“Saving to Build Wealth”, as the saying goes. But when we are young and single temptation to waste the money prevails over saving them. Schools teach us to be wiser, intelligent and good human beings. I am not sure if anywhere in this world the school system teaches how to be wiser with money. I was never taught how to best manage my finances responsibly.
Glad to present you another article on basic of financial management. Long time back I wrote about managing your money like a shepherd, which gave me immense pleasure. They I did a series of posts to state the importance of teaching monetary skills to your children. It is so much important these days when we have decreasing savings rate and growing instability in the financial market.
We live in a global economy, none of us have a very secure job anymore. We can be replaced by anyone anywhere in this world. Savings have more relevance now than it was yesterday. Coming generations should be well prepared from an early age. Hope this article helps you set up some conversation with your child.
Here are 7 financial tips you may pass on to next generation
Spend time with your finances
There is a myth that economically successful people have a natural gift for handling money or simply luck. The reality is that building a wealth requires discipline, perseverance and above all that you spend time on it.
Start by reading as much as you can about the subject to understand how money works. There are very good books for novice investors, as the bestseller “Rich Dad, Poor Dad” by Robert Kiyosaki, or “How to manage your money (without going mad in the attempt),” Adina Chelminsky.
There is no better investment than settling debts. Debt means compromising future income. If the level of your liabilities is such that you feel in a hopeless situation, ask for help. Contact your creditors and explain the situation, they will be more interested in finding ways that pay them.
You can also seek guidance with your financial institution, the consumer protection agency in your state, family and trusted friends. It is very important to be very honest and realistic with the creditor, and himself, when fixing the amount you pay monthly. And the next time you are tempted to borrow, remember that money should work for you at some point of time when you stop working for money.
Assemble your budget
If the fortnight ending is in red, something is wrong in your planning. And surely it is called “ant spending,” those small and unnecessary spending, as interest payments on credit card extra fees.
The more details you have, the better, since it will help you realize how to modify your consumption pattern. You’ll be surprised on how you are actually used to spend on unimportant things. (See – How to Prepare a simple annual budget)
Then add the fixed costs, either monthly (rent, telephone, tuition) or those with an annual quarterly, semiannual or (taxes, insurance, etc.), of which you must calculate the corresponding monthly amount. After consolidating your expenses, analyze them and eliminate those that you consider superfluous.
You might not need to count every penny but it’s important to get a handle on what you are spending on, you might be surprised by what you find. Have a distribution from your paycheck next month according to your priorities. Do not forget to allocate a percentage of savings, preferably not less than 10%. Consider a fixed expense in your budget.
Borrow only to build equity
Borrowing means great responsibility. You can apply for credit to buy goods such as a car or a house or to consolidate your heritage. But, avoid doing so to buy appliances or take that vacation you’ve always wanted. Note that the amount of credit must not exceed 20% to 30% of your income. Otherwise, insurance will get you in trouble.
Check your credit cards
With credit cards, and the possibility of making minimum payments, the great temptation is to spend money that you do not. But usually, it is forgotten that the annual interest on a card can reach 60%, and end up compromising a whole month salary.
First, a card should help facilitate the payment of your expenses and leverage deals. So the smartest way to use it is to pay the total debt.
Save with a goal
Saving for the art of it is very difficult, and probably, you will soon be discouraged. Money should be a means to help achieve a goal, not an end. The most important thing is to have a short-term goal, achievable because nothing teaches better than success. Your goal can be anything from changing the model of your car next year to deliver engaging your department in three years. Once that goal is established, and based on your budget, you first need to prioritize those goals and then comes the designing of a financial plan to achieve those goals.
Decide on the following
- Investment objective (why I want the money?).
- Term (how much time I have?).
- Initial capital (how much money I can start with?).
- Investment securities (how can I maximize the performance of my savings?).
The finishing touch is to have the discipline to follow the investment strategy. To help, there are operators and distributors of mutual funds that offer household periodic contributions directly from your checking account, like your phone bill or cable TV.
Put your savings to work
Do not leave your money under the mattress and do you generate a yield, albeit minimal. Not only can invest in financial instruments, but also a capital to start their own business or even yourself. (See Also – How to Teach Your Child to Adopt a Saving Mentality)
So what it is that you really wish your school had taught you when you were a teenager? What’s most basic survival technique in a personal financial life to you?