Financial Advice for my Daughter was conceived as a way to teach my children about money management and personal finance. I want to prepare my children for the real world by teaching them about the importance of personal finance.
Parents go out of their ways to make sure their children have the necessary skills, education and experiences to make it in the world, but few ever make it a point to educate their children about finance. Maybe it’s because they themselves were never taught this vital skill.
As I’ve grown older and (hopefully) wiser, I’ve had the chance to reflect back on some things that I wish I knew when I was young. This post constitutes some of the essential money and life lessons that I want to impart to my children. Financial advice for my daughter has what I believe are 9 essential lessons for financial success.
Financial Advice for My Daughter
Lesson #1 What is money?
People have a strange relationship to money. Some love it and want as much of it as they can possibly get their hands on, while others consider it the root of all evil and want nothing to do with it.
My view is that money is simply a tool, nothing more, nothing less. You can grow it or you can blow it, the choice is yours to make. Remember to choose wisely because our money habits shape our lives, just like our eating habits.
The healthier we eat generally speaking, the healthier and happier our lives will be. Well the same is also true of our money habits, so the healthier our money habits, the happier and less stressful our life should be.
How to Earn Money
Each and every one of us has an enormous capacity for generating income. We have a capacity to learn, to adapt, to be creative, to problem solve; and these are all essential skills that are vital for earning money.
Lesson #2 Debt
People don’t need to fear debt, but must learn to manage it.
Most people fear the dreaded “D” word, but debt is neither good nor bad. It’s what we choose to do with it that makes it one or the other.
What is debt? Debt is simply borrowed money. It’s a liability for most people and lots of people struggle with it.
But debt can also be good a thing. For example, in the hands of a skillful investor who uses debt for a great investment, it can be a good thing.
In the hands of someone who doesn’t know any better, who hasn’t mastered a little bit of self-discipline and gives in to their every desire, debt can be the devil himself.
Lesson #3 the Importance of Saving and Investing
Rule #1 for financial success is to Always Save a Little Bit of Money
The first thing to do when you get money – any money – whether in the form of a gift, inheritance, or a paycheck from work, is to save a portion of it. If you can manage to do this one simple thing, you will ALWAYS have money and NEVER be poor.
On the face of it, this small piece of advice seems relatively simple, but there is so much more going on here. It’s not just about saving a little bit, it’s really about living below your means so you can be in a position to afford to save a little bit.
Think of all the people out there struggling to get ahead and failing simply because they won’t live below their means. It takes Self Discipline to be able to say to ourselves “NO I don’t need that”….fill in the blank [car, house, vacation, jet ski, TV, phone etc].
Rule #2 Saving Money isn’t enough…You must Learn to Invest
If you can master saving a little bit of money on a regular basis, then you’re well on your way to financial success and you’re doing better than the vast majority of people out there.
But just accumulating money in a bank account won’t be enough to set you up for financial success. This is where the importance of Investing comes in.
If you just sit back and save $100 a month, it will take approximately 833.33 years to reach $1 million dollars!
So how is it possible for someone to accumulate $1 million dollars in their lifetime?
The answer involves either saving more money, investing or a combination of the two.
The Magic of Compounding
When you invest money, the money that you save each and every month works for you! What that means is that not only are you earning and saving money, but your money that you save is also earning money in the form of interest.
Over time this combination of saving and investment earnings grows exponentially through the magic of compounding.
How to Grow a Million Dollars
So for example, if all you ever save is $100 a month, at a 7% rate of return, it will take 59 years to reach a $1 million dollars! That’s a lot better than 833 years!
But 59 years is still a very long time you say. So what if you increased your monthly savings to $200. Well then you will reach 1 million dollars in just over 49 years. Make it $300 and you’ll hit $1 million in just over 43 years. If you dig deep and invest $500 a month, it will take just over 36 years to reach the coveted $1 million dollar mark.
These examples show us just how powerful compounding can be to grow our money over time.
Lesson #4 The 3 Ways to Build Wealth
When I thought about some useful financial advice for my daughter, I felt it was important to outline pathways to build wealth.
