“Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate.
Before you criticize, wait. Before you pray, forgive. Before you quit, try.
Before you retire, save. Before you die, give.”
– William A. Ward
Written by Steve Nyvik, BBA, MBA, CIM, CFP, R.F.P.
Financial Planner and Portfolio Manager, Lycos Asset Management Inc.
Dave Chilton, who wrote the book, “The Wealthy Barber”, provided common sense financial wisdom centered around the ideas of living within your means, saving at least 10-15% of your gross income, paying down debt, paying yourself first (meaning take your savings and put that away before you spend so you don’t spend your savings), keep spending under control, and limit borrowing.
If we begin this savings process sooner, our money will have more time to grow and compound. (In my experience, those who start saving sooner generally are more likely to have a secure retirement or are able to afford to retire sooner.) Building up savings also reduces the risk of not having funds available in the event of disability.
Regularly saving becomes a habit. And as one sees their retirement nest egg build, one becomes more enthusiastic and committed to saving.
In my experience as a financial planner, many of the wealthiest clients I have dealt with have this savings habit ingrained in them. In some cases, they have been survivors of World War II where they experienced having nothing. Those experiences transformed their psyche of never wanting to be poor again.
As one’s life savings reaches a certain point, the objective of growth becomes less important and capital preservation becomes more important. They appreciate how much they sacrificed for their money to get to this point and if their portfolio experiences a big drop, it can be difficult to recover.
The habit or motivation of saving isn’t genetic and more often than not doesn’t make it to the next generation. These children typically don’t experience being without or being financially vulnerable. Many of these children don’t inherit their parent’s drive or motivation to work hard and save. And when they inherit from their parents, a good number will eat through a lifetime of savings in less than ten years.
Here is my advice in how to help instill the right money habits in your child:
- Your child should know that they will not receive an inheritance. All that they can expect is your help with their education costs and then they are on their own.
- Your child needs to work to learn the value of a dollar. They need to get a sense of how hard it is to earn money and how expensive life is.
- Focus your child to aim towards a profession so that they won’t spend most of their working hours hating what they do for a living.
- When your child starts to earn money, take 15% of the gross income and set aside to pay their student debts. Then when the debt is repaid, put the savings in an account so they can see their money grow. Don’t take wild risks with this money and destroy the habit of saving. You might consider a money market fund or a bond fund.
- Teach your child about investing – both risk and return. If you are to put some money into equities, don’t put your child’s money for equities into anything other than a diversified stock fund or market ETF. We want the money to build up which could be a future down payment for a condo. Then a mortgage might help with the habit of saving regularly.
- When your child has their career going and is debt free, that may be a good time for them to go out into the world. Hopefully the money habits will put them on a path for success!
I hope that you have found these thoughts helpful. It is my goal to help you and your family achieve your goals. If you’re interested in working with an advisor who cares about your family’s success, please call me: (604) 288-2083 or email me: Steve@lycosasset.com.