10 Books to Help You Make Smart Choices With Your Money

 

money book

Books are valuable, expecially books about money.

 

When you think about successful money management, what comes to mind? Where do you receive good information? How do you know what books to read to help guide you down the right path?  Most people don’t just obtain wealth out of the blue sky.  If you were to ask most successful people how they obtained their money, they would tell you they worked hard, had some luck/blessing, and they read voraciously. When I first entered the financial planning business, my mentors assigned me a list of books to read to help me understand more about money and how it works.  Since that time 15 years ago, I’ve come across many great financial books and I’d like to share ten books to help you make smart choices with your money.  I’m sure 15 years from now, I’ll have a different list of books that every successful investor should read, but for now, please enjoy.

Disclosure: While I find these books helpful, I don’t agree with every concept illustrated in every book. On your quest for knowledge, you need to determine what works for you and your family.  These book recommendations are not considered to be a solicitation of advice.

If you need help making smart choices with your money, please email me at jose@wisdominvestments.com

Visit our website at www.wisdominvestments.com

 

10) Rich Dad Poor Dad By Robert Kiyosaki:

This was the first book I read when I entered the financial planning industry. Robert Kiyosaki describes how he had two dads. He takes the time to describe each father’s financial and life philosophies and how each dad is deemed with the names Rich Dad and Poor Dad.  The book does a great job of detailing financial ideas and concepts that allow Rich Dad to be rich and Poor Dad to be poor.  The book would be great for the person who is paying their bills first and feels like there is nothing left to save at the end of the paycheck.

RichDadPoorDad

9) The 7 habits of highly effective people By Stephen Covey:

While this book isn’t necessarily about money, I believe this book gives a great blueprint of how to achieve success in your life.  The 7 habits help you to obtain structure to achieve the goals you are looking to achieve in life.  I have found that while the 7 habits aren’t necessarily financial principles, they can be used in almost any financial situation.

7Habits

8) The Millionaire Next Door By Thomas Payne

The Millionaire Next Door is one of the best books I’ve read that smacks American Consumerism right in the face.  This book details for you what a normal Millionaire looks like, what she might drive, and how he might live.  With today’s images of what it looks like to be a millionaire, this book is a breath of fresh air describing how most millionaires are made and live.

millionairre next door

7) The Investment Answer By Daniel Goldie & Gordon Murray

The Investment Answer helps give every investor an idea of what they should be looking for when they invest money. The book addresses concerns such as how to understand the markets, how to pick a financial advisor, & how to make great financial choices. We love to give this book to potential clients.  Even if a client doesn’t choose to work with us, this book will help them make the best decision possible about whom they should hire.

The Investment Answer

6) How to Think Like Benjamin Graham and Invest Like Warren Buffet By Lawrence Cunningham

This again is one of my personal favorites. This book showcases some of the great ideas of Benjamin Graham and Warren Buffet.  If you don’t have time to sit down and read the 725 page book Security Analysis by Benjamin Graham, then this book is for you. This book challenges some of the stereotypical types of investing methods and dives into value investing.  We again like this book because it compliments some of our own investment management philosophies.

How to think like benjamin graham and invest like warren buffet

“Wisdom Investments has been helping individuals and businesses make smart choices with their money since 1999”.

5) Values-Based Financial Planning By Bill Bachrach

This book describes the need for financial planning according to your unique values. Investing according to your unique values allows you to determine what is really most important to you when planning for your future. We all have values that are important to us. Why would you not consider those values when you are planning for your most important goals in life?

valuesbasedfinancialplanning

4) Total Money Makeover By Dave Ramsey

Dave’s advice focuses on living a life free of debt and investing money for the long-term. Many people focus on utilizing debt to achieve the things they want in life.  Dave’s radical concepts of approaching all situations without debt can help the individual who has become too reliant on credit cards and bank loans.

totalmoneymakeover

3) The Financial Wisdom of Ebenezer Scrooge By Ted Klontz, Rick Kahler, & Brad Klontz

The Five principles to transform your relationship with money” will help you understand the love affair you’ve had with money and how to change it.  Some people tend to focus on attaining more of this and more of that. This book suggests that if we are constantly seeking for more when it comes to money, we may need to start doing some things differently.

