|
Face it. Whether or not you want to think about it, in a few short years, your teenager will be on their own, making their way through the world. One of the biggest advantages you can give him or her is a basic education in finance. If your teen can manage their own money, they will have a higher standard of living, won't have to call home for cash [giving them a greater sense of independence while easing the burden on your checkbook], and have the freedom to choose their path without worrying about student loans, car payments, or credit card debt.
Your Level of Freedom is Closely Tied to Your Level of Debt
Debt is the life equivalent of handcuffs. It is by far one of the most
powerful and restricting forces in the history of society. This being the
case, it makes sense that you should do everything in your power to avoid it
altogether. When you make your car, house, or student loan payment, you
should always pay as much over the required monthly payment as possible.
If your car payment is $350, send an extra $30 or $40 each month. The
interest savings, especially on long-term items such as a house, can add up to
tens or hundreds of thousands of dollars.
Avoid Credit Card Debt Above All
Else
Credit card debt is brutal. If
you have a balance on any one of your credit cards, you have no business
sticking money in investments or a savings account. If you're making 4% on
a passbook savings account but paying 20+% interest on your credit card balance,
you're paying 16% for the right to earn that 4%. This is one of the
stupidest things you can do.
Open an IRA and Contribute to it
as Young as Possible
The day your teenager turns eighteen,
you should open an IRA. $1,000 invested at eighteen years old in a Roth
IRA is worth $134,952.21 by retirement assuming an eleven-percent rate of
return. If your teen waits until they are twenty-five years old, that same
$1,000 is worth only $65,000. That's less than half! The
difference is due to the nature of compound interest.
A person who begins investing young and contributes only a few thousand dollars each year, is almost certain to become a millionaire by retirement. As long as the investments are chosen well, it's nearly impossible not to become rich!
Choose Your College Wisely
In most cases, there is very little
difference between a $30,000 private college and a $12,000 state university.
What matters is what you do with your degree, not where it came from [except in
highly-specialized fields such as law or medicine]. Strapping yourself
with an extra $64,000 in debt can seriously change your plans for life.
Several months after graduation, you will be forced to make your first student
loan payment. This could result in taking a sub-par job for the sake of an
income, at the expense of a better opportunity later.
Beware the Small Foxes
It's been said that small foxes spoil
the vine. Your financial success is largely determined by the mundane,
day-to-day decisions. If you purchase a $500 television, you're likely to
go to several different stores, compare prices, and find the best bargain.
Ironically, the same week, you may spend $50 at a restaurant, $5 at the gas
station buying a coke and newspaper, $10 at the movies, $85 for a sweater at
Banana Republic, $20 for a candle, $30 for a book, $5 for a frap at Starbucks...
you get the picture. Those small expenses are fine by themselves, but at
the end of the month when you tally them up, you may find you are unwittingly
spending your wealth away.
Know the State of Your Flocks -
Use a Software Program to Track Your Finances
King Solomon, the wealthiest man in
history, once said, "Be diligent to know the state of your flocks, for riches do
not endure forever..." If he found it necessary to keep track of his
day-to-day finances, you [with your much smaller pocketbook] should find
it even more so. In fact, this is the easiest way to track your "little
foxes". Personally, I prefer Microsoft Money which is inexpensive, easy to
use, and can automatically download stock and mutual fund quotes from the
Internet, automatically updating the value of your accounts.
Copyright © 2002 Joshua Kennon