Now in my fifties, it’s easy to look back and see the many mistakes - and a few good decisions - I've made financially. Additionally, with 30 years of banking experience, I have seen first-hand how financial decisions impact individual lives both positively and negatively. The pain and suffering from poor financial decisions ruins lives, marriages and sometimes even generations of families. Likewise, good decisions reduce stress, provide confidence and make options available.
What have I told my children and what would I suggest you tell yours? Here it is: There is good news and bad news. The good news is, in this day and age financial success is solely dependent upon the actions of “you.” The bad news? Financial failure is solely due to the actions of “you.”
For some of us, the best thing to tell our kids is the truth. Don’t do what I've done. I've always heard you should learn by experience, and if you’re really smart you’ll learn from other’s mistakes and not make them personally. Here’s what I've told my children.
There are three things that will decide financial success or failure:
- Living within your means
- Thinking about tomorrow, today
Number one is absolutely education. The difference in earning power between having a college degree, or trade skill versus no higher education is startling. The frank truth is that if your children don’t have a degree or trade school education, they will struggle financially, forever. Blunt, yes. Truth, yes. The good news is this education is available to everyone. There is always a way to get an education and, with it, a tremendously better chance at financial success.
Number two is where most people struggle. Millions of people become slaves to debt and never become financially successful. Here again, there is a choice.
Number three is the time value of money – save or invest as much as you can, as early as you can. Below is a solution that will guarantee a young person succeeds financially.
- Never finance a home more than 15 years.
- Never finance a car more than 36 months.
- Save 10 percent of your income.
- Give 10 percent of your income.
Is this tough? No, not really. It’s just a choice. What’s the reality of this choice? You may not have as big a home as your friends, today. You may not have as nice a car, today. It also means you will sleep well at night. Your family won’t struggle with financial turmoil. You will be creating equity in every asset you have for a financially stronger tomorrow. At any point in life we are there because of the choices we made yesterday. Where we are in the future depends on the choices we make today.