Note: We use AI transcription so there may be some inaccuracies
Hello, welcome to the Dreamers Podcast. I'm your host Anne-lyse Wealth
to raise financially savvy kidsa, but sometimes we don't take the time to learn some of the lessons that we want to teach our kids, or at least to implement them so that they can not only learn from what we tell them, but actually from watching us. All right. So today we're going to talk about five essential money lessons that parents should learn in order for their kids to learn it from them.
All right, let's get into it. Number one, short term financial planning, aka budgeting. Budgeting is something that is very liberating. It gives you control of your money Instead of your money taking control of you. So when it comes to budgeting, sometimes we overcomplicate it. We think that our budget needs to have 50, 30 line items.
And I used to budget that way, but there are so many different ways that you can budget.
So a simple budgeting method is the 50 30 20, which is 50 percent goes towards your needs, 30 percent goes towards your wants, and 20 percent goes towards your, saving and investing.
Or you can flip it and do percent towards your saving and investing, and 20 percent towards your wants. I actually like it that way a lot better. Especially as your income increases, right, you don't want to. Have such a huge percentage allocated towards just fun and only 20 percent towards your long term saving investing.
But anyways, that's just one budgeting method Your budget doesn't need to have a ton of line items. The most important thing is that you plan for the things that are important, which is retirement, for the long term saving for emergency so having an emergency fund, and it's important once you have a budget to do some recurring financial check ins do you keep track of what you're spending, Is your budget aligned with your expenses at this point, or do you need to readjust your budget along the way? I like to have those check ins at least once a month. I personally do them every week, at least as much as I can. So another part of financial planning short term is tax strategy, right?
So if you want to start thinking and acting like the wealthy, you cannot wait until it's time to file your taxes to figure out what it's going to look like. You want to implement throughout the year a strategy that will allow you to not spend more on taxes than you should. part of the strategy is to maybe invest in a rough IRA or a rough 401k, 403b, basically invest in your retirement.
And when I say rough, rough means that I'm putting after tax dollars, right? So I already paid the taxes and that money is going to grow tax free until I retire. And when I retire, I can withdraw it, not having to pay any taxes. Or maybe part of your tax strategy is to have a traditional 401k, 403b. And essentially what you're doing here is you are going to contribute.
Before tax dollars into those retirement accounts, and usually a mix of both, especially as you move up in your career is good. A mix of rough and traditional, right? But as you get started, the traditional route definitely is very helpful. It helps you lower your immediate. Tax liability right now,
you are not paying taxes right now. You are before tax dollars into those accounts. And when you finally retire, that's when you're going to get taxed. so you really have to look at your specific situation and figure out which one works best for you. Like I said, hybrid of both is usually helpful, especially since you don't necessarily know like the direction of taxes.
Are they going to go up or are they going to go down? Right. yes, Short term financial planning is important, and as a part of that, you also want to take the time to set some goals. So goal settings, financial goals for some of the things that you want to do in the near term, from having an emergency fund to going on a trip.
You always want to take the time to plan. the second financial habit that you want to learn is savings, right? so that's part of your budget, but I want to talk about the fact that savings is one thing, a great tool that you want to teach your kids.
And, for instance, for my kids, I give them a goal to save a certain portion of what they earned every week and that can apply towards, their rainy day fund. Yes, we do talk about a rainy day fund. also we apply it towards a purchase that they want to make.
That's a larger purchase, right? I just want them to develop this habit. So as a parent, it's important that you do too, and that you make it. Part of your, ongoing financial habits. So as I mentioned earlier, I've simplified my budget quite a bit. And now I start from how much I want to invest, how much I want to save.
And then the rest, I start breaking it down into needs, wants, things like that. All right. So it's important to save for an emergency fund so that if life happens, you are prepared and ready. So that you don't have to dig into your investments or your long term savings. All right? another thing that parents need to learn is to invest, right?
Because saving is good as in helps you put some money aside, but you cannot just let that money sit because as the money sits in your account, under your mattress or whatever crazy idea you may have, To keep your money. The money is losing value over time. I know you've heard of inflation, especially in the past few years, every year or so, how much it costs to buy things or to do things.
Gets more and more expensive. Right? you've heard of 8 percent during the pandemic. usually it's, somewhere around, to 4%, right? So you are guaranteed that every year things are going to be more expensive. That means if you have a hundred dollars today, what you can buy with a hundred dollars five years from now.
It's not going to be as much. That's why it's important to take the next step and invest your money, invest your money in your retirement, the simplest way to get started is, having a retirement account. I listed some of them earlier for one K four, three B, rough IRA, traditional IRA. there are many options depending on where you are in life. but if you're able to max, out those accounts because those account because they have tax benefits, they come with, contribution limits every year and the limits change, every few years or so, right? So if you're able to max out those account, there's still other ways that you can invest, in the stock market.
You can have a traditional brokerage account. You can start, investing for your kids with UTMAs. outside of the stock market, you can also invest in real estate. I mean, in your portfolio have real estate and low cost index funds, those are essentially guaranteed ways for you to build wealth over time.
As long as you take the time to do your research and don't. Get too much into speculation and just look at data facts and based your investing on that. It's important to invest and it's important that we teach our kids how to invest. my kids are seven and nine years old and they are already investors.
They have investment accounts. they not only invest in low cost index funds. Right? Because this is the time tested way to build wealth in the stock market without having to take a chance on like a specific stock. But in addition, there's a small, tiny portion of their investment portfolio that is also going towards individual stocks.
And that's, Apple, they invested in Roblox. And the idea here is so that they get excited about investing. So they get excited about ownership. Right. and it's really hard to get them to do that with, investing in low cost index funds, which includes a ton of company.
So if there's a company that your kids like, or that you use, look into potentially investing in it. Of course, I would always say, Start with low cost index funds. And then once you have an appetite for the stock market, maybe you can start allocating a small portion of your portfolio towards individual stocks.
The next thing parents need to learn how to do is what negotiating, So whether it's negotiating. So you can get a raise negotiating. if you're a business owner, charging your value, whether it's, a service or product, but it's important to negotiate because too many of us leave money on the table.
And so it's important that we develop the skill and also take the time to teach that skills to our kids. Like for instance, My 9 year old has been negotiating for years now. She has to submit a request to get a raise every year. there's a script that she goes by and she can, accommodate or make changes to the script, but essentially she has to demonstrate that she has, delivered above and beyond the call of her duty so that she can get a raise.
that Hopefully help your kids get comfortable with negotiating so that when they go out in the world, whether it's at work or again as entrepreneurs that they have that skill and they are not uncomfortable when it comes the time to negotiate and just take whatever first offer they get.
and number five, another, financial habit that parents need to master is managing debt, right? So that can be a great tool to help you build wealth, but it's important to know that. order to build wealth, you have to spend money or borrow money on things that increase in value and not decrease.
So that's one of the things that we have to do better at so that our kids can learn from us. Right? because kids are curious about credit cards and, mortgages and things like that. So we should be able to sit down with them and explain to them what our strategy is, what a credit card is, what a credit score is, how to have an optimized credit score so that they can borrow at a lower rate.
before we can teach our kids that we need to learn that ourselves. blog post about some of the most common questions that kids ask about money. And in there, I share some very valuable resources that parents can use to learn, but also to teach their kids.
I will make sure to link that blog post in the show notes. And, I hope that it helps you get better.
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