I relish being a parent. For me, it is deeply satisfying to see children develop from infancy to toddlerhood to childhood and onward through the teen years and into adulthood. I love having conversations with them as they figure out their own morality and sense of right and wrong. I love watching their faces as they discover something amazing about the world. I love their seriousness as they take their next step toward adulthood.
All of my children are between the ages of four and nine, so they’re in the ages where many of the foundational principles for how they’ll live their life are put into place. They’re learning how to interact with others in a successful way. They’re learning the routines of self-maintenance that we all do throughout a day – getting dressed, keeping clean, taking care of our core possessions.
And, yes, they’re beginning to learn about money.
One of the challenging parts about being a parent is that, on some level, you’re always in “teaching mode.” Your children are learning from you whether you’re actively trying to teach them something or just struggling through their own life. If you’ve been a reasonably good model, you’ll find that your children, in adulthood, emulate you in many ways (not all ways, of course, but a surprisingly large amount). I see it in almost every healthy parent-child pairing that I know.
So, when I think about what I’m going to teach my children, I think not only about what I want to tell them (over and over) but also what I want to show them. I think about principles more than anything else because the specifics of their life are going to be different than mine.
Here are twenty core financial “rules” I’m hoping to instill in my children through a mix of talking about them (and likely answering a long list of “why?” questions) and demonstrating them in my own life (and pointing them out in the lives of other people that they know well). Hopefully, at least some of these will stick into the bedrock of their minds and become a part of their financial choices as they grow up and leave the nest.
“Rule” #1 – Spend Less Than You Earn
This is my personal “fundamental rule of personal finance.” If you do nothing else with regards to your finances, do this. Whenever you earn money, spend less of it than you earn. If you do that over and over again, disaster can never really befall you and, if things go well, you’ll eventually be able to do almost anything you can dream up. The only “cost” for doing that is giving up the least important splurges in your life. You don’t have to give up a thing that’s actually deeply important to you to achieve this.
Naturally, the bigger the gap between how much you spend and how much you earn, the faster you’ll move toward your big goals and dreams, but the more pleasures in the moment that you’ll have to give up. It’s a balancing act that we all have to take on, but as long as we stick with the simple rule of “spending less than we earn,” we’ll be fine in the end.
“Rule” #2 – Enjoy the Simple Things
Every single day provides us endless opportunities for wonder and joy without a constant influx of buying things. Simple things, like sitting around the table and laughing with your family or walking in the woods and finding a new rock for your front step, provide endless deep joy if you allow your heart to be open to them.
Popular culture has a tendency to push us away from such things and encourage us to desire consumer goods and “luxury” experiences. Most of the time, those things provide a quick burst of pleasure that doesn’t last.
Instead, put your trust in a rich internal life full of learning, a life full of family and friends and loved ones, and an appreciation and mindfulness of all of the wonderful things around you that the world has to offer, from the warm sun on your skin to the breathtaking beauty of a tree laden with icicles and infinite other things.
“Rule” #3 – Appreciate the Cheap (and Free) Things, Too
We’ve all heard the refrain that there’s no such thing as a free lunch… but that’s not true. There are tons and tons of free resources in almost everyone’s community, from the enormous array of books and DVDs at the library to the countless parks and recreational services offered by city hall. They offer resources and experiences that are often just as good as what you might pay for.
In the same vein, there are many, many opportunities for inexpensive things in life, from the inexpensive community dinners that happen in clubs and churches virtually every night in my town to the dollar theatre that shows movies on the big screen for just a dollar in the next town over. Often, the generic item works just as good as the name brand item. Often, the cheap wine is just as good as the expensive one.
I can go on and on and on listing these kinds of things, but in the end, a true appreciation of the cheap stuff – and the free stuff – can serve you very well in life. Don’t overlook something just because it’s not marketed to the moon with the splashy name brand on it.
“Rule” #4 – Don’t Buy What You Can Easily Borrow
If you’re tempted to buy an item that you won’t use too regularly – like a garden hoe or a board game – look for opportunities to borrow it for a while instead of buying it. That way, you get the value of actually using the item without having to pay for it and also without having the need to store the item.
