I hope you can teach your children proper etiquette, positive values, and a balanced diet. But can you teach them financial security? Can you really know what to tell them about money?
I recently had the opportunity to sit down and interview Mike Zisa. He is now a financial consultant and teacher at Pennsbury High School in Bucks County, Pennsylvania. Zisa is the author of The Early Investor: How Teens & Young Adults Will Become Wealthy. We talked about our community kids and the value, and rarity, of financial education in high school. Lisa shared the most important lessons for all high school kids to remember when they graduate.
Saving money is not the same as spending money
Saving basically puts money into accounts like a deposit, check, or cash at a bank. Cash deposits including short-term CDs (Certificate of Deposit) may also be included. By investing, you can even make your money incredibly safe and easily accessible. Investing is the act of spending capital to purchase securities such as stocks, shares, property, and other investments that are expected to increase in value over a longer period of time. Investing your money was the best of your career.
Use compound interest
Compounding is when your savings and/or dividend income generate additional income. In other words, aggregation is where revenue drives revenue. Compounding really does allow wealth to grow exponentially! The younger you are, the more time you have to work together.
Start investing early
This is the scenario where Zisa is most adamant. It was his impulse to write his book. The faster you start investing your money, the longer you need to allow the benefits of the combination to build long-term capital. Consider this: If you start spending $3,000 a year at an average growth rate of 6% at age 25, you’ll have about $680,000 at age 65. If you’re only 35 years old, it’s worth $260,000. Time has the most important influence on long-term wealth generation. Start investing now.
Don’t buy things you can’t afford
We live in a world that now needs and wants things. There’s nothing wrong with wasting money, so it’s all wrong if you don’t spend it. The money you spend does not contribute to the accumulation of debt that will lead to financial catastrophe.
use credit cards responsibly
Credit cards will be a big part of your financial life. The loss of your financial well-being can also be credit cards. Many adults have used credit cards to purchase unnecessary and frivolous goods just for extreme debt, which may be unavoidable. It is important to note that when you use a credit card, you are borrowing money that you must pay back. A couple of important things to keep in mind about a credit card:
- You charge extraordinarily high interest rates if you don’t pay your balance in full
- Don’t buy things with a credit card without the money you have to pay for them.
- Be aware of introductory interest rates and breakeven offers
- Scan the print (the very small print you don’t want to read) on the credit card.
- Pay the balance in full before the due date
Buy properties instead of obligations
Buy things that make you money, not things that make you owe money! For example, when you invest in a stock that pays a dividend (a portion of the company’s earnings) every three months, you get cash for doing nothing at all. If you buy a mortgage, every six months you collect interest payments. This is known as passive benefits. On the contrary, if you buy a loan of some kind, you already have accumulated debt that you must pay back with interest. Obviously, such loans, such as a mortgage, could be needed to purchase a first home or even a car loan. But other forms of debt will maximize your liability and hinder your ability to build wealth.
Set a budget to save a rainy day
A budget is essentially a projection, usually monthly, of projected income and expenses for a given time in the future. You’ll keep track of how much money you spend on some goods and services by setting a schedule. A vital element of the budget is to establish a cash account, known as an emergency fund, every month. An emergency fund you saved is financed to provide cash for an unusual incident in your life. Preferably you should have an emergency fund equivalent to three to six months’ living costs. You should keep your emergency fund safe, easily accessible assets such as a CD, money market account, or just a savings account.
Zisa obviously assumes that the financial stability journey starts early. As in all aspects, parents must teach their children financial education through role models. You will save yourself and your own children by living beyond your means and learning the behaviors necessary to live a less stressful and rewarding life.