By Rachel Puryear
Recently, we celebrated the eighteenth birthday of someone very dear to us. In honor of such, I’m going to share tips for talking to a teen or young adult in your life about managing their finances.
Let’s face it – we all want to help younger generations avoid the mistakes we ourselves made. Here is what we are sharing with our young loved one:
Save at least 10% of your income – when you get a paycheck, pay yourself first. Start by opening a savings account. Saving money when you don’t make much yet is challenging, but not saving money is too expensive.
Make a budget based your income and expenses, and always factor savings into your regular budget.
Invest Early and Often – Especially in Low-Cost Index Funds
Investing is a key factor in how most fortunes are built. You are unlikely to ever make enough money to get rich from your earnings alone. Investing done right can help you build quite a bit of wealth over time, even if you’re not a high earner.
Once your savings account has $1,000-$3,000, you can start investing in Vanguard’s low-cost index funds. This will generate far better returns than a typical bank account, and without your gains getting eaten up by excessive fees. Saving $100 a month now will get you ready to invest the first $1,000 in less than a year. Invest consistently every month once you get started – don’t bother with trying to predict stocks.
Check a FIRE retirement calculator to see how much you need to save, for how long, to retire when you would like to. Then, sit back and relax, and watch the wonder of compounding interest work in your favor. A great book to read is The Simple Path to Wealth – that also explains everything here in more detail (this was also a gift from us to our young loved one).
Be Crafty About Debt
Debt gets a bad rap, and it’s certainly an area of caution. Some debts should be avoided like the plague – such as credit card debt, which puts you on the wrong side of compounding interest. (Having a credit card is great for convenience, just pay it off every month.)
However, there are times when borrowing money makes sense. For instance, if you’re buying a home, you will probably need a mortgage to afford it – but even if you do have more than the minimum cash you need for a down payment, you might still want to get a loan for as much as possible. If the interest you’re getting on that cash is greater than the interest you’d pay on a mortgage, then it makes sense to borrow the money nonetheless.
Student loans are different than most other debts, as these are non-dischargeable – so approach these with great caution. In earlier days, having any college degree helped you get lots of good paying jobs, but that’s just not the case anymore. If you want to go to college, go to community college for the first two years’ worth to save money. Go part time and work as you go, so you can pay as you go. If you want to keep going beyond those two years, research scholarships and grants extensively. Research the job market for your industry, and starting salaries. Don’t just go to school to get a degree – you should only keep going if you have a solid and realistic career plan for something you want to do. If the projected cost of the education is more than two times the low end of starting salaries in your field, it’s probably not worth it financially – so find a more affordable career path.
These days, there are all kinds of relatively inexpensive online classes and programs designed to prepare you to begin a new career – these are available for a wide variety of careers, many of which are lucrative. These classes cost anywhere from free to a few dollars to a few hundred dollars to several thousand dollars. Even the ones on the high end, though, still usually cost much less than a year at a university – and likely better prepare you to start working and earning enough to pay your bills and save some money.
Be Frugal – But Also Keep Things Sustainable
Pick only the monetary splurges that add meaning and joy to your life, and ditch all the rest. Special treats are easier to enjoy when planned into a budget, and helps avoid getting weary of frugality. Shop around for deals in anything you buy, negotiate, and save money where you can.
Beware of Financial Abusers, and Recognize Them for What They Are
During childhood, far more people witness someone taking financial advantage of others than we might realize. It’s critical to recognize and acknowledge such behavior for what it is – financial abuse. Therefore, talking to kids about financial abuse is as important as talking to them about any other kind of abuse. Besides, financial abuse tends to be tied with abusive interpersonal relationships, generally.
Stay away from moochers, people who take but don’t give back – they will impoverish you without a second thought, they keep getting greedier if you give in to them, and will leave you if you can’t or won’t give them money anymore. It’s also key to spot the emotional manipulation that goes along with financial abuse, and to be aware of how you feel around certain people in order to prevent it and protect yourself.
Financial Privacy is Critical to Maintain
This will prevent a lot of financial crimes and abuse before it even begins. Bragging can come back to haunt you. Therefore, don’t tell others how much money you make, or have, or spend; except on a strictly need-to-know basis. Showing off wealth to attract or impress people attracts the wrong kind of people into your life – you want people around you who are interested in you, and not just what they can get from you.
Always exercise proper due diligence and care in protecting your financial information, and account information.
In Serious Relationships, Financial Compatibility Is a Must
If you get serious in a relationship with someone else, you absolutely must share financial values and good monetary habits. Money is a major factor in most divorces. Common financial goals and practices is key to both the success and quality and happiness of the relationship, and also to good financial health. It might not seem romantic to consider money in starting a relationship; but believe me, there’s nothing romantic about fighting about money all the time, either.
Choose Careers Wisely
Do something you enjoy, that works well with your natural inclinations and personality, and that you will work hard at. You will need to work hard to succeed, and you will tend to work a lot harder at something you love than something you hate. Your quality of life will also, of course, benefit from your being in a well-fitting career that’s in sync with the life you want. Feel free to try out different jobs before deciding on a longer term path – you don’t need to be pigeonholed early on.
Before you invest time and resources into launching a career, first research how to make money at it – be creative. Don’t let anyone push you into a career you don’t want to do – even if they mean well, forcing something will most likely backfire. If you start a career and it’s not working out, it’s ok to leave and do something else. You don’t owe it to anyone to stay in a dead end. Don’t be afraid to nurture multiple talents – contrary to popular belief, range is often better than depth.
If Something Sounds to Good to Be True…
It probably is. Be wary of bad investments, and outright scams. Be suspicious of anyone who is highly charming, makes you feel intoxicated around them, and is asking you to put up a lot of money. Always get a second opinion, always look carefully into someone’s background before doing business with them – and it something feels off about someone, always listen to that little voice. A moment of discomfort is better than a lifetime of regret.
Money Is Tied Up a Lot With Emotions
Developing self-awareness and managing emotions around money could save you from a lot of costly mistakes in the longer run. Never, ever, ever let someone take advantage of you financially or otherwise, just because you want to please them or really like them. Someone worth having in your life won’t treat you like at ATM – if they do, they are using you, and need the boot. If you are attracting people into your life like this, then something regarding your emotions around money needs some self-examination, reflection, and healing.
See also: Lessons we can learn from lottery winners who went broke, accessing free Udemy courses online, more about Vanguard, things you should know before you cosign – plus how to establish credit, comparing investment in real estate versus the stock market, ways around gift taxes if you want to help a loved one pay down student loans,
Thank you, dear readers, for reading, following, and sharing. Here’s to passing on good financial habits to the next generation, and early on.
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