How do you “borrow,” then? That’s when good relationships with your neighbors pays off. That’s when having a lot of friends in the community pays off. That’s when having family nearby pays off. You can tap any of these people for the things you need to borrow.
Of course, for borrowing to really work over the long term, you have to adhere to a few rules. Return the items promptly and don’t damage them. When you’re asked to lend something, do so without hesitation (within reason, of course). Try to suggest alternative ideas when you don’t have the requested item.
“Rule” #5 – Avoid Credit Card Debt Like the Plague
If you can’t afford to pay off the complete balance of your credit card at the end of a month, then you shouldn’t be charging things to that credit card. Period.
Carrying a balance on a credit card (aside from perhaps a zero-interest offer) is one of the worst financial moves you can make. Why do people do it, then? They do it because they’re so tempted by their short-term wants and desires that they ignore common sense.
A credit card with a big balance is financial poison. Every month that you leave that balance on there is another month in which you’re allowing the credit card company to just take fistfuls of money out of your pocket for nothing in return.
“Rule” #6 – Start Your Retirement Savings As Soon As You Get a Full-Time Job
The first thing you should do after starting your first full-time job is set up a retirement plan. Many employers offer a 401(k) or 403(b) plan at work and that’s a solid choice. If that’s not available to you or you don’t like it for some reason, it’s really easy to set up a Roth IRA and contribute money from your paycheck to it.
Why is this so important? First of all, the sooner you start saving, the less you have to save overall. A person saving $100 a month starting at age 20 (into a stock market returning 7% per year) will have roughly the same amount in savings at age 65 as a person contributing $500 a month starting at age 45. It’s way easier to start now. Second, by starting on your retirement savings as soon as you start working, you put a cap on your lifestyle creep. You don’t have a chance for your spending to take over your whole paycheck without room for retirement.
Get started. Then forget about it and just let it grow. You’ll never regret it.
“Rule” #7 – Get Every Dime of Employer Retirement Matching (Even If It Seems Painful)
If you’re lucky enough to have an employer that offers retirement matching, gobble up every dime of it, even if it feels like you’re contributing a lot to retirement.
Why? It’s an immediate 50% or 66% or 75% or 100% return on your money (depending on the exact matching, of course). You will never get an opportunity again to turn $1 into $2 or turn $10 into $15 without any effort at all.
Basically, employer matching in your retirement account is free money. When you don’t sign up for that, you’re literally leaving money on the table. That’s just a huge mistake.
“Rule” #8 – Invest in Target Retirement Funds for Retirement
If you don’t know what to invest in when it comes to retirement – meaning you haven’t spent time studying it in detail – just choose a target retirement fund that targets a year close to when you’ll turn sixty five. Put all your money in there and then forget about it.
Why do this? First of all, target retirement funds tend to do a reasonably good job of keeping your money balanced for you. They’re not perfect, but I haven’t seen one that’s bad and there’s no fund that’s perfect. Second, if you ever decide you don’t like that, you can move your money to other investments within that account without any major tax issues.
This is a “rule” that can be overcome with your own research, but it’s a powerful starting point.
“Rule” #9 – Have a Healthy Emergency Fund at All Times
Unexpected things happen in life. You suddenly need to fly to Atlanta to help take care of a friend. Your transmission falls out of your car. Your company abruptly goes out of business. I’m just scratching the surface here.
If you’re not prepared, these kinds of events can seriously damage your financial life. That’s why it makes sense to always have an emergency fund – in other words, have money sitting in a savings account. You can use that money to cover whatever the emergency might be.
How much? When you’re young and single, $1,000 is probably appropriate. If you’ve got a family, I’d have a month of living expenses for each dependent you have in your household.
The real key is to refill this whenever you use some of it. One way to do this is to just put a small amount in there automatically each month so that sometimes it’s actually a bit higher than you need, but it refills automatically.
