DO YOU LOVE YOUR ADULT KIDS? IF YES – HELP THEM TO A STRONG FINANCIAL START IN LIFE!
My Dad and Mom, helped prepare me to become successful. As a father, I have that same responsibility to help my daughter succeed. I constantly read how the majority of Americans live check to check. I have been laid off too many times to live check-to-check! My parents taught me the value of budgeting, living beneath my means, growing my emergency savings, etc and I survived each lay off, with ZERO impact to my daughter. While I hope my daughter finds a career with less layoffs and more joy than I found, I must prepare her for worse case. So that her future children (HINT- I want grandkids- note the plural!) are never impacted in the worse case.
Every time I sit down and write this blog, I think about my wonderful, intelligent, beautiful daughter and I write to help her have a successful financial future. It is disappointing how little kids learn in school about finance including the ridiculously expensive college classes.
Parents, we must pick up the slack to set our kids up for success!
Here are a few subjects we can discuss (Two Way Conversations- Remember to LISTEN!) with our kids to help them as they move out and become INDEPENDENT AND WEALTHY adults. My advice, have these discussions MULTIPLE TIMES.
1. HOW TO BUILD AND MANAGE A BUDGET
There are two simple budgeting goals I have used for most of my life. 1. Spend less than I earn. 2. Save from each paycheck.
There are a number of ways to budget. My wife uses Quicken software. I stick to excel spreadsheets. We are all different and whatever works for you may not work for your child. Encourage them to find their budgeting system that works for them.
They need a system to track and categorize spending and then compare those expenses to their income. Of course they need to account for housing, food, and utilities but also encourage them to budget for some fun! We get one life and living responsibly does not mean sitting at home eating celery (YUCK!) sandwiches. If they budget for some fun, there is better chance they stick with their budget! In order to spend less than you make and save for your future you must know where your money is going. Encourage them at as early an age to track and budget their money and they will hopefully grow comfortable budgeting.
FREE BUDGET APPS
2. MUST INVEST IN RETIREMENT PLANS!
If they have a 401(k) plan through an employer, and the employer matches some percentage, take time to review the plan with them and encourage them to contribute as much as they can. But at a minimum they need to contribute enough to get the company’s matching dollars. If you are comfortable, show them your plan and your success. Be sure to explain the advantages of getting a company match on contributions, if one is offered. You should NEVER EVER turn down free money.
SEE MAY 3, 2018 BLOG:
SIMPLY AMAZING BENEFITS -THE 401-K & ROTH 401-K
If their company’s 401 plans do not offer a match, have high fees and limited choices, they may want to contribute first to an Individual Retirement Account. In the future as their income grows they will be able to fully fund both their 401 and an IRA.
SEE MAY 10, 2018 BLOG:
STAY THE COURSE – NEVER EVER RUN OUT OF MONEY!
Urge them to save as much as they can each month, invest in simple things like an S&P 500 ETF index funds, and simply watch their account balance grow over time through compounding.
3. BANK INTEREST RATES
Your child may already have a savings account. Show them how interest rates and fees vary and that they need to shop around for the best rates so they can earn a little extra money. Also many INTERNET banks offer better interest rates and lower fees, as they carry lower overhead cost (Typically do not have physical branches). Explain terms like APR (Annual percentage rate, is the interest rate for a whole year, rather than just a monthly rate, as applied to a loan, credit card, etc.) and APY (Annual percentage yield is the effective rate of return taking into account the effect of compounding interest.) and the factors that impact whether rates go up or down.
4. BANK FEES
Once your child understands how bank interest rates work, they need to know banks charge fees to account holders. These fees could be for anything from low balances to the use of paper checks. And alert them there are cheaper options to ordering checks from their bank. Tell your child how they can avoid these fees by researching the best bank accounts and reading the fine print. Let your kids know that if a bank is charging too many fees, to switch to another bank that has lower fees.
5. CREDIT CARDS
Credit cards can help establish credit, which is important when you are starting out. And some credit cards offer nice benefits, such as cash back on purchases or travel rewards miles. Emphasize credit card balances should be paid off in full each month. Explain that credit card interest rates can be YUGEE (16-21%), and that high balances can lead to a debt spiral from which they will struggle to escape.
Unfortunately today, majority of college students exit school with a large College Loan debt. Arguably the most important lesson you can teach your children before they leave the nest is that debt is not a good thing. Take time to explain the basics of borrowing so they understand how expenses can continue to increase if debt is not paid off. Show them calculations with interest rates for credit cards, auto loans, student loans, personal loans, and mortgages.
SEE APRIL 5, 2018 BLOG:
FOUR STEPS TO ACHIEVE FINANCIAL FREEDOM BY BECOMING DEBT FREE!
Once my net worth became positive, I loved calculating it! I still calculate my family’s net worth annually. Your net worth is, the total value of your assets minus your debts and is the true indicator of your financial well-being. When your child leaves home, they may be focused on finding a job that pays a high income. That’s fine, but it’s important for them to understand that income alone is not what generates financial security. There are a number of broke people who were earning seven figure incomes. What is crucial is to acquire assets that increase in value, while avoiding things that will decrease in value or be a drain on your finances.
This means saving money and investing it. It means avoiding debt. It means purchasing a home instead of renting, if their investigation yields owning is better. In some parts of the country, it is cheaper to rent.
FREE APP TO CALCULATE NET WORTH https://www.personalcapital.com/financial-software/net-worth
8. SHOP FOR VALUE
Saving money is NOT about being cheap and buying a product that will fall apart in a few months or years. As I learned from experience! It is about spending their HARD EARNED money wisely and getting the most bang for the dollar. For example, if your child needs to purchase a refrigerator for their apartment, convey to them that they should seek out the best quality model at a price that fits their budget. Do the research on line. Also, look at slightly used models.
Shopping for value involves understanding quality and longevity of products, and knowing what features matter and which add almost zero value. I do not need to talk to my dryer! It involves avoiding the temptations for “Bling” and buying reasonably prices quality items. If they need a car, look at Certified Pre-Owned Vehicle. Millions of 3-year lease vehicles with low mileage are on the market. It also involves doing extensive research of products and prices before you buy. Shopping for value is a skill that can be learned, and one that could save your child a considerable amount of money over time.
We all want a better life for our children. But a real life not one based on appearances. Too many people fall in the trap of buying more home than they need or can afford. Buying an expensive car, they cannot afford. We want our children to grow their Net-Worth over the years, enjoy life and retire as early as they can afford it and enjoy that well earned retirement, while young enough to have FUN! Let’s help them on their journey!
I am a proud nerd (my beautiful wife and daughter told me so) investment and finance blogger, with a Rutgers, MBA and Harvard, Advanced Management. I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you. I am NOT however, a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or financial advisors.