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The following is a guest post by Adam Hagerman. Adam is a CERTIFIED FINANCIAL PLANNER and professional who helps individuals and families eliminate debt, set financial goals, save more money, create a budget, and MUCH more. Start your journey to financial freedom today by gaining access to his free financial toolkit and extremely useful newsletter.
I don’t know about you, but I’ve been noticing a lot of updates/stories in my social circle about babies. My friends seem to either be having one or are just unable to stop talking about how cute theirs is. Not surprisingly, the constant updates have me thinking about my future.
You see, this year I turned 30 (OMG!), and the talk of ‘a little Hagerman’ has certainly increased in my house. In fact, my wife and I were once quoted as being on a ‘five-year plan’ and it so happens that our five-year wedding anniversary was just a few months ago.
Whether we decide to act on that five-year plan or not, I sometimes find myself daydreaming about my future children. Specifically, I like to think about what I would teach them about personal finance and life in general. Well, I mostly think about the personal finance stuff. Can you tell that financial coaching is my career? 😉
Being the good financial coach that I am, I want to share with you some of those things that I can’t wait to teach my unborn children. You might even want to teach these things to your children!
Please note: My writing style is going to change a little. I’ll be writing as if I am explaining this to my children one day. Also, each lesson would obviously be taught at a particular stage of life (e.g. you can’t teach a one-year old how compound interest works).
Goal setting is extremely important, whether it’s for your finances or just life in general.
Setting goals early can be extremely motivating. It gives you something to strive for, and this will ultimately help you map out a plan to not only achieve your goals but achieve them more efficiently.
We live in the financial age of ‘I need it now!’ Patience just doesn’t seem to exist anymore. I mean, check out this graph. Patience is going to be extinct before we know it. 😉
However, if you can learn to delay gratification and save for the things you want, you’ll be better off. You can pay cash for a car and avoid interest. You can bypass costly private mortgage insurance by putting 20% down on a house. You can avoid credit card debt. The list goes on and on! You just need to be patient and save for these things.
By delaying gratification, you can also talk yourself out of a ton of unnecessary purchases. If you can employ something like a 30-day ì’ll think about it rule every time you get the urge to spend impulsively, you’ll find that you probably didn’t even need the item, or you’ll forget about it entirely.
You should definitely try to find a balance between saving and spending. In other words, save enough money throughout your life so that you can enjoy things later on, but don’t save so much that you’re not enjoying life now.
In fact, you’re in a great position when it comes to saving and investing. If you went out and surveyed every 50+ adult that you can find, they’ll tell you that they wish they started investing earlier. Why do they wish they started earlier? Compound interest. That’s why.
For example, if you get a job at 16 and start investing $200 per month into a mutual fund earning 8% that is held in a tax-advantaged account, youíll have over $1,586,000 after 50 years. However, if you wait to start investing that $200 until the age of 26, youíll only have a little over $698,000. So, if you start at 16 instead of 26, youíll have over $888,000 MORE in your account. Want to know what you would personally invest over those extra 10 years? $24,000. Now thatís an awesome deal! Think about what the numbers will be if you save MORE than $200 a month!
Whether you are in debt or able to save thousands of dollars per month, you should have a budget.
A budget allows you to project your income and expenses on a monthly basis. It helps ensure that your income is going to the things that you want it to go to. This is also where having financial goals comes in handy. Is your goal to pay $12,000 cash for an used car in two years? Well, you would need to save $500 per month to make it happen. Your budget can help you determine if thatís plausible.
Create your budget with a sheet of paper, an Excel spreadsheet or any other piece of software thatís out there. It doesn’t matter what you use. Just create a budget and utilize it to stay on track.
Want to know a secret? Done right, managing your money is pretty easy.
All you really need to do is spend less than you earn, stay out of debt and invest for retirement. Sure, there are some other minor details along the way, but you can accomplish a lot with just those three foundations.
Don’t let anyone tell you that you can’t do something. You can.
Do you want to quit your job one day and travel the world? Find a way to make it happen.
Think retirement at age 30 is impossible? Think again.
Want to visit every country during your lifetime? Yeah, that’s possible too.
Just follow your dreams and find a way to achieve them.
As you make your way through life, know that it’s OK to fail.
If you fail, you’ll learn valuable lessons. For example, these people let debt take over their lives but found a way to eliminate it. They made some mistakes with money but picked themselves back up and are better because of it.
I guess what I’m trying to say is, get out there and try new things. It’s OK to attempt something and not be good at it. Just don’t let the thought of failure be an obstacle. Not even trying will lead to failure, too.
What advice do you want to share with your children? If you have children, what have you already shared? Is there something that your parents taught you that has had a lasting effect?