11 Finance Tips Parents Can Share With Their Children (Part 1)

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    11 Finance Tips Parents Can Share With Their Children (Part 1)

    4.0 MIN READ

    As parents, we want the best for our children. Most schools don’t do a good job teaching personal finance. If we help our children become financially savvy, we can have a lasting impact on their lives. It can also enable them to live the lifestyle they desire.

    It starts with teaching them to be careful with their money. Basically, this means that they choose to save at least part of their income. This includes living within or under their means. This includes helping them understand the value of using credit cards wisely and not paying credit card interest. While some kids are minimalists – like my two eldest ones – others tend to pile up unnecessary things.

    1. Learn Self-Control – Create a Budget.

    Help your children learn the art of procrastination for satisfaction. It can be easy to buy an item just because you want it. Self-control allows you to wait until you can pay / afford something. Paying credit card interest for items such as clothing or personal electronic items makes them more expensive in the long run. It can also destroy long-term wealth.

    2. Pay yourself first.

    Keep these three words in mind as you save. If you are not familiar with the term, “Pay yourself first” automatically redirects a specific savings contribution from each paycheck to a specific savings or investment account upon receipt. Because your savings come before you see or touch your money, you pay yourself first. You pay yourself by saving part of your income. You do this before you start paying your monthly living expenses and making discretionary purchases. Paying yourself first will take away the temptation to skip a post and spend your money instead of building your savings. You can find more information on this topic on this blog.

    3. Start Saving Early – Open a Roth IRA ASAP.

    Time in the market is much more important than the timing of the market. As you invest for longer periods of time, your money can grow. The more years it can grow, the more potential it has to reach a large sum. I talked about the importance of starting saving early on this blog. I also shared an article reviewing the concept last week.

    If possible, have your children open a Roth IRA immediately after starting work. This is true even after they get their first job in high school.

    If you can, consider funding the Roth IRA for your child. At the beginning of their careers, their tax rate will likely be low as they have not yet maximized their income. You don’t pay taxes on the growth of a Roth IRA. You also don’t pay any tax when you make withdrawals. Think what happens if they invest $ 2,000 a year in a Roth IRA between the ages of 18 and 20 and keep it in their Roth until they are 68. The table below summarizes how much small investments can grow over time.

    4. Benefit from the Company Match.

    If the company you work for has a retirement plan, e.g. For example, a 401k with a company match, you are contributing at least as much to deserve the match. Your company match is part of your compensation. If you don’t accept this, opt for a lower wage rate. In addition, you forego additional growth in your investments. A mutual match is 50% made up of the first 6% contributed. That is, if you contribute 6% of your salary, your total contribution is 9%. This match increases your contribution by 50%.

    Additional benefits arise if you regularly pay into your company pension scheme. First, this is a way to “pay yourself first” – see # 2 above. Second, it allows you to contribute to the market regardless of whether the stocks go up or down. It’s difficult to add money when the market is falling. But if you have a long time horizon this is a road to success. It allows you to buy more stocks of the same security when the market falls. That will work to your advantage.

    5. Plan for the future – set goals.

    If you want to be financially successful, you have to set goals. Why? Know what you are saving for and why.

    Goals can include any or all of the following. Buy a house or a car, go back to school, raise a family, fund your child’s education, or save enough to retire early. Knowing your goals will give you a better idea of ​​how much you need to save. It can also help you come up with a plan that will help you turn your dreams into reality.

    Remember that goals, especially monetary ones, can change. Therefore, when we work with clients on financial plans, we remind them that the path from “retirement uncertainty” to “informed retirement” is not a straight one. It can and should be updated as your goals and / or circumstances change. (See the video about halfway down this page for an overview of Apprises’ “Path to an Informed Retirement.”)

    6. Understand taxes.

    You want to understand how income tax works before you get your first paycheck. When you get a job offer, you want to know if you have enough salary to live on. This means that you want to know how much you will be paying in taxes and other obligations.

    For example, with $ 50,000 a year in Maryland, you will have roughly $ 38,000 in net or take home salary. If your salary increases to $ 60,000, you have about $ 44,500 left. You can use this website to estimate your take home salary.

    You also want to think about ways you can reduce your tax burden. This includes depositing money into tax-privileged retirement accounts like IRAs or 401k.

    This article originally appeared on Apprise Wealth Management


    Phil Weiss (1)About the author
    Phil Weiss founded Apprise Wealth Management. He began his career in the financial services sector in 1987 as a tax advisor at Deloitte & Touche. For the past 25 years he has worked extensively in the areas of personal finance and investment management. Phil is both a CFA charterholder and a CPA.

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