Not Your Dad’s Investing Lessons!
Dads are superheroes. Since childhood, they are one of the many role models we try to emulate, and more often than not, the things they teach us remain with us for the rest of our lives. However, when it comes to financial matters, our previous generation failed miserably. Taboos associated with money made them think that teaching kids about finances give the kids a wrong signal. Of course, they wanted us to be honest, and be transparent about matters related to money. But they didn’t think of making us wise and smart, too, which is a shame because an entire generation grew up thinking money is bad, that the desire to have money is being greedy. Times are changing though, so if you don’t want to be like your father, maybe you should teach your kids about finances from an early age. Here is what you should tell them – things your father may never have taught you!
Saving Is Not Equal To Investing
The first lesson is that saving and investing have two different objectives. They can’t be a substitute for each other — you can’t either invest or save, but ideally, you need to do both equally. Your savings are for future expenses or emergencies while invested money is for 10 or 20 years from now. Investments usually come handy for the education of children or launching a business.
Start Investing Early
It is not enough to teach kids about investing; you need to teach them the value of time. The earlier you make your investments, the more you get from them. The best way is to teach them by setting an example. If possible, invest a small amount that they have saved from their pocket money, show them for how many years they can keep it, and what would be the amount when they get it. That will be enough to impress them. Don’t they say time is money? Just show your kids how it works!
Plan Early For Retirement
A survey conducted among millennials found that almost one-third of them were not very confident about retirement savings. The problem lies in the fact that when they join a workplace, they think it is too early to think about retirement. Some jobs do already have a 401k plan, and they think that is enough. But the truth is, when you start earning, you need to plan for your retirement. Set an goal, more specifically how much you think you’ll need by then because by doing so, it will be easier to calculate how much to save every month. Experts say typically 10% of your income should go into your retirement fund. Even if you have an employer’s retirement plan, consider investing further which will also save you tax.
Invest In Various Assets
Stocks, bonds, cash – these are all your assets, and you should diversify your money among these in order to get various kinds of returns. In case you didn’t learn it from your father, you should know more about it and teach your kids the same. Betting your everything on one horse is not how this game is played. Buying mutual funds, stocks, and cash — a balanced portfolio will help you grow your wealth faster.
Save Up On Fees
When you are investing, the fees you pay might not seem like much, but over time, you will realize that you are losing a considerable amount due to fees alone. Controlling these costs is crucial for investors. Compare the expense ratios of funds and trading commissions. If you have a financial planning advisor, they are probably getting a certain amount of money as compensation. Try to find out the amount and ask them what you are getting for that because it’s important to avoid all kinds of hidden costs. These are steps you need to take in order to make your returns maximum.
As our lives are becoming more hectic and expenses are reaching sky-high, teaching the next generation about finances, especially about investing and saving, is necessary. While saving will help you in times of need, you can’t multiply your wealth if you don’t invest your money. Help your kids learn about money from an early age, so that when they grow up, their investments are already good enough to build a strong foundation.
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