financial wisdom of ebeneezer scrooge

2) The Treasure Principle By Randy Alcorn

Where is your treasure? What kind of riches are you seeking? We’ve all heard it is better to give than to receive. The Treasure Principle seeks to show you how to experience joy through the giving of your money.  Maybe many of us haven’t thought about giving as being a gift, but some people have an inborn desire to give of their resources. How much better could your life be if you decided to “Discover The Secret of Joyful Giving”.

the treasure principle

1) Master Your Money By Ron Blue

Ron’s book shows individuals how to manage their money with a Biblical perspective in mind. Many of us who believe in the teachings of Christ already know the Bible has a great blueprint for money management. Master Your Money looks to describe those concepts in detail while giving real world applications and scenarios to help you understand how you can Master Your Money.

Master Your Money

 

I hope you make time to read some of these great books about money.

“My people are dying because of lack of knowledge”.    

If you need help making smart choices with your money, please give us a call.

Jose Cuevas
Vice President
Wisdom Investments
http://www.wisdominvestments.com
847-290-0753

Three ways to lower your taxable estate

estate-tax

Three ways to lower your taxable estate:

The financial planning cycle is an all-encompassing process that includes Investment planning, Insurance Planning, Tax Planning and Estate Planning among other areas. In one form or another your investment planning affects your estate planning which affects your tax planning which affects your insurance planning.  Clients tend to think about these areas separately. Clients tend to think in terms of going to their Lawyer for their estate planning, their financial planner for their investment planning, their CPA for their tax planning and their insurance person for their insurance.  A good financial planner will be able to direct clients to the professional who makes the most sense for their situation, but a financial planner can be viewed as the Quarterback for this process.  Financial advisors who provide comprehensive financial planning services need to identify areas of a client’s financial picture that require more attention and in-depth analysis.  Such is the case for clients looking to lower their taxable estate. These clients will certainly need the help of the financial planner, the insurance sales-woman, the CPA and the Attorney at all once.  Knowing which professional to employ could have a significant affect on your assets.  Without further ado, here are three ways you can lower your taxable estate:

Gifting Money to your Children and Grandchildren:

Current tax laws allow you to give away $14,000 per year to anyone you would like. However, most people aren’t interested in giving their money away to just anyone. A majority of clients will leverage the tax code to gift money to their children and grandchildren. Whether through cash or investment vehicles such as 529 plans, a parent can gift money to as many people as they would like for as many years as they would like. If your adult child is married, you can double the $14,000 and give $14,000 per year tax free to your children.  If both Mom and Dad are giving money away, you can double that number again to $56,000 if giving to both the Adult child and the spouse.  $56,000 might not be a large enough amount of money on it’s own to make a difference, but over a ten year period of time, that is $560,000.  If you have another married child, over a ten year period of time you and your spouse can give away over $1,000,000. 

529-college-savings

Upfront gifting to a 529 plan:

529 plans offer a special feature that allow you to gift 5 years of assets all at once. Using the numbers from above for planning for one child’s education, you can upfront gift up to $140,000 for a married couple.  For a single individual, again the gift amount is $14,000 per year multiplied by five and you get a $70,000 upfront gift to your child’s 529 account.  Assuming you and your spouse have three grandchildren you’d like to help pay for college, that’s $420,000 you can eliminate from your estate in one year.  Now we are talking significant assets being eliminated from your taxable estate. The cherry on top for this option is you are able to deduct the contributions to the 529 plan from your state taxes. With a tax rate of 5% in Illinois, contributions to a 529 plan could be a considerable deduction to consider. There are some caveats if you pass away before the 5 year period is over. We recommend you work with us and your CPA to understand the full ramifications of this option.

insurance-pic

Establishing an Irrevocable Life Insurance Trust:

Establishing an Irrevocable Life Insurance Trust (ILIT) will require the help of an Estate Planning Attorney.  An ILIT can be used to purchase a life insurance policy or transfer the ownership of an existing policy to the ILIT. The first word of this product/strategy is Irrevocable. That’s an important word.  When you transfer assets into an ILIT, you lose control of managing those assets and making changes to the assets.  By assigning the assets to the ILIT, you are saying “This money no longer belongs to me”.  ILIT’s allow you to pass a significant sum of money to the next generation and avoid estate taxes.  After the life insurance is purchased or transferred, the trust becomes the beneficiary of the policy.  Upon your death, the life insurance proceeds are paid out and held in trust for the trustees of the trust.  For more information, we recommend you talk with us an estate planning attorney.

