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Money 101

June 02, 2023

Money 101


This month we celebrate Father's Day, and as a father, I wanted to share the Dad Financial Curriculum that my four daughters get to hear.  


Lesson 1. You want things now, but you'll want things later too.


A tiny percentage of people find emotional satisfaction in saving and investing money. The rest of us see it as a chore that will never provide the same emotional satisfaction as the immediate gratification of buying something today. Nonetheless, you must save money if you plan on living in the future. A great place to start is your employer-sponsored plan, whether a 401k, 403b, or whatever they offer. The rule of thumb is 15% of your income, so if you don't have a match in the plan, consider contributing that 15% on your own. If your employer matches 5% of your total, save 10% of your income, plus the 5% employer match will total 15%. You can save more, but this is the place to start. In a couple of years, once you are surprised at how much money you've saved, turn that surprise into motivation to save more.


Lesson 2. Credit Cards.


Never carry a balance on a credit card. Please don't do it. 

No, stop…not even if it's 0%. 

Credit cards are a dangerous game that you don't have to play. They are acceptable only when you have the discipline to pay them off monthly. Pay them off every week if you can. Get your points or miles, and never ever carry a balance.  


Lesson 3. Other Debt


There are two acceptable types of debt, home and car debt. How much debt can you afford? Add up how much you make in a year, let's say that $70,000. Multiple that by 35%. You can afford $24,500 yearly or $2,041.67 monthly in debt servicing. That means if you add up all your debt, such as cars, home, and student loans, collectively should be at most this monthly or annual amount. 


Lesson 4. Insurance


Insurance needs hinge on two factors, frequency, and severity. If an adverse event is not severe, it's probably not worth insuring. If something is severe and frequent, you should avoid it. If something is severe and not frequent, this is where you want to consider insurance. 

A term life insurance policy is an excellent place to start depending on your situation.


Lesson. 5 Engage


It's not that financial planning is too hard to understand; it's simply boring. Most people don't have deep desires to contemplate how stocks vs bonds modify your investment returns or how saving to a Roth or Traditional IRA affects your taxes. You don't have to spend hours engaged; that's why you hire someone like me. However, be painstakingly detailed when you do start working with an advisor. Ask every question you think of and get answers in writing.


These are rules of thumb; every topic will vary based on your situation. Work with a professional so that your plan is crafted to the unique aspects of your life and financial goals. 

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.