Of course, parents want to leave a legacy for their children. Whether that is a tangible thing like a trust fund or family heirlooms, or family traditions, customs, and stories of their ancestors. Whatever you leave them with, you want them to become responsible, thoughtful, and caring adults. We want to teach our children to care for the things we leave them, tangible or not, and carry them onto the next generation. You probably want them to have some modicum of financial success in their lifetime, and if you leave them money you certainly don’t want it squandered. I fully intend to leave a legacy of financial advice for my children, not only so that they can care for any money I can (hopefully) provide to them but also so that they can grow to be responsible and thoughtful humans who can take care of themselves, their families, and their fellows.
Since I am a financial planner, I figure that the advice that I want to pass on to my kids is something worth sharing.
- Be happy but be successful. Pursue your passion, sure. It’s a lot easier to go to work every day when you enjoy what you do. But it’s also a lot easier to be happy when you can afford to put food on the table. Think through the monetary gains of your chosen career field. If you choose a low-paying career that feeds your soul, enjoy it to its fullest extent, but know that you will have to match your lifestyle to your income. So be realistic about your career goals and how they will support your lifestyle.
- Take risks when you are young. When you are young and particularly when unattached to a spouse or children, take risks in both business and in investing. Now is the time to quit your job and live off your savings while you launch your own company. Now is the time to try your hand at an aggressive investment strategy. Taking these risks when you are young means that you will have time to financially stabilize yourself should the risks end up becoming costly rather than rewarding. Now you have the time and energy to push yourself, so go for it.
- Save money, but not obsessively. I pray that I instill the love of savings in my children and they see socking away some percentage of their money today as a security blanket rather than a wet blanket. But if you like watching your savings account grow far too much, you run the risk of turning into Ebenezer Scrooge. Sure he had a pile of money, but no one liked that guy. Money won’t buy you friendship and love. Yes, still sock it away but invest also in relationships with others too. It’s cliche because it’s true: friends are priceless.
- Start investing early. When you are young, you have time and compound interest on your side. You don’t have to invest a ton to make a ton over time, just let that interest compound and do its thing. When you are young you also have the benefit of not having bad spending habits, hopefully, that you have to break. And you usually have less monetary responsibilities, freeing up more of your income for investing. Take advantage of every investment program your company offers and get any matching funds. Start out with a small contribution, say 1% of your income, and then increase it every 6 months until you max it out. You will be surprised to see that you don’t even notice that you are missing that money and before you know it you will have diverted a small but mighty amount of your income into your retirement savings. Just $5,000 a year will grow to almost $300,000 if you keep it up for 25 years. And all you have to do is set it up to automatically deduct from your paycheck, easy peasy.
- Build your own golden parachute. Sure, you are one of those 1% CEOs that gets a massive bonus right when the company goes under to help keep you on your feet. But you can build your own cash emergency fund to help you out when things go awry. There’s nothing like cash in the bank when you have an emergency, whether that is a car accident, theft, natural disaster, illness, injury, or job loss. Accidents to happen and you will need to have some cash in the bank to fall back on. Even with insurance, you often have to come out of pocket upfront to pay for your deductible, replace stolen items right away, or pay for a hotel while you flee a hurricane. These situations are already stressful enough, but can be lessened some by having cash on hand to cover your needs.
- Don’t run from insurance. Speaking of insurance, it doesn’t need to be scary and no, buying it won’t make bad things happen regardless of how superstitious you are. You need to buy enough insurance to protect yourself and your family, whether that is health insurance, homeowner’s insurance, and life insurance. But be smart about it. There’s no benefit to overspending to over-insure yourself. You don’t need to buy the Cadillac of health insurance plans that covers primarily out-of-network doctors if you have no chronic conditions and see only in-network doctors. And you don’t need a multi-million dollar life insurance plan if you make $50,000 annually. Insurance should be reasonable for your life and your needs, but is necessary.
- No one is in competition with you. No one is spending at you and no one is in competition with you over who has the nicer things, higher income, or fancier vacation. Constantly comparing yourself to others in terms of their finances and spending is going to keep you constantly coming up short. When trying to keep up with the Joneses, the Joneses always win because envy cheats and can grow exponentially. If others have nice things, it doesn’t mean suddenly your things are less nice. The way around this disastrous thinking is to cultivate some balance in your spending and saving life. You do what works for you and let others do as they will. Perspective is important to remember since our perceptions are usually not reality. Maybe there is someone out there jealous of your high-performing stock portfolio and your frugality, you never know.
- Use debt to your advantage, not your disadvantage. Debt exists as a tool to get things you need and sometimes want. It is not to be abused and used to over leverage yourself. It is not inherently good or bad, but some types of debt are seen as good or bad based on their impact on your credit and your overall financial picture. A home mortgage is usually seen as a good debt since it provides you the stability of a home and your home is usually growing in value. But too large of a mortgage leads to being house-poor and stressed just to pay this one bill, no matter how low your interest rate is. Student loans can open the door to education and opportunity, but too much student loan debt can be a weight around your neck which can grow heavier and heavier with crushingly high debt totals and rising variable interest rates. Use debt as a tool only to get what you need, not just because you want something, and be smart about choosing only low interest rates and loans that you understand and work to benefit you in the long run. Taking out a low interest car loan with a 5 year or less term and reasonable monthly payments to buy a reliable used to to get yourself safely to work each day. Makes sense. Trading in your upside down car to add negative equity to a loan on an overpriced new car with a 17% interest rate over 10 years is a terrible financial choice, no matter how nice the car is.
- Buy quality, but not always top shelf. Being cheap will sometimes actually cost you more in the end, as anyone who has had to buy new headphones every 3 months because they buy very cheap ones will tell you. The same is true of anything you buy. Being cheap is not the same as being frugal. The wise choice is to spend a little more if necessary to buy a quality item which will not break or have to be replaced over and over. But that doesn’t mean that you need to buy the most expensive, top shelf item there is. Just because something costs more it doesn’t make it better. There is a sharp rise in cost over utility for luxury goods, and the added cost does not add benefit to the good. If you anticipate wearing a pair of shoes to work every day, you should make sure they are well made, comfortable, and will last for at least 6 months or a year, hence you will pay a little more for quality construction and materials over some cheaply made bargain-basement brands. But you do not need to buy the Valentino loafers, those Cole Haan’s will do just fine.
- Value experiences over things. A life well-lived is not made up of a lot of things, gadgets, gizmos, or copious clutter. IT is made up of experiences and relationships with people. Sometimes a gadget can make for a positive experience, say a video game you can play with your kids, but buying stuff generally won’t make for happy memories. When you put more value in experiences rather than things, then you can make meaningful memories with your money and make purchases that help make those memories possible. Buying just another book is less meaningful than buying a book that you read to your children at bedtime. Buying a fancy car to sit in traffic while commuting to work is less special than buying a memory-making vacation with your family or friends. How you spend your money speaks to what you value, so put stock in experiences over things.
Kids don’t always listen but I hope they will eventually take heed of this advice. A meaningful financial legacy can look very different for different people, and I hope that my legacy leaves my kids with the tools and knowledge to help them to continue what I have started for them. As does every parent, I want them to live a life better than mine and to be happy and fulfilled. Money is only a tool, but it can go long way in helping to build a happy life and legacy.