There are many other ways financial professionals work to lower your estate tax liability. These are just three ideas to help you on your journey.  For more ways to lower your estate tax liability, please call us at 847-290-0753.  You may email me at jose@wisdominvestments.com. 

Jose Cuevas
Vice President
Wisdom Investments
jose@wisdominvestments.com
http://www.wisdominvestments.com
847-290-0753

A Client’s Question: “Where is the safest place for me to invest?”

safety

This question is power packed with many different potential answers.  At it’s core, this question is about risk. This question is “me” focused.  The safest place for me to invest might not be the safest place for you to invest. What does the word safe mean? Does it mean I don’t want to lose any money today? Or, does it mean “I want my future to be safe”.  At the root of most investor questions is some type of psychological unknown the client wants light shed upon. Since this question can cover both product and asset allocation, I will cover product for the moment.

In the financial world, there are many types of products you can purchase or invest in to achieve your goals. All of those products can be put into 5 buckets; stocks, bonds, cash, real estate & commodities.

The first product you can buy is an individual stock. Stocks represent ownership in a company and the return you receive is dependent upon the profit of the company you purchased.  If you buy stock in Microsoft, then you are an owner of Microsoft. If Microsoft goes out of business, you lose all of the money you invested in Microsoft. Out of the five buckets, of course a stock would fall into the Stock bucket.

Next you can buy a bond.  With bonds you are simply loaning your money to the government or to a corporation and they pay you interest in return.  With bonds, if the company goes out of business, you are at least higher on the priority list to get money back over other investors. However, when investing in an individual bond, you still run the risk of losing money. The individual bond goes into the bond bucket.

Savings Accounts: Savings accounts are a cash bucket product and are offered by banks, credit unions and savings & loan institutions. Savings accounts offer a high amount of liquidity. If you need your money withdrawn from a savings account, you are able to walk into the bank or go online and withdraw your money. Due to the high liquidity factor, savings accounts won’t pay you much interest. To see a few available rates for savings accounts, click here.

Money market mutual funds are similar to savings accounts, but the value of money market mutual funds can fluctuate. The price of the money market is targeted for $1, but moves slightly throughout the trading day. Money markets are pools of money brought together by fund companies for the benefit of the account holders to try and achieve a return slightly higher than that of a savings account.  A money market account offers liquidity, however you may have to wait a couple of days for money to transfer from your brokerage account to your bank account. Typically for our clients, the transfer is next day. The money market account goes into the cash bucket.

CD’s might be a bit trickier for most people. To many a cd is considered cash.  However, if you look back at the definition of a bond, you will see the cd is similar.  With a cd, you are loaning your money to the bank, the bank pays you interest, and when your cd expires you get your funds back. The only real difference between the bond and the cd is the cd is guaranteed. In most cases, the cd is FDIC insured. Wisdom Investments would categorize the cd to go into the bond bucket.

Next we have mutual funds. Mutual funds can be a bit tricky as there are many different types of mutual funds. For simplicity sake I will categorize the bond funds into four types: stock funds, bond funds, specialty funds & asset allocation funds. Stock funds would go into the stock bucket, bond funds would go into the bond bucket and allocation funds would hit all of the buckets. The specialty bonds would be focused on the commodities and Real Estate buckets. With most mutual fund portfolios you will have different types of funds that allow you to broadly diversify your money across the multiple markets available to you.  With a mutual fund portfolio, you purchase multiple different types of funds and these funds have underlying securities that make up the value of the mutual fund. For example, if you have a large cap blend fund in your portfolio, you are investing in many different large companies like Microsoft, Coca Cola, & Google. When you invest in a bond fund, you are buying a portfolio of bonds that might include treasury bonds, municipal bonds, & corporate bonds. Within the mutual fund space you can also buy REITS which allows you to invest in real estate and you can buy commodity funds that allow you to invest in the commodities market. Exchange traded funds are similar to mutual funds but offer a lower cost since they are not professionally managed.

