrawal rate at which point your investment is expected to last forever. It just may be slightly smaller than 3-4% per year. Some historical and mathematical insights as a complement to existing answers.  History. I found it astonishing that already in Ancient Roman they investigated the issue of perpetuity of 30'000 (almost). Columella writes in De re rustica (3, 3, 7–11.) in 1-st century AD about a perpetuity of 32480 sesterces principal under 6% p.a. resulting in 1950 sesterces annual payment. And  if  the  husbandman  would  enter  this  amount  as  a  debt  against his vineyards just as a moneylender does with a debtor,   so that the owner may realize the aforementioned six per cent. interest on that total as a perpetual annuity,  he  should  take  in  1950 sesterces every  year.   By  this  reckoning  the return on seven iugerum, even according to the opinion of Graecinus, exceeds the interest on 32'480 sesterces. Math. If we fix a scholarship at 1'000 a year, then it's clear that it could be paid out infinitely if we could achieve 3.33% p.a. on it.  On the other side, with 0% we'll spend out the endowment in 30 years. Thus, having the interest rate between 0% and 3.33% p.a. we could vary the life of endowment between 30 years and infinity. Just a few numbers in between: under 1%, it would be ~36 years, under 2% ~46 years, under 3% ~78 years (however, 1000$ in 78 years could be less than 10$ today). Conclusion: to keep it perpetual either the fund's yield must be at the level of scholarship, or re-adjust the amount of scholarship depending on fund achievement, or redefine the notion of perpetuity (like 50 years is approximately infinite for our purpose). "What's the value of the scholarship, and is it administered by itself or by the university?  If by itself, the financial return discussed above drives.  If by the university, they create the tuition, so it gets more interesting.   If this is something that is administered and backstopped by the university, then keep in mind that while it may be named the ""John Doe Memorial Scholarship"" with $30000 in it's account under the endowment, the university overall is likely to cut some number of students' tuition in financial aid packages anyway.  Let's say they substitute a generic tuition adjustment in past years with this happens-to-be-named ""John Doe Memorial Scholarship"" moving forward: the university can do this as long as they are not constrained in pricing power by laws and financial aid customs.  There's the finance answer, and there's the fact that a university can create a ""coupon"" indefinitely (Similar in concept to the price discrimination where Proctor and Gamble can launch a new flavor of Tide at a high price to maintain the market position, and flood marketing channels with coupons) Also the university might find it to be an inexpensive benefit to the faculty to create a ceremony around a valued, deceased professor; collecting funds from other professors or staff to partially pay for it at finance price or even a slight loss."
isn't the answer in the question?  it says the company starts officially NEXT year, yet it is asking for the net present value...i.e what that project is worth today.  it could be that funds for that particular project may not be necessary for another year, but there may be other projects to evaluate against today. Let P denote the amount of the investment, R the rate of return and I the rate of inflation.  For simplicity, assume that the payment p is made annually right after the return has been earned.  Thus, at the end if the year, the investment P has increased to P*(1+R) and p is returned as the annuity payment. If I = 0, the entire return can be paid out as the payment, and thus p = P*R. That is, at the end of the year, when the dust settles after the return P*R has been collected and paid out as the annuity payment, P is again available at the beginning of the next year to earn return at rate R. We have P*(1+R) - p = P If I > 0, then at the end of the year, after the dust settles, we cannot afford to have only P available as the investment for next year. Next year's payment must be p*(1+I) and so we need a larger investment since the rate of return is fixed.  How much larger?  Well, if the investment at the beginning of next year is P*(1+I), it will earn exactly enough additional money to pay out the increased payment for next year, and have enough left over to help towards future increases in payments. (Note  that we are assuming that R > I. If R < I, a perpetuity cannot be created.)  Thus, suppose that we choose p such that P*(1+R) - p = P*(1+I)   Multiplying this equation by (1+I), we have [P(1+I)]*(1+R) - [p*(1+I)] = P*(1+I)^2 In words, at the start of next year, the investment is P*(1+I) and the return less the increased payout of p*(1+I) leaves an investment of P*(1+I)^2 for the following year.  