Money Life Lessons Should Start When We Are Young
Money life lessons should start at an early age, that is the overall consensus. In fact, enter the words money lessons in Google and most of the results are about what children should learn about money from the time they are as young as three. Forbes published a post, Money Life Lessons At Every Age, which focus on this very topic. Yes, kids should learn about financial management starting as early as possible. It’s would probably reduce the amount of individuals who struggle financially because of an inability to handle cash as it flows in and out of their lives.
This post is not about teaching kids to handle their finances, there are a lot of those. This is about adults’ relationship with cash, and how a lack of knowledge about its management has affected their lives. In short, not learning the value of cash management.
The Grey Areas Of Money
With finances, it’s not a one size fits all scenario. Finances, regardless of its extent, are not figuratively black and white. If it was, a lot more of us would probably be rich, or not struggling to make ends meet. In reality, there are factors that influence our financial lives, whether negatively or positively. Consider our education, our job, our health, stress, and one obvious factor most of us who struggle with our finances don’t consciously recognize, our approach.
Money Ideals We Wish We Had
Imagine how different life may be, if money gurus such as Dave Ramsey or Suze Orman, were one of our relatives. We probably would have had the knowledge and support to make better financial decisions. It’s difficult not feeling a little jealous when Dave Ramsey’s daughter shares on a talk show, the knowledge her father taught her from a young age. It’s also mind opening to know most of us were not afforded the same opportunity. Is it obvious that how we handle our finances as an adult relates to what we learned as children? Yes. Chances are, the ones who learned the value and management of money from a young age, and are in their own home before thirty, had the opportunities most of us didn’t have the privilege of experiencing.
Not to say that only the well educated on the topic are doing well financially. There are many who didn’t have a stitch of training in money management who are millionaires or know how to be financially responsible.
Is It Too Late?
It’s indisputable that if we make better financial choices in our twenties and thirties, we can secure a more stable financial future. Still, there is a large percentage of adults who are not saving. A study done in 2019 by Northwestern Mutual found that 15% of adults have no savings for retirement.
Related: Retirement Without Savings
There are a lot of factors that influence the decision to not save. As mentioned above, with finances, there are grey areas. For some of us, other financial obligations remove the immediate need to save for the future. For others, habits factors in the reason. We all have them, habits that influence our lives and can hinder our efforts. Here are a few of the habits that control us.
Bad Money Habits
1. We Spend Aimlessly
Most attribute their lack of savings to a lack of income. Earning an income should, in theory, make it easier to save money. For many of us, it truly doesn’t matter how much we make, the problem is usually the habits we form that make saving hard, whether we make a lot of cash or close to the minimum.
If you think about it, it’s relatively easy to squander what we make. As an example, consider the times we choose to eat out, or to buy that pair of shoes we don’t need. What about the morning ritual of stopping at Starbucks on the way to work? Using money frivolously is an easy feat most of us are guilty of.
2. Using Credit Cards As A Source Of Income
We all know having credit and credit cards makes our financial lives easier. Credit and having it results from hard work and having total control over our finances. However, for many of us, having credit cards can be detrimental to our financial health. Yes, credit cards are convenient, but they can tempt us to spend more absentmindedly. The end-result is never pretty when we succumb to overspending. Consider these disadvantages if you carry a large balance.
- Potential credit damage
- Excessive fees and surcharge
- Higher interest rate
- Prime target for scammers
- Not being able to save
3. Believing Immediate Gratification Trumps The Additional Expenses
We are all accustomed to our way of life, and irrationally believing that we should maintain it at all costs can be destructive. There’s nothing wrong with spending on things we enjoy. In fact, we don’t have to give up everything to build a better financial life. Instead, spend in moderation, because it is key to having better funds management.
4. Pretending That Saving Is A Hardship
It’s not rocket science to know that building a good financial future, it about priorities. We know the bills that need to be paid. We also know that more than half the things we spend beyond the necessities are excessive. Each month, focus on the priorities, rent, transportation, food, utilities, healthcare and emergency fund. Everything else is a choice.
5. Telling Ourselves Paying Off Debt Is The Priority
There is never a perfect time for saving or adapting a healthier financial habit. It’s also understandable why adapting an attitude of first this, then that is a priority. In reality, it’s important to have balance with how we handle our cash flow.
Only five examples, but they are staggering. Many of us identify with some of these examples. Still, these are just the beginning. In reality, there are ways to prevent the habits mention above and build a better financial life. The first step begins with self-awareness. When we consciously choose to be aware of our relationship with our finances and acknowledge the steps we must take, we are one step closer to a better financial life. Here are ten money life lessons to master to build a better relationship with our finances.
