We live in a capitalistic society. Many say this with a sigh and a shake of the head, but there are some upsides that shouldn’t be overlooked. If you start early enough, it is possible to rise to unfathomable heights of success. Unfortunately, it’s also possible to destroy your credit and your life quite early in the game by not having a clear conception of how to manage your finances.
American young adults and children are notorious for their lack of financial know-how. In a society that practically forces you to get a credit card when you turn 18, this ignorance can be deadly. Here are five ways to teach your children how to excel in a competitive economy and to avoid the pitfalls along the way.
1. Teach the idea of financial self reliance early on.
There are times when everyone could use a helping hand, and there’s nothing wrong with that. With that said, there’s nothing wrong with teaching self reliance as a preferred choice. From a very young age, help your child differentiate between needs and wants. If the thing they’re asking for constitutes a “want”— assuming you can/will give it to them in the first place— set up a system where they can work to earn it. Even if “working for it” only means doing extra chores for a couple days, they’ve learned that work is necessary and beneficial.
2. Learning about compound interest is crucial.
When your child first learns about interest, start to talk to them about credit. Explain the pitfalls of taking out too much debt. At the same time, open up discussions concerning investment. Show them the potential for making money if they invest early in life. Compound interest can work for you, or against you. Teenagers are more likely to be interested in these discussions than younger children, so keep the conversations age-relevant.
3. Teach them about other financial perspectives.
Every society and individual family has a unique financial policy. Discussing other viewpoints allows your child to pinpoint the crucial financial questions that any functional philosophy seeks to answer. Here are some examples:
“Is private property a good thing?”
“Should we allow extreme divisions of wealth?”
“How much influence should governments/companies/individuals have in making financial policy.”
Accept that you might not agree with their answers. Keep any debate friendly and informative.
4. Encourage early attempts to start businesses.
When I was 8 years old, I started a business selling golf balls and cans of soda on the golf course next to my house. These early experiences taught me the basics of running a business. This knowledge was carried into my adult life, and inspired me to become a freelance writer.
You never know how far a child’s chosen small business will take them. A close friend in high schools started a lawn-mowing business. By the time he was 18 and had graduated high school, he was able to sell the business for 500K. Now, he manages a department of 100 people in a Fortune 500 company.
5. Allow your child to enjoy the fruits of their financial success, and, if applicable, controlled financial failure.
Saving for college is important, but don’t’ demand that your child put every penny they earn from a high school job into a savings account. Help them save a certain percentage, and allow them to spend the rest how they see fit. Never feeling rewarded for your work can foster an attitude of futility.
Finally, allow them to make manageable financial mistakes. If they don’t save ahead-of-time for a desired item, it’s “ok” to allow them to go without the item. Now is the time to make small mistakes so that larger, life altering, mistakes won’t be made down the line.
Bio: Alexis Bonari is a freelance writer and blog junkie. She is currently a resident blogger at onlinedegrees.org, researching areas of accredited online degrees. In her spare time, she enjoys square-foot gardening, swimming, and avoiding her laptop.
Photo by larbelaitz
(A guest post from Jack Reed - see below for his bio).
Your hands firmly on the steering wheel, you zoom across the open highway in full throttle! Your adrenaline rushing, you thoroughly enjoy the thrill of owning the new car you longed for! Life never felt so great! Suddenly, the alarm went off!! Oh! And then you realize it was a dream after all. You wake up disgusted, and the thought of your overwhelming debts take away your peace of mind again!
Has anything like this ever happened with you? Do you very badly want get rid of your debt stricken life? Worry not! If you are a little careful, a few smart steps from your end could ensure you put those worry some debts to rest.
Budget. Sounds familiar..?
Your budget is your personal money plan, a plan for saving and spending. All of us know the importance of budgeting. But have you ever given it a serious thought? Yes, first of all get rid of the wrong idea that to budget is to put yourself in a financial handcuff. Restrict your expenses and start budgeting.
But why should you budget?
Do you want to work yourself out of debt? Do you want to make your future financially secure? How would you feel if you spend your money on things you dreamt of buying? Yes, you got it! Budgeting would help you do all this.
Wise money management can help you save up for the rough times in your life. Budgeting would help you to accumulate your savings gradually and this will eventually work for you. Your budget will allow you to keep a track of where your money is going and you will be less likely to overspend. Thus, you increase your chances of meeting your financial goals.
A budget can help you to survive an unforeseen financial crisis. What’s more, it could even save you from being bankrupt! Instead of running after bankruptcy attorneys, it is obviously better to take charge of your financial condition yourself.
When to start budgeting?
This is akin to asking something like ‘When to start leading a happy life?’ Obviously, we always want to be happy. Same goes for your budgeting. The answer is ‘now!’ The sooner you start budgeting, the better are your chances of meeting your financial goals and achieving financial freedom. A solid budget plan is the simplest tool that you can use to achieve financial freedom. You are in a better control of your life when you save for emergencies.
A last word
Now that you know the importance of budgeting in your life, carefully plan out a proper budget which would help you to be financially free. Your financial stability lies in your own hands. Be responsible. It is only then that you will be able to sleep peacefully at night without the worry of how to pay the bills!!
Author bio- Jack Reed is a financial writer associated with Oak View Law Group. He offers advice on debt related issues.
photo by jared
Disability insurance is something everyone should have, yet some employers simply don’t offer this important kind of coverage that takes care of you financially in the event you become disabled. Privately purchased disability insurance isn’t cheap, but if you ever need it, its definitely worth the initial outlay. Even if your employer does offer disability coverage, make sure it provides adequate coverage. If it doesn’t you can ask your employer to upgrade to a higher level of coverage, with you paying the difference. If they don’t provide coverage at all, begin to research the popular health and life insurance coverage companies.
Buying private disability insurance does provide some advantages over an employer’s disability. Probably the best advantage is that you can carry your disability insurance anywhere you go, including if you choose to be self-employed. Also, private disability benefits are provided to you tax free, giving you a bit more income than if you had used employer’s insurance. Finally, if you have a specialty or premium skill such as a surgeon, you can choose to purchase disability insurance that provides a comparable income level if you should find yourself disabled.
When shopping for disability insurance, there are several things you should keep in mind. Make sure you won’t find yourself without coverage by making sure the policy you choose states that it is non-cancellable. Choosing this type of policy also locks in your premium at a set cost. Most non-cancellable policies will cover you up to the age of 65, but check before you sign into the policy. Also avoid policies that only provide accident coverage or limited term coverage. these kinds of coverage are simply too specific to provide you with peace of mind.
Gap benefit coverage, also known as residual coverage is also important. Just as with health insurance gap coverage, residual coverage fills the gap in your salary during employment and the salary you will receive on disability. This will keep you and your family from scrambling to adjust expenditures in the event of disability, allowing them and you, to focus on your health. Similarly, you can add a rider to your policy that will maintain your disability benefits at the cost of inflation. Otherwise, you will only receive a disability benefit equal to the salary you received when you signed the policy.
Disability insurance can be purchased through almost any of the major insurance carriers. The costs vary widely, so its a good idea to shop around and ask questions before deciding on a carrier. Keep in mind, just as with other types of insurance, there will be a certain amount of time you will have to wait before receiving your disability payments after you have applied. This is a good reason to always have at least a few months of salary saved, so that the waiting period doesn’t leave you with unpaid bills.