Each year, the payment and the amount to be invested for the following year increase by a factor of (1+I). Solving P*(1+R) - p = P*(1+I) for p, we get  p = P*(R-I)  as the initial perpetuity payment and the payment increases by a factor (1+I) each year.  The initial investment is P and it also increases by a factor of (1+I) each year. In later years, the investment is P*(1+I)^n at the start of the year, the payment is p*(1+I)^n and the amount invested for the next year is P*(1+I)^{n+1}. This is the same result as obtained by the OP but written in terms that I can understand, that is, without the financial jargon about discount rates, gradients, PV, FV and the like. Ok so this is the best information I could get!  It is a guarantee from a financial institution that payment will be made for items or services once certain requirements are met.  Let me know if this helps!  I'll try to get more info in the meantime. "It appears you can elect to classify some or all of your scholarship money as taxable.  If you do this, you would be deemed to have used the scholarship funds for non-deductible purposes (e.g., room and board), and you could be eligible to claim the American opportunity credit based on the money you used to pay for the tuition out of your own pocket. I found this option in the section of Publication 970 about ""Coordination with Pell grants and other scholarships"", specifically example 3: The facts are the same as in Example 2—Scholarship excluded from income [i.e., Bill receives a $5600 scholarship and paid $5600 for tuition]. If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have used that amount to pay for room and board. The remaining $1,600 of the $5,600 scholarship will reduce his qualified education expenses and his adjusted qualified education expenses will be $4,000. Bill's AGI will increase to $34,000, his taxable income will increase to $24,250, and his tax before credits will increase to $3,199. Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity tax credit of $2,500 and his tax after credits would be $699. You can only reclassify income in this way to the extent that your scholarship allows you to use that money for nonqualified expenses (such as room and board).  You should carefully check the terms of the scholarship to determine whether it allows this.  The brief paragraph you cite from the Palmetto fellowship document is not totally clear on this point (at least to my eye).  You might want to ask the fellowship administrators if there are restrictions on how they money may be used. In addition, I would be cautious about attempting to do this unless you actually did pay for the nonqualified expenses yourself, so you can treat the money as fungible.  If, for instance, your parents paid for your room and board, it's not clear whether you could legitimately claim that you used the scholarship money to pay for that, since you didn't pay for it at all (although in this case your parents could possibly be able to claim the AOC themselves).  I mention this because you say in your question that you ""only used the scholarship for tuition and fees"".  I'm not sure how exactly you meant that, but it seems from the example cited above that, in order to claim the scholarship as taxable income, you have to actually have nonqualified expenses which you can say you paid for with the scholarship.  (Also, of course, you had to actually receive the money yourself.  If the scholarship money was given directly to your school as payment of tuition, then you never had any ability to use it for anything else.)" "There is no simple answer to your question.  It depends on many things, perhaps most notably what college your daughter ends up going to and what kind of aid you hope to receive. Your daughter will probably fill out the FAFSA as part of her financial aid application.  Here is one discussion of what parental assets ""count"" towards the Expected Family Contribution on the FAFSA.  You can find many similar pages by googling.  Retirement accounts and primary residence are notable categories that do not count.  So, if you were looking to reduce your ""apparent"" assets for aid purposes, dumping money into your mortgage or retirement account is a possibility. However, you should be cautious when doing this type of gaming, because it's not always clear exactly how it will affect financial aid.  For one thing, ""financial aid"" includes both grants and loans.  Everyone wants grants, but sometimes increasing your ""eligibility"" may just make you (or your daughter) eligible for larger loans, which may not be so great. Also, each college has its own system for allocating financial aid.  Individual schools may ask for more detailed information (such as the CSS Profile).  So strategies for minimizing your apparent assets that work for one school may not work for others.  Some elite schools with large endowments have generous aid policies that allow even families with sizable incomes to pay little or nothing (e.g., Stanford waives tuition for most families with incomes under $125,000). You should probably research the financial aid policies of schools your daughter is interested in.  