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.
|
