We all know that saving is important. Most of us just wish we had realized that a lot sooner. It is time to ensure that our children do not have the same regrets as us, and help them realize how important it is to create a nest egg as early on as possible.
However there is a certain thing such as balance, as life needs to be fun too. But how do you find that balance and instill the right principles for saving money? Let’s go over some of the basics for teaching your future generations about personal finance. Once they have locked down a full time job, it is time to begin the process.
The first thing to do is try to make your son or daughter understand that saving is a natural thing, spending isn’t. This may be the toughest lesson to pass on but it is definitely the most important and the foundation for everything else. Financial responsibility is an invaluable life lesson and one that will be used daily.
Aside from these emotionally driven speeches, you want to ensure that your mini protégé signs up for a 401(k) plan as soon as possible.
It might be best for them to ensure they contribute enough to take full advantage of the match that the employer will offer. While there are other viable options, the tax savings and convenience of a 401 (k) plan is often unmatched.
On top of planning for retirement, another excellent saving tip is to keep at least three months of expenses in a bank account with competitive interest and benefits. The plan here is not about big money or big earnings on interest, it is just about having a safe back up plan. In case of a layoff or another financial setback this savings account could be a huge help, and ensures that no one has to dip into their retirement savings.
Once this emergency fund is in place then it is often beneficial to put all savings on top of that towards the retirement plan. This will instantly boost the contribution rate of the plan. Another wise option could be to put leftover cash into a Roth IRA, which could coincide with the 401(k) nicely.
When discussing personal finance with your children it is important to remember that what may seem obvious to you may be enlightening to them. This information may seem basic to you or someone more experienced, but it is vital at this early stage in your child’s working life. You want to go about this easily, smoothly, and without an overflow of information.
If you overload your child with too much information, and too many options, it can make it impossible to begin a plan of action. Break down the process, help them to understand, assist them in signing up for a 401(k), and help them look into other options. The good news is that they still have the option to go a different route at a later time if they choose. This is just an excellent building block that can go a long way towards financial stability. This is a life lesson everyone needs, and the earlier the better.