It can be helpful to talk to financial aid advisors at colleges, as well as high school counselors, not to mention general financial advisors if you really want to start getting technical about what assets to move around.  Needless to say, it all begins with talking with your daughter about her thoughts on where to go." "First, don't save anything in a tax sheltered vehicle. You will be paying so little tax that there will be essentially no benefit to making the contributions, and you'll pay tax when they come out. Tax free compounding for 40 years is terrific, but start that after you're earning more than a stipend. Second, most people recommend having a month's expenses readily available for emergencies. For you, that would be $1500. If you put $100 a month aside, it will take over a year to have your emergency fund. It's easy to argue that you should pick a higher pace, so as to have your emergency money in place sooner. However, the ""emergencies"" usually cited are things like home repair, car repair, needing to replace your car, and so on. Since you are renting your home and don't have a car, these emergencies aren't going to happen to you. Ask yourself, if your home was destroyed, and you had to replace all your clothes and possessions (including furniture), how much would you need? (Keep in mind any insurance you have.) The only emergency expense I can't guess about is health costs, because I live in Canada. I would be tempted to tell you to get a credit card with a $2000 limit and consider that your emergency fund, just because grad student living is so tight to the bone (been there, and 25 years ago I had $1200 a month, so it must be harder for you now.) If you do manage to save up $1500, and you've really been pinching to do that (walking instead of taking the bus, staying on campus hungry instead of popping out to buy food) let up on yourself when you hit the target. Delaying your graduation by a few months because you're not mentally sharp due to hunger or tiredness will be a far bigger economic hit than not having saved $200 a month for 2 or 3 years. The former is 3-6 months of your new salary, the latter 5-7K. You know what you're likely to earn when you graduate, right?" If you have children in a university institution, then your annual salary is reported via financial aid forms. The small raise could be the difference between full tuition covered and only half tuition covered. The average of a dozen good answers is close to what would be right, the wisdom of crowds. But any one answer will be skewed by one's own opinions.  The question is missing too much detail. I look at $400K as $16K/yr of ongoing withdrawals. How much do you make now? When the kids are all in school full time, can your wife work? $400K seems on the low side to me, especially with 3 kids. How much have you saved for college?  The $150K for your wife is also a bit low. Without a long tangent on the monetary value of the stay at home spouse, what will you spent on childcare if she passes?  Term life also has a expiration date. When my daughter was born, my wife and I got 20 year term. She is now 16, her college account fully funded, and we are semi-retired. The need for insurance is over. If one of us dies, the survivor doesn't need this big of a house, and will have more than they need to be comfortable in a downsized one. My belief is that the term value should bridge the gap to the kids getting through college and the spouse getting resettled. Too much less, I'd have left my wife at risk. Too much more, she'd be better off if I were dead. (I say that half joking, the insurance company will often limit the size policy to something reasonable.) As more people earn it, the value will dilute to some degree. However, I think for *some* parts of finance, the charter will retain usefulness. I mean, college degrees are *extremely* diluted, but they're still seen as a necessary requirement.  I see that happening for PM type of roles. Clearly anywhere it isn't useful now won't see appreciation in that later. So what if someone gets approved for a larger credit card balance and gambles it away?   There's nothing tangible left except for maybe some norepinephrine left in your system...     Honestly if the student loan system dried up for anything in like Liberal Arts, universities would scramble to fill positions in their schools and maybe tuitions would come down to an affordable level.    Right now it's a joke.   People are willing to pay for school and living on res when they get qualified for 100k in student loans.  If the student loans weren't there perhaps they'd live with their parents and work to support their education.   