8 Great Money Lessons You Should Teach to Your Kids
#3: Start investing as soon as you can.
Understanding how money works is a necessity to take care of your future. Unfortunately, the educational system does nothing to help you understand this, and therefore make the right decisions to protect your money future.
Under these circumstances, you're going to have to educate yourself.
This means learning more about money and economics throughout your life. In fact, the sooner you understand it all, the better for your future. Therefore, the best thing to do once you have acquired this knowledge is to pass it on to your children at an early age.
In this way, you will make up for the shortcomings of the educational system to ensure a better financial future for your children. In the following, I give you 8 great money lessons to teach your children.
Money is a tool, not an end in itself
A majority of people make earning a lot of money a life goal. For them, money seems to be an end in itself. This is a complete misconception that you should get rid of as soon as possible.
Money is only a tool to be used for your life.
You earn money to have more time to live the life of your choice. The real wealth in life is having the choice to live your life the way you want. Making a lot of money should get you there.
Those who don't understand this spend their lives trying to make more and more money. They enter into a frantic quest for more and more which does not allow them to reach the contentment we all should aspire to in life.
Set clear financial goals, then stick to them
If you don't set clear financial goals early on, it will be difficult to find the motivation to save your money. Whatever your goals are, you need to define them precisely.
Once you have defined your financial goals, you will know how much money you need to achieve them. It will be easier to stick to them.
As with any goal in life, you need to make them S.M.A.R.T. :
Specific
Measurable
Actionable
Realistic
Time-bound.
Goals defined by respecting these 5 rules will be much more likely to be achieved.
Start investing as soon as you can
With money, there is a fundamental rule of which a quote from Albert Einstein allows us to understand the importance:
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”
This process allows the interest generated by your money to earn you more and more interest. Over a lifetime, this makes a huge difference.
To take full advantage of the magic of compound interest, you need to start investing as early as possible in your life. It's never too early to invest, no matter how much money you have.
Start small, and build a bright money future for yourself by patiently building your game.
Always pay yourself first
You are your most valuable asset in life. You must be aware of this. It is you and you alone who can transform your future. You must therefore treat yourself in the best possible way at all levels.
When it comes to money, this means paying yourself first no matter what.
Before you even pay the bills, take the part that is due to you and that you will be able to invest to really take care of your money future. Those who decide to pay themselves first never regret it.
Unfortunately, too few people realize this. Teaching your children this will change their future quickly for the better.
Spend less than you make
In life, you will go broke if you don't learn to spend less money than you earn. This sounds trivial, but many people have a hard time putting this into practice.
We live in a consumer society where everything is done to push you to spend more and more money on useless things.
Marketers are getting more and more inventive to create new needs. With the easy access to credit payment, they know how to tempt you. But you will have to resist to really take control of your money future.
A good rule of thumb is to create a budget for yourself by defining exactly how much money you will allow yourself to spend on such pleasures each month. To help you with this strategy, you can withdraw the money that will be allocated to this expense item at the beginning of the month in cash.
In fact, it has been proven that constantly paying by credit card disconnects you from the reality of the money you are spending. Paying cash for these types of expenses will help you keep your feet on the ground.
Don’t buy useless things just so show-off
Do you know why the ultra-rich stay that way for so long? Simply because they have realized that there is no point in living for appearances. Instead of spending your money on unnecessary things just to look good to others, you need to adopt a frugal lifestyle.
This is what Warren Buffett has always done, and it has allowed him to amass a considerable fortune without depriving himself of living the life he wanted.
It's all about balance in life. Enjoy your money, but do it only because it's your choice, not because of some social pressure to impress others.
Build up an emergency fund to protect yourself against bad times
Warren Buffett, one of the greatest investors of all time, frequently repeats the following phrase: "Cash is Trash". This shocking phrase is there to remind you that you must seek to make the fruits of your labor grow as soon as possible.
Investing your money is the only solution to avoid monetary inflation that will constantly devalue your purchasing power over time.
However, there is one exception to this rule, and that is to build up an emergency fund to help you through the bad times. You must have enough money in this fund to live for six months without working. Once this emergency fund is established, you can invest.
Avoid debt
“A man in debt is so far a slave.”
— Ralph Waldo Emerson
After reading this quote from Ralph Waldo Emerson, you must have realized that avoiding debt must be an absolute necessity in your life. Of course, some debt cannot be avoided in life.
A little bit of debt can even be useful in some cases.
Nevertheless, this is reserved for certain people who know how to manage their money perfectly and know what they are doing. A person who already has trouble managing his money should not go into debt to invest, for example.
The first thing is to get your personal finances under control. Once you've reached that point, you can move on to the next level.
In the meantime, you should avoid going into debt to buy things you can live without. I'm thinking here of people who go into debt to buy the latest iPhone or expensive jewelry. Never do that.
Final Thoughts
Understanding money is the key to mastering it. By teaching the 8 money lessons I've just presented to your children at a young age, you'll be able to help them prepare for a better future with money.
If you're an adult and are still aware of these lessons, know that it's never too late to do well in life. Anything is possible for your future if you decide to follow these lessons now.