Do what you love
It might seem weird to start a post about money with an adage about work, but work relates directly to your earning and spending habits. The old saying is do what you love, but I would alter that slightly to this: Use your talents to do something the world needs. Then you’re using your skills, what you’re uniquely good at, to do work that means something. This is how you find satisfaction in your work.
So how does this relate to money?
It doesn’t mean that you’ll have the biggest possible income. It means that you’ll enjoy working. Most people work a third of their lives. If you’re miserable during those long decades, you’ll spend money on things to make you feel better.
“I hate my job, but driving to work in this car makes me feel better about it.”
“I need to get away from work, so I go on a couple big vacations every year.”
“Work sucks, so I buy lunch out every day to escape.”
You get the idea. Enjoying your work will help you enjoy your life, and there will be less need to spend money on escaping from the daily grind.
Live below your means
When people get their first real job, they immediately think “what can I afford?” And by that, they mean “what monthly payment can I afford?” So if they make $35,000 a year, they buy a car that costs $20,000 because they can afford the monthly payment.
This kind of thinking traps you into making years of payments (with interest) – money that could have been better spent in other ways. So instead, you might consider finding a reliable used vehicle, carpooling, or working somewhere with great public transportation. Even if you’re making much more money than this, consider renting a place with roommates or purchasing a very modest property that you can pay off quickly.
The bottom line is freedom. Do you want to start that business you’ve always dreamed of? Quit your stressful job and work for a non-profit that means something to you? Spend a year travelling to 50 different countries? Well, with that small condo you paid off early, you’ve always got a place to live. Rent it out for the year and make sure you take great photos on your world tour.
For our kids, the initial lesson is delayed gratification. Research shows that kids that learn delayed gratification are more likely to be happy and successful. But research aside, if they learn to save for something they really want, they’ll value it more. They’ll also weigh their options and think about whether or not they really need that item.
Learn to invest
The important word being Learn. Whether that means books, classes or talking to successful investors, make sure you put the time into learning how to invest. A rental property or stock portfolio can be a great idea, as long as the decisions are made soundly.
It’s always a good idea to have more than one income stream; investments can become a second stream over time. The earlier you begin, the more time and freedom you’ll have later. This works well in conjunction with “live below your means” – place some of that money you’re saving into investments.
As parents, we can get our kids into the habit of investing as they’re growing up. On her fifteenth birthday, my daughter will be getting a small deposit into a stock trading account that she’ll have to manage. Will it make her money? Maybe. But either way, what it will do is get her engaged in the process and cause her to do some research on this whole investing thing, which is the point.
Borrow rarely and pay off debt quickly
Sometimes borrowing money is necessary, but the only times it really makes sense is if you’re borrowing for investments. Education for example; this is one of the best investments you can make as you’re investing in yourself, and it’s something that can never be taken from you. You should see a return on that investment in more ways than just financial (e.g. maturity, character, enlightenment etc.).
A home can also be an investment. If you buy that small place and pay it off quickly, you can rent it out for a second income stream. But a home is not always an investment; I know plenty of people that bought at a market top and are currently under water with their loan (owing more than the property is worth). In some cases, renting as inexpensively as possible while using your extra income for investments makes more sense. This rent vs. buy calculator is a place to start.
Build credit early
Part of being able to borrow when you need to is having good credit. As parents, we can help our kids build credit by co-signing on a credit card with them (make sure it has a low spending limit). We can then teach our kids to use and pay for it responsibly.
This means teaching them not to place on credit what they don’t already have in their bank account. I use a credit card for everything because it’s convenient and gives me a good deal of money via rewards. But each month, I pay the entire balance of the card. This means that I never pay interest or fees. This is a good habit to get the kids into.
It seems counterintuitive, giving things away when you’re trying to increase your wealth; but whether you call it God, karma or positive thinking, the universe has a way of increasing your wealth when you’re willing to be generous.
Plus, building wealth for your own consumption doesn’t exactly feed your soul. Wealth is better shared with others. Even if you don’t have money to give, you can donate time, expertise, clothing etc. These are great habits and a good example to share with your kids.
Don’t cheat yourself
While you’re thinking about giving to others, make sure to also take care of yourself. I’ve heard a lot of money gurus talking about “the latte factor” – saving that $4 a day you spend on a latte. But if that latte is a little something that makes you really happy, then don’t deprive yourself. I think that one of the most horrible practices that humanity engages in is waiting until retirement to enjoy life. Enjoy your life right now, and especially enjoy the little things, whether that’s a latte, a walk in the park or making your kiddo smile. Just realize that you don’t need a new car and a dream home before you can be happy.
Understand the meaning of wealth
Getting a handle on money, saving, investing and spending are important; but having all the money in the world is meaningless if your priorities are off. Money is a means to an end; it’s about provision for loved ones, security and freedom. But working hard just to buy the next thing or “keep up with the Joneses” is pointless and will ultimately make you feel pretty empty.
Billionaire Warren Buffet, who is always named in the top three richest people in the world, says this:
I know people who have a lot of money, and they get testimonial dinners and hospital wings named after them. But the truth is that nobody in the world loves them. When you get to my age, you’ll measure your success in life by how many of the people you want to have love you, actually do love you. That’s the ultimate test of how you’ve lived your life.
Do your kids love you? Are you daily building that relationship with them? Because in the end, it’s not something you can buy.
Make sure you teach them this most important lesson about money – by showing them every day that they’re worth your time.