Below you’ll find the 3 ways to build wealth. Some take a lot of time but little money, others take a lot of money but little time. Still others require a lot of both time and money. But all 3 ways are time tested ways to build wealth.
Start a Business
This is not always an easy thing to do, but those with grit and a “can do” attitude will often succeed. As the world becomes more and more connected through the web, it’s never been easier to start your own business from the comfort of your home.
Starting a business is never easy, but creating something from nothing has enormous personal rewards beyond the money aspect.
The key is to take action. Don’t wait until you have all the details worked out or you’ll just talk yourself out of your great idea.
Related: Making Money From Home: Myth vs. Reality
Invest in Stocks
Warren Buffett is one of the richest people in world and swears by the enormous opportunity that the stock market offers investors. Never mind picking individual stocks, even novices who simply buy the S&P 500 index can reasonably expect to earn 7-10% in annual compounded returns over the long term.
Invest in Real Estate
Investing in real estate has made more people rich than anything else in the history of humanity. Robert Kiyosaki, the author Rich Dad Poor Dad makes a very good point that your personal home is not an investment. It is in fact a liability in that it costs you money each and every month.
Buying too much home can destroy your financial future so beware. Having self discipline and living within our means involves buying the right home for our needs and not splurging on too much home that robs us of our financial future and turns us into debt slaves.
On the other hand, good real estate investing might involve owning a couple of multi family rental properties that Cash Flow. This has been a proven way to build long term wealth in the real estate game.
Related: How to Become A Millionaire
Lesson #5 Take Risks and learn to Thrive in an Uncertain World
The final lessons in this article on financial advice to my daughter have to do with psychology: how we think about ourselves and about things. Oftentimes I’ve found the difference between people succeeding or failing in investing or in life have nothing to do with their personal circumstances. The key to success or failure has to do with our thought process and how we approach many of life’s curve balls.
To get what we want out of life, we need to take risks. So many people settle in life. They settle for a decent paying job, they settle for less.
People do this because it provides them with a sense of security. They feel safe…if not satisfied. When we settle for things in life we lower our expectations and dim that light that the human mind and heart thrives on.
Taking risks keeps us out of our safe place, they push us out of our comfort zone. Taking risks forces challenges upon us that must be overcome if we are to succeed in our endeavors.
Life is Complicated, Think Differently
In school we’re taught everything in binaries of right and wrong. There is always a right answer and a wrong answer.
In the real world things aren’t always that simple. Sometimes we’re forced to choose the least wrong option out of a series of bad options. Or we may choose the less right option out of a series of right options.
Lesson #6 Mistakes will happen and happen often, learn from them and pick yourself up!
Everyone makes mistakes. It happens all the time and for a variety of reasons. If you want to achieve success you must never give up on your dreams and pick yourself up when you make a mistake.
It’s important to know that success in any form (ie. financial, relationships, etc.) doesn’t come easy and there will always be obstacles in life. We must learn to overcome them and see our way through to the other side. We do this by analyzing our mistakes and learning from them.
Lesson #7 Never Fear Failure…Learn From It and Use It!
Fear of failure stops us from doing the most worthwhile things in life. Keep in mind that when you try something and fail, you still learn invaluable lessons and you’re a better person for it than if you simply chickened out and never attempted it in the first place.
Remember, it takes courage to face our fears and most people aren’t courageous.
Lesson #8 Opportunities to Learn Abound…Take Advantage of Them!
Each and every day we have opportunities to learn so take advantage of them and Never Stop Learning.
Lesson #9 Don’t let Current Circumstances Get You Down. Think About Where You’re Going
In life we sometimes get stuck in a rut, don’t let it get you down. Remember that it’s not where we’re at in life or even where we’ve been that matters most. It’s really about where we choose to go that matters most in life and we all play a role in our destinies.
We live in a world where we can literally change our future if we recognize and seize opportunities. Think out of the box and do things you aren’t inclined to do. New experiences build confidence, nourish the mind and lead us to great things.
Thanks for reading Financial Advice for my Daughter.
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