“Rule” #10 – Get a Term Life Insurance Policy When You Get Married or Have Kids
Never mind the insurance salesmen. They’ll try to sell you all kinds of different policies. In the end, all you really need is a term policy so that your spouse and/or your children aren’t left in a poor financial position should you suddenly pass away.
A term policy is really simple. It says that if you die within some number of years – usually 10, 20, or 30 – your beneficiary will receive the value of your insurance. If you don’t die, no one receives anything. For this policy, you have to pay an annual (or quarterly or monthly) amount to the insurance company. The point is to protect your family against the unknown.
Don’t bother getting any other type of insurance. If you want to invest, take the money you’re saving by using a term policy and invest that money.
“Rule” #11 – Don’t Be Ashamed of Receiving Help If You Need It As Long As You’re Working and Building Up
Some people are too “proud” to accept help or they perceive it as some kind of weakness or that you’re a “leech.” Don’t be foolish.
There are a lot of programs and resources out there that can help people in their moments of strong financial need, from national programs like SNAP to local programs like free church dinners. If you are in financial need, do not turn it down out of pride. Take advantage of these situations.
That doesn’t mean you should “coast” thanks to these programs, either. They are there to help you pick yourself up, dust yourself off, and rebuild. That’s how the vast majority of people who use these programs use them, too, and they’re usually quiet about it, which is why you don’t hear about the millions of people aided by these tools.
It’s a helping hand if you need it and there’s no shame in using it when you’re down.
“Rule” #12 – Stop Caring What Other People Think
You have little or no control over the thoughts other people think about you. Most of the time, those thoughts are generated as a result of their own life experiences, completely independent of you. They’ll see your hair color or your height or the shape of your face or an innocuous word choice and they’ll make some sort of broad decision about you regardless of what you’ve done. More likely than that, they won’t have any real thought at all regarding you.
Why would you waste much time at all caring about these things? Sure, keep yourself presentable in public. Keep yourself clean. However, you’re not going to sway hearts and minds with the car you’re driving or the gadget in your pocket. You’re not going to build lasting friendships because you bought the expensive drink at the bar.
Stop worrying about what others think. Instead, spend your time doing the things that seem true to you and the people that are naturally interested in them – and in you – will rise to the surface over time. The rest of them? Don’t waste even a second of energy worrying about them.
“Rule” #13 – Remember That Everything Someone Else Buys Has a Steep Cost
Sure, it’s great when your friend has something new. You might even feel a big pang of jealousy because your friend has this cool thing and you do not.
Here’s the secret: that thing has cost your friend. There was an expense of some kind involved in acquiring whatever it is that you’re jealous of. They had to invest some of their money or some of their time.
If that investment was worth it to you, you would have already done it. Clearly, it’s not worth it to you.
Your friend decided that exchange was worth it for them. Be happy for your friend. But also be happy for yourself because you have something that you value more over the long term than whatever it is that your friend has.
“Rule” #14 – Plan Ahead Before You Enter a Store
One of the greatest challenges you’re going to face when keeping your money in your pocket is the temptation to buy interesting things when you’re in a store, whether an online store or a brick-and-mortar one. Stores know all kinds of little tricks to convince you to buy, even when you weren’t really planning to do it.
The single best method I’ve found for overcoming that temptation is to never enter a store without a plan. Why are you here? What exactly are you planning on buying? How much are you going to spend?
Think about these questions in advance and take action to hold yourself to them. Make a list on paper (or on your phone). Only take money equal to your spending limit into the store and leave the rest at home (or in the car). At the very least, spend a moment just thinking about what you intend to actually spend in there and what you hope to buy. You’ll find it is much easier to make smarter buying choices in the store if you do these things in advance.
“Rule” #15 – Set Some Big Goals For Yourself – and Some Little Ones, Too
Everyone has at least a few big dreams for their life, even if it’s something as simple as financial independence. Those big dreams are inspiring, but they also can seem quite enormous, leaving you feeling as though you’ll never climb that mountain. The other problem is that our long term goals sometimes change on us as we mature, leaving us feeling as though we wasted time progressing toward that goal.
