Financial Tips You want Your kids to know

Most people learn about finance the hard way through mistakes made from practical experience. People usually aren’t taught about personal finance in school. Moreover, parents don’t teach their children the basics either because they don’t understand it themselves, or they don’t take the time to it. So, most of us learn about money even as go through life. We go shopping, go into debt, and end up with a measely retirement account. CNN Money reports that 43% of workers surveyed this season said they may have less than $10, 000 saved for retirement. Even with full Social Security benefits, these people will be pushed to maintain their pre-retirement lifestyle. What if they had made better financial decisions earlier in their life? Perhaps if they were told about some basic financial principles they would be in a better position? Here are ten basic financial principles that your kids should be aware of to avoid making simple mistakes:

Don’t spend beyond your means. This is such a basic principle that it would not seem to be worth mentioning; however, it is the key principle to Lambert Philipp Heinrich Kindt financial success. Most financial consultants will tell you to pay yourself first by saving 6-10% of your income. You can only do that if you spend less than you make. So the first along with perhaps most important rule of financial success is not to spend beyond your means.

Save for a boisterous day. As soon as you start working, open a savings account as an emergency fund, a boisterous day fund. A rule of thumb is to have a reserve equivalent to six month’s salary in case you are out of work. If you have an urgent situation like a major car repair or medical bill, you will need to rejuvenate the fund if you pay your bills using your emergency savings account.

Pay off credit cards monthly. It is good to have one or two credit cards so that you can set up a credit history; however, make sure to pay off the balance on or before the due date. The creditors charge excessively high interest rates and fees. If you pay your balance in full, you get to use their money without interest; however, if you are late or make a part payment you will pay finance charges that are easily avoided. Also, don’t take a cash advance unless it is for an emergency. Again, they will charge cash advance fees and if you don’t repay it in their promotional period, they will also charge higher finance charges which are this very expensive.

Open an IRA when you are young and make the most annual contribution. The time value of money works wonders when you invest over a long time horizon, bur you must start when you are young. People who start investing in their early twenties will far outpace those who begin in their thirties or 40’s. Those who start late will never catch up because they don’t benefit from the compounding influence on their investment which is also leveraged inside of a tax-deferred account as an IRA.

Fully participate in your company 401k. If you work for a company that provides a 401k plan, make sure to participate fully, or a least to the quality of the company match. If the company has a matching grant, that is like free money. It will quickly add to your home egg cell, but you must invest or they will not match it. Also, just like an IRA, a 401k account is tax advantaged, so the compounding effect will be multiplied as a tax-deferred investment — which means that you won’t pay any taxes unless you withdraw the money in retirement. Also, only borrow against your 401k plan or withdraw funds if it is an extreme emergency. You must protect your 401k plan as a retirement plan. If you leave your employer then roll it over into a self-directed retirement plan, but do not take the money out early to avoid penalties. Keep your 401k for your retirement.

Buy some general life insurance in your 20’s. General life insurance is a combination policy that provides both a term life plan and the benefit of a tax deferred savings account inside of the policy. Everyone will need some life insurance, especially when they are married and have children. Buying life insurance when you are young, can reduce the cost of the premium investment and invite the money value to build up in the account. If you die unexpectedly, the proceeds will protect your family or pay for your children’s education. If you live into retirement, you can convert the policy to an annuity to supplement your income.

Buy a house when you can afford one. Real estate is one of the best investments over a long time horizon, even though the value of real estate has declined during the recession of 08. Over 30 years, you will probably have an excellent bang for your buck in your home, and if you have a home loan, the interest is tax deductible from your income taxes. When you buy a home, make sure you work with an experienced Real estate professional to help with the details and to give you advice on making an offer. If you don’t overpay or borrow more than you can easily afford, a home in a nice neighborhood is a great investment in addition to a nice destination for a live and raise a family.

Always make sure you have health insurance. One of the primary reasons that people go into bankruptcy is due to excessive medical expenses. The best way to safeguard yourself is to make sure that you have health insurance for you and your family. Hopefully, your employer will offer a good policy; however, if you are self-employed or earning a living for an employer who doesn’t offer insurance, be sure to obtain an individual policy. You cannot risk being uninsured because the consequences are too great.

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