✔ Parents and grandparents have a lifetime of experience in money management and can offer a lot of sound advice
✔ Old-fashioned sayings about money still ring true today and speak to the basics of money management, such as budgeting, saving and debt
✔ If you listen to your parents’ advice, you’ll be well on your way to a brighter financial future – one that puts more money in your pocket and helps you live a better life
You’ve probably heard all the popular sayings about money and the reason they’re so often used is because they hold a lot of truth. Any of these sound familiar, possibly heard told many times by your parents and grandparents?
- Money doesn’t grow on trees
- The best things in life are free
- A penny saved is a penny earned
- You get what you pay for
- A fool and his money are soon parted
- Money is a means, not an end
- Cash is king
Most of them are about using money wisely and that’s a skill that has to be learned. If you want to be responsible with money, it’s best to learn from others rather than having to learn by trial and error and possibly making big mistakes on the way, such as getting into too much debt or not having enough savings for retirement.
Here are some useful tips from financially savvy parents (and grandparents) that can help you be money savvy and “make your money work harder”.
On budget and spending
The simple rule of money is that, at the very least, you should spend no more each month than what you earn – otherwise you will get into an endless cycle of debt. That’s why one of the best things that parents can teach is how to budget. You want to tally all your monthly earnings – from a job, extra gigs etc. – and all your monthly expenses, such as rent or mortgage, utilities, groceries etc. This budget calculator can get you started.
If you’re not meeting your expenses, you either need to cut your expenses or bring in more earnings. Ideally, your income should exceed your expenses, allowing you to save (remember the saying “pay yourself first”?) for such things as emergencies, eventual home or car ownership, retirement or large purchases such as a vacation, wedding or education.
Not all debt is bad. Going into debt for things that will eventually bring greater returns, such as an education that will allow you to make more money, or a home that will build equity are considered ‘good’ debts. But getting into a cycle of credit-card debt, especially if you’re only making minimum payments, will cost you money in interest and is considered ‘bad’ debt. That’s why parents will so often so wisely advise that you “don’t buy what you cannot afford and don’t owe what you cannot pay”.
On credit building
The partner to debt is credit – it’s what allows you to borrow money for things you want or need. It’s important to establish a good credit score – which is what lenders use to determine how likely you are to pay off debt well. A good credit score will give you access to better rates on loans and mortgages and can mean savings of many thousands of dollars over the lifetime of a mortgage, for instance. Usually, people might start with a credit card or unsecured loan – and with each on-time payment they will build their credit score. Your parents might have taught you the tried and true ways of building your credit score.
How many times have you heard the saying “every little bit counts”? It’s true! Saving even a little at a time can turn into a sizable sum over time.
A good tip for helping to save is to avoid ‘lifestyle creep’ – which tends to happen every time we get a boost in income, through a raise or promotion. We get used to the new money and develop bigger and bigger spending habits. A good tip when you start making more money, or get a windfall such as a tax return or gift from your parents, is to save that amount and not change your lifestyle. Try to avoid “keeping up with the Joneses”, most parents would advise.
Ever heard of the magic of compound interest? That’s the interest you earn on interest over time and means the earlier you start, the more you’ll end up with because the money has more time to build interest. For instance, if you invest just $1,000 that’s compounded annually at 5% interest, you’d have $7,039.99 after 40 years, even if you don’t add to that initial amount. That means you’ve earned $6,039.99 just in interest! But if you invested that same amount, after five years you’d only have earned $276.28 in interest. That’s why, if you start retirement savings early in life, by the time you need the money in your golden years, you’ll have built a large nest egg without putting as much of your own money in.
Another good tip is, if you have an employer retirement savings plan (RSP), you should tap into it, as they will match your contributions, which is essential free money!
Don't just learn from your parents, you can tap into them too!
There’s a reason why parents (and grandparents) have so much good advice – it’s because they’ve been there and learned a lot of the tricks of good money management.
But, especially, if you’re just starting out, your family can be a good financial resource as well. You’ve heard the saying that “one man’s trash is another man’s treasure”. Well, let’s say you’re launching out on your own and need to furnish your new apartment – Mom and Dad probably have a lot of things in their home, attic or garage they no longer want but are still in great shape. Why buy a new couch when you can get one for free!
If you need to build credit and don’t qualify for a credit card because you have no credit history, you can ask your parents to co-sign for a credit card. Just make sure you use it wisely and pay off the balance every month!
Or you can take advantage of their memberships and save lots of money. If your parents have a Costco membership, plan at the gym or YMCA, or family mobile plan, you might be able to get added to those and save money.
Your parents and grandparents can be an excellent resource when it comes to learning about money and how to manage. Next time they offer advice, you might want to take it!