Money Life Lessons For Building Better Financial Management Skills
1. Track what you spend
Use an app or plain pen and paper to track your expenses. Seeing what you spend can be eye-opening. As an example, those Starbucks stops each morning. Seeing the total cost can be shocking.
The main reason for tracking spending is to identify and eliminate unnecessary expenses. There are other benefits to consider as well. Being aware of the amount that comes and goes from our account makes us more accountable. Also, it opens our eyes to how we can save, reduce spending and avoid debt.
2. Learn To Budget
When we hear the word budgeting, most of us think of deprivation. Budgeting is not about limitation, but about clarity. When we have a method for managing our finances, we are better able to see and understand our relationship with the cash that comes in and out of our lives. Many believe budgeting is the first step towards achieving financial freedom. Possibly because when we budget, we ensure we don’t overspend; it shed light on the bad habits mention above, and it ensures spending what’s available.
3. Pay Yourself First
There is a bit of ambiguity to this because the question that may come to mind is why would we pay ourselves with what we already have. The concept behind paying ourselves first is about saving. Treat saving as an expense and as funds come into a checking account, a portion of it gets automatically moved. The same way we would view paying rent, or a utility bill. Considered the strategy a golden rule of financial planning because it enables us to save for our future, whether it’s making a big purchase, or retirement.
4. Know The Difference Between Need And Want
This is a hard concept for many of us because we can easily view the things we are familiar with as a need. Knowing the difference between what is absolutely necessary and what we would like is key. When budgeting, separating the two concepts creates an effective budget. To clarify, let’s give examples of both terms. Needs are usually basic living expenses such as rent, food, healthcare. Wants are new clothing, travel, entertainment, dining out.
5. Spend Less Than You Earn
This is a concept worth adapting if for no other reason than it ends the practice of living paycheck to paycheck. It’s an important rule to live by, but requires changing and adapting. If done continuously, the effort can positively affect future financial actions. When we see the amount we didn’t spend accumulate, our stress levels decrease and we see the ability to reduce debt.
6. Know The Difference Between Good and Bad Debt
Debt is Debt, but there is a difference. Being in debt because of a mortgage is very different that being in debt because of a car. Here is why. When we purchase a car, it depreciates the moment it drives off the lot. This means we will never get the investment back that we paid for the car if sold.
Being in debt because of home ownership or land asset is a different matter. One benefit of home ownership is it is an appreciating asset. This means a home increase in value the longer we own it and can generate income.
7. Plan For Emergencies
We all know unexpected events happen in our lives. Sometimes, those events can affect us financially. As we learn to pay ourselves first, and not spend all our paychecks, and to budget our funds, setting aside a percentage of our savings for an emergency becomes logical. The goal is to set aside two to four months of salary in case of unplanned events.
8. Build A Retirement Fund
It’s never too early or too late to think about retirement. If a company offers retirement savings, take it. Depending on age and circumstances, put the maximum contribution in it. Being practical in our approach today, so that we have the funds for tomorrow, is just smart. Even if tomorrow is twenty or more years away.
9. Have A Side Hustle
There are so many reasons to have a second source of income. The one most obvious reason is the satisfaction of having the additional funds. Other reasons for having a side hustle? Being laid off, fired, restructuring, not liking a job. These are just a few examples. The bottom line is to secure against an unforeseen event while making extra cash.
10. Insurance Matters
We all know we can’t drive a car without insurance. Car insurance aside, there are those who don’t take out insurance when they should because they consider it an option. While in certain instances, it is a choice, we should consider it a smart choice.
Think about the different layers of life and what’s needed to protect ourselves and our future. Yes, car insurance and home insurance are a must. We should also consider apartment insurance, income insurance, business insurance a requirement if it relates. And if your job offers health insurance, take advantage of it.
Most people think insurance of any kind is voluntary. In reality, it is a necessity because it provides an additional layer of security.
As a side note, we should shop for better rates when choosing insurance for our needs. Many of us conform to convenience when we need insurance, which could account for unintentionally wasting money. It’s always a smart decision to find the best rate that offers the right coverage. Spending smart is good funds management.
When It Come To Money Life Lessons, The Key Is Taking Charge Of Our Personal Finances
The sooner we adapt a saving mindset and act responsibly with our finances, the more ahead of the game we are. Like most things, there is no tried-and-true method for adapting and adjusting. At some point, the excuses we make will be meaningless because of the dire nature of our circumstances. By letting go of the excuses and committing to strategies that can change our perception of money, we can finally build a foundation of security and peace of mind.
Handling our personal finances can be overwhelming. While it’s unfortunate that many of us didn’t have the guidance of gurus, such as Orman and Ramsey, we can develop money management skills that will help us take control of our cash flow. It doesn’t matter if we bring home thousands each month, or hundreds, the strategy is the same. The key is a solid plan, commitment and embracing as much money life lessons as is possible to make smart financial choices.