Some of the most important things you can do as a parent is to help your children with life skills like personal finances and how to cook.
The best way to teach your child is by leading by example. But sometimes it can be a matter of talking about the subject or talking about how you approach the matter in your own life.
These are six financial rules I hope to instill in my children:
Spend less than you earn
This is the most important thing for anyone’s finances. A business only makes profit if it generates more revenue than expenses.
If you make $100 and spend $99 then you’re going to be fine, if you spend $101 then you’re headed for eventual financial ruin.
This is the key rule to reaching financial independence and if this is the only rule you do then you won’t get into trouble.
Appreciate the free and cheap things
A lot of money can slip through your fingers by just doing activities that cost money. Getting coffee, eating out, getting takeaway from Collins Foods Ltd (ASX: CKF), Uber Eats, going to the movies at Village Roadshow Ltd (ASX: VRL) and so on all cost money.
If you can appreciate low-cost or free activities like going for beach walks or hiking, watching Netflix and YouTube, playing board games or reading a book you can end up saving hundreds or thousands of dollars over the course of a year.
Save for retirement
The more you save earlier on in life the less you have to save overall because of the power of compound interest.
A retirement fund of $1 million doesn’t just fall into your lap at the age of 64. You should build it up from the moment you get a full-time job. Superannuation contributions will make up the bulk of your retirement savings, but you can save additional amounts if spend less than you earn and invest it.
Have a side hustle
Most people end up getting a career that they generally work at 9am to 5pm, Monday to Friday. But, it could be a wise choice to build up other income streams by having a side hustle. It’s a good idea to find a side hustle that you enjoy doing more than your main job – one day you could turn your side hustle into your main job.
Have an emergency fund
You never know when an emergency is going to come along. That’s why it’s an emergency!
Your car breaking down or losing your job is entirely possible, which is why it’s worth having at least $1,000 set aside, perhaps up to between three to six months of expenses if you have a family depending on your income.
If an emergency depletes some of your funds then you need to work on rebuilding it as soon as possible.
Try to have fun whilst also saving for the future
It’s very easy to get too deep into saving money, you could end up not spending any money and hoarding it all. You are living your life now, not just when you reach financial independence or retirement, so make sure you have some fun along the way. Money is there to be utilised for experiences and (useful) objects.
A good rule might be to say you will spend perhaps 10% of your income on splurging for you and your family.
If I can get my children to follow these six financial rules then they should be set up with the right mindset for the rest of their life. But, it’s important that you don’t present rules to kids as a lecture as that probably won’t sink in.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.