April marked financial literacy month. In the past, I have typically written about things that you can do to help your children be better set up for financial success when they are beginning their own careers. However, as we continue to be inundated with more and more information, I feel like financial literacy is a topic we should be discussing with adults as well. I have specific principles that I adhere to and want to pass on:
- Pay yourself first – Your income should be such that you have automatic drafts going to wherever you are saving. Whether that’s 401K, building your emergency fund, credit card reduction, your budget should be set that these things are set up like bill. As a general rule of thumb you should try to save 15% of your gross income.
- Budget – Have a complete understanding of what is coming in and what is going out. This seems like such a simplistic exercise, but taking the time to put your expenses on paper can open your eyes to some wasteful spending. This exercise will also sometimes show you that moving money from the left pocket to the right pocket will help you accomplish your goals more efficiently.
- Employ the bucket strategy – When I first meet with clients, I have an entire page dedicated to this conversation. Too often we find ourselves over full in the long term bucket, typically via our house and 401K. The problem with this is it leaves little in terms of liquid cash or investable assets should an emergency OR an opportunity arise.
When it comes to passing on these lessons to your children, the KISS method is my preferred message. They don’t need to listen to the idiot on Tik Tok talking about the next hot stock or whatever he is being paid to talk about. I’m sure you all remember the “meme stock” fiasco, with $GME (Game Stop) leading the way. $GME is now down 74% from 2021. They need have a savings account so they can start to get in the habit of saving. They need to start building credit so utilizing a pre-paid credit/debit card is a great tool to utilize. If they are starting to get interested in the markets, consistent index investing is a great place to start. Monthly, or bi-monthly contributions to the S&P 500 is a great way to build a solid foundation for your financial future.
I know these seem like simplistic lessons, but these are the types of things that build the foundation of a financial plan for both young and old. If we as parents can learn the lessons and then pass then down to our kids at a much younger age, their financial future will be much brighter. It might also prevent your future 30 year old child hitting you up for money or moving back into their old bedroom!
Please feel free to share this with anyone you think it may help.