The solution, then, is to set little goals and focus on them. Look for “building block” goals that can help you build toward your big dream right now, but also helps you build toward different goals down the future. For example, saving and investing almost never fails you. It is always good to have cash on hand, no matter what your big plans are.
What do you want to change or accomplish in the next day? The next week? The next month? How do those things help you in the bigger picture of your life? Ask yourself these questions constantly and you’ll always be aiming upwards.
“Rule” #16 – Splurge Sometimes, But Plan (a Bit) for It
Spontaneity is a beautiful thing. While life gives us a lot of chances to be spontaneous, some of them do require that we spend our money and other resources in that moment.
Instead of deleting spontaneity from your life – a bad choice – or just spending spontaneously all the time without boundaries – also a bad choice – you should find a middle ground. Set aside some money each month for whatever you want to do with it. No rules, no expectations.
Having that dose of pure freedom in your life makes it much easier to handle the harder tasks of saving for retirement and paying off debt. They don’t seem as burdensome if you give yourself some (reasonable) breathing room in the moment.
“Rule” #17 – Always Have a Side Hustle (or Three)
It is extremely likely that you are going to have a “main” career of some kind. It will be the place where you burn a majority of your working hours and will likely provide the majority of your income. Yet, it should not be where you spend all of your working hours and it should not be where all of your income comes from. You should cultivate other income streams.
Why? If your main job fails, these secondary streams will provide you with at least some income that can help you get through things. Some of them can also grow to a point where they replace your main job. Also, they provide a great opportunity for dabbling in your passions and figuring out how to make money from them without the tightrope walk of having this be your main path in life.
Spend at least some of your spare time building side hustles. It can be a side job, a small business, or a creative endeavor where you produce items to sell in some way. Whatever it is, never let yourself be fully financially dependent on your primary job.
“Rule” #18 – When in Doubt, Build Transferable Skills
It’s obvious that one of the best things you can do to secure and move forward in your career is to build skills that are useful in the workplace. However, many of the skills people tend to build are very specialized. They’re useful for your current job, but they’re not very useful at most other job positions.
Instead, look for ways to build transferable skills – those that are useful in many, many different jobs. Public speaking skills, written communication skills, and so on – here’s a big list of them. These skills are perfect on a resume, especially when backed up with training or accomplishments that demonstrate those skills.
Not only that, a big pile of transferable skills will help you succeed at almost everything that life throws at you. A person with lots of these skills will be a better parent, be a better community leader, be a better spouse, be a better friend… on and on and on.
“Rule” #19 – When You’re Debt Free, Invest in Index Funds
You’re free from debt. You have no huge expenses coming up. You’re saving for retirement. You have a good job. What do you do with all of this income?
It can be tempting to start splurging, but before you do that, consider this: what do you want more, stuff or freedom?
If freedom from work and from worry sounds appealing to you, consider taking some of your excess income that you’d otherwise spend on unnecessary things and apply it toward investing on your own. I recommend putting money in index funds (low cost investments that put your eggs in a lot of different baskets). As that money builds, so does your path to freedom.
“Rule” #20 – You Don’t Need Stuff to Be Happy
Since we opened with the most important rule, I thought it made sense to close with the second most important rule. Stuff is never the key to lasting happiness. Lasting happiness comes from inside.
For me (and for many others), the peak of true happiness is a state that’s often called “flow.” It’s a state where you’re so in tune with whatever it is that you’re doing that you truly lose track of time and are completely engrossed in your current project. It is so fulfilling that the world itself doesn’t interrupt you.
I find this when I’m working on something engaging, lost in a great book, playing with my children, or playing a game with old friends. Those are the moments at which I am happiest and I try to fill my life with those moments as much as I can. Better yet, none of them really cost me any money at all.
These are rules that I try to live my own life by. They’re also rules that I try every day to instill in my children. I want these rules to be a part of the foundation of their life, tactics that they live by without even thinking consciously about it. I don’t expect that they’ll all become foundational, but I hope that at least some of them take root. If they do, my children will have lives full of possibility and with little worry about financial pressures, which is a big part of what I hope they have in their adult life.