6.5 MIN READ
As parents, we want the best for our children. Most schools don’t do a good job teaching personal finance. It is up to us as parents to raise them. 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 you are choosing to save at least part of your income. This also includes living within or below your 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.
Two weeks ago, I shared the first six of my 11 tips:
1. Learn self-control – create a budget.
2. Pay yourself with fir treesT.
3. Start Saving Early – Open a Roth IRA as soon as possible.
4. Use the company match.
5. Plan for the future – set goals.
6. Understand taxes.
If you need a refresher, see Part 1 of this blog here.
Read on to find five more tips. You will also find a bonus tip at the end.
7. Maintain your health
You can pay a lot for health insurance. But paying for an emergency room visit costs a lot more if you don’t have insurance.
Another way to keep your costs down is by keeping yourself healthy. This means eating right, exercising regularly, and maintaining your weight. If you have the option, consider getting a health savings account (HSA). If you are relatively healthy, an HSA can be a great way to build your savings. Remember, you can invest in your HSA the funds that will help it grow. Unused funds are carried over from year to year. As discussed in On this blog, HSAs offer a triple tax benefit.
8. Protect your assets.
You want to make sure your hard earned money doesn’t go away. This means that you should take steps to keep it safe. You want to take out tenant insurance to protect the contents of your home from incidents such as burglary or fire.
The occupational disability insurance – which you can often take out through your employer – protects your most important asset. What is it? The opportunity to earn an income. This insurance ensures you a steady income if you are unable to work for a long time due to illness or an accident.
You also want to make sure that you have adequate car insurance. In general, you shouldn’t need life insurance until you’re married and have a family.
If you need help managing your money, you can hire a paid, fiduciary financial planner like Apprise to provide unbiased advice that is in your best interests.
9. Create a credit history.
Borrowing money doesn’t have to be a bad thing. If you pay your bills on time, you will build a positive credit history. If you are looking to buy a home, expect to borrow money. Good credit can result in a lower interest rate on your mortgage. You can get a lower interest rate if you borrow to buy a car as well.
Many credit cards come with attractive incentives. You can earn cash discounts or collect points that you can use for travel or other purchases. But make sure you pay your balance in full. Credit card rates are high. You don’t want to increase the cost of everyday purchases by paying interest on them.
You will also want to regularly check your creditworthiness. If your identity is compromised or your personal information is stolen, you want to know as soon as possible. I use Credit karma as well as updates from the banks that issue my credit cards to keep track of my creditworthiness.
If you have credit card and / or student loan debt, plan on paying them back. As I discussed in On this blog, I finished college with a significant burden of debt. I made a plan to pay it back as soon as possible.
10. Drive your cars for a long time.
Not everyone will agree to this. Many people like to have a fancy car with the latest features. That can be great. It can also be fun and make you feel good. But it can also get expensive. Consider buying a low-mileage car that is roughly three years old and comes from a lease. You pay a lot less. You can get a good guarantee when buying a used vehicle. Also, do not replace the car once it is paid off. Drive it as long as you can. Once you have paid off your car, you will instead save the money that was used on your car payments. These savings can add up.
I leased a car once in my life. It was a good deal. The pay was affordable and the car didn’t require much maintenance. I was thinking about leasing my next car, but when I went through the numbers I decided the purchase made more sense. It would cost me less. I paid off the car in four years. I’ve owned it for about 14 years and have ridden it over 200,000 miles. That meant I had been driving for 10 years without a car payment. Regular oil changes and other maintenance work have helped me avoid major repairs. The purchase of this car and all of the cars my wife and I have owned since we got married served us well.
11. Save and invest.
Don’t wait to save and invest. Saving and investing can be a challenge in the beginning. But putting away even a few dollars a week can have big long-term effects. Make a budget to see how much money you can save each month. If you’re not sure how much you’re spending, try tracking your spending. I did this before I bought my first house. Knowing what I was spending my money on convinced me that I can afford it.
You can save for many things:
- An emergency fund. You want to put money aside to cover unexpected expenses. This way, you can avoid credit card debt. While I understand that current interest rates are low, it is best to put your money in a place where there is little risk. For example, a high-yield online savings account or a money market account. You can also consider a deposit slip (CD), but if you need the money before the CD matures, you could lose some of your interest income. Ideally, your emergency fund should be sufficient to cover expenses for three to six months.
- Expensive purchases.
- A house
- A new car
- The future.
- Your retirement
- Training costs for you or your children
- Items on your bucket list
You can use the compounding by saving and investing. When your money is put together, it works for you. This is a key element of funding. You want to make money with your money. If you can save $ 10,000 a year for 40 years, how much do you think you will have? Without compounding or growth, you would end up with $ 400,000. That’s not bad. If you earn 5% per year, you will end up with more than $ 1.2 million. If you make 7% a year, you will end up making almost $ 2 million. The additional growth shows the value of the compounding. This is what happens when you put your money to work for you.
I may have saved the compounding for last, but it really is one of the most important concepts to learn when it comes to personal finance and investing.
12. A bonus tip.
Most importantly, talk to your children about personal finances. If you’ve made mistakes, share them. Talk about your successes too. Help them see how much things cost. Remind them the importance of planning for major purchases. Explain to them the importance of paying bills on time and avoiding credit card debt as much as possible. Talk to them about creating a budget – or at least make sure they are spending less than they are taking in. More than anything, you do whatever you can to get them to start saving early. As Morgan Housel discussed in his excellent book, “The psychology of money” and In this article, one of the keys to Warren Buffett’s success was time – he started investing at the age of 10. His net worth would be much lower if he hadn’t started investing at such a young age.
The bottom line
The sooner parents start helping their children manage their money, the better, even if they are teenagers with summer jobs.
However, if you haven’t already and are now living at home with a son or daughter in their twenties, you still have time.
Start eliminating yours [financial] Participation in your child’s life. Get them to take matters in hand – maybe not all at once. Let them take responsibility for certain bills and expenses.
In the end, it’s all about building healthy habits. Share these tips with them too. There are others. There are many software tools that can help you out.
Saving money can be a challenge, especially if your son or daughter is first starting out in their careers. Many young professionals find that there isn’t much left of their paycheck after paying their rent and monthly bills. That can easily postpone saving for the future. But if you can start saving at a young age, no matter how small the amount, it could be one of the best financial decisions you can make. Developing good saving habits early on could have a significant impact on their ability to weather unexpected expenses, make large purchases, and achieve important life goals.
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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