Tuitions should fall to affordable levels if that were the case. Thanks for that great explanation. I figured you were referring to FAFSA but wanted to be sure. I'm just having my first so i'm trying to plan for the future but I probably won't be paying for college either, it seems like trade schools may be the better deal nowadays. "Sometimes an assumptions is so fundamentally flawed that it essentially destroys the relevance and validity of any modelling outputs.  ""Obviously, we're assuming the company can pay it back""  Is one of those assumptions.  The person gets a notes stating that they will get $525 'IN ONE YEAR' You need to divide $525/(1+Cost of Capital)^n n being the number of periods to find out what the note will be worth today.  Google 'Present Value of an Annuity' to deal with debt that is more complex than you have $500 now and give me $525 in a year..." "This is a tricky question, because the financial aid system can create odd incentives. Good schools tend to price themselves above and beyond any reasonable middle-class ability to save and then offer financial aid, much of it in the form of internal ""grants"" or ""loans"".  If you think about it, the internal grant is more of a discount than a grant since no money need have ever existed to ""fund"" the grant.  The actual price to the parents is based on financial aid paperwork and related rules, perhaps forming a college price-setting cartel.  It is these rules that need to be considered when creating a savings plan. Suppose it is $50k/year to send your kids to the best school admitting them.  Thats $200k for the 4 years.  Suppose you had $50k now to save instead of $10K, and are wondering whether to put it in your son's college savings (whether or not you can do so in a tax advantaged way) or to pay down the mortgage.  If you put it in your kids savings, and the $50k becomes $75k over time, that $75k will be used up in a year and a half as the financial aid system will suck it dry first before offering you much help.  On the other hand, if you put the $50k on paying down the mortgage [provided the mortgage is ""healthy"" not upside down], your house payment will still be the same when your kids go to college.  The financial aid calculations will consider that the kid has no savings, and allocate a ""grant"" and some loans the first year and a parental portion that you might be able to tap with a home equity loan or work overtime.     Generally, you should also be encouraging your kids to excel and perhaps obtain academic scholarships or at least obtain some great opportunities.  A large college savings fund might be as counterproductive as a zero fund.  They shouldn't be expecting to breeze through some party school with a nice pad and car, homework assistance, and beer money.  Unless they are good at a sport, like maybe football -- in which case you won't need to be the provider. It is not obvious how much the optimal ESA amount is.  It might not be $0.  Saving like crazy in there probably isn't the best thing to do, either." I worked at a for-profit school, one associated with Full Sail University.  I can say this from experience:  -Most of the people receiving stipends (loan money from federal or private sources) are black and from low-income neighborhoods.  -In SOME instances the people enrolled in the school were obviously mentally ill and very likely homeless.  -Most of the people receiving stipends either drop out themselves or are dropped for poor academic progress and attendance.  This is after a hefty debt is built up.  -The school goes to extraordinary lengths to enroll military vets.  I can't say anything about admission tactics other than they check to see if you have a high school degree.  Personally I would never go to these type of schools. I think it's interesting to look at bitcoin not as a get-rich quick scheme, but rather a tool to study socio-economics through looking how areas in developing countries view this type of model (and the entire world at large of course).   The entire crypto-coin scene has a variety of different algorithms which replicate different monetary policies to promote the most value and high functioning societies. *For example: dogecoin was meant as a quick laugh but has now developed into an inflation based coin to encourage high velocity through tipping. This micropayment model and friendly community hope to gain adoption through spreading it far and wide*.   Bitcoin looks at the properties that made gold a useful state-less trade asset and tried to adapt that to the web. It solved traditional problems which made this impossible before without a central party and thus now experiments and studies can be done.   Who knows what happens. Gavin, the chief engineer of the bitcoin core development group says,   &gt; I still say that it's an experiment, and the whole thing could implode.  Coming from the guy who is literally making the edits to the code, I think it's safe to take off the wary of it being used to scam people and instead look at it from a more academic light to see what could be gleaned from bitcoin to improve current institutions.