Fixed annuities are put together by insurance companies utilizing a portfolio of bonds. The insurance company buys bonds using your money and pays you a fixed return far below what they expect to yield on the bond portfolio. The trick is the insurance company guarantees your return while they bear the risk of the bond portfolio. In today’s market fixed annuities do not typically pay a high enough interest rate to warrant the length of time you will commit to the product. Fixed annuities are also a great way to achieve tax deferral and can be helpful in estate planning. Fixed annuities are part of the bond bucket.

Variable annuities are annuities that have an underlying portfolio typically consisting of mutual funds. The variable annuity company charges the clients for death benefits and guarantees while the client has some peace of mind with their investment. In my view, most variable annuities are too expensive and unnecessary for most clients. If a variable annuity is needed, it’s typically to help transfer a client out of an overpriced annuity that was purchased in the past. These products do offer a death benefit which guarantees a beneficiary would not receive less than a specified amount, but you pay for this feature. As I’ve mentioned in the past, I’ve seen clients paying almost 4% per year for one of these products! In the investment industry, there is a debate going on as to whether or not a portfolio can be sustained while distributing 4% of the portfolio every year. Imagine trying to withdraw 4% and pay 4% per year…..

At Wisdom Investments, we take a managed mutual fund approach utilizing a balance of conventional and academic based investment strategies. We believe having a diversified, low-cost, & changeable portfolio is in most investors best interests.  The safest place for you to invest is the product with the risk tolerance that helps you strive towards accomplishing your goals. If you’d like to learn more about how we help you “Make Smart Decisions With Your Money”, please call us at 847-290-0753 or email me at jose@wisdominvestments.com.

Jose Cuevas
Vice President
Director of Financial Planning
www.wisdominvestments.com
847-290-0753

 

 

 

“And, the survey said….That was a lie”.

resolution

The worst part about New Year’s resolutions is I continuously lie to myself.  I’ve found that over the years most of my New Year’s resolutions end up being a three to seven day fad that disappear more elusively than the time I spent conjuring the resolution in the first place.  So, why should I have a New Year’s resolution?  The answer is I probably shouldn’t.  But, resolutions are easy.  “I want to lose weight this year”.  “I want to manage money better this year“. “I want to be a better person”.  None of these “resolutions” has any real substance to them. So, it’s easy for me to flippantly say I want to do them. But, it doesn’t work.  Choosing to forego resolutions, in recent years I’ve decided to set goals instead.

None of us wants to talk about goal-setting.  Talking about a resolution is so much easier.  The reason why is because no one is holding you accountable for your resolution, not even yourself.  With a goal you are holding yourself accountable. You are saying and putting in writing, I’m going to lose 15 lbs by March 31st.  You are declaring, I will pay off $7,000 in debt by June 30th.  That’s the difficult and great part about setting goals.  The greatness is you are now setting your goal in stone (or on your hard drive) so you can work towards the goal.  The difficulty is when we write a goal down, we tend to feel like a failure when we don’t accomplish it.  Or, we feel there is no point to set a goal as goals are really unattainable wishes that strangle our opportunity to seek anything outside of our goal.  And, if we fail to reach our goal then why did we set it in the first place? Tell me, how do you feel when you don’t reach a goal? Post below.

As “The Christian Financial Planner”, I’d like to offer a couple of things I believe are God’s take on goal setting. Proverbs 21:5 says “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty”.   So, if I want “abundance” in my life, I need to plan for it?  And, if I don’t make plans, then that leads to being without?  Interesting thought.  The next one, “Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, ‘This fellow began to build and was not able to finish.’ Or suppose a king is about to go to war against another king. Will he not first sit down and consider whether he is able with ten thousand men to oppose the one coming against him with twenty thousand?” I really think this one hits home for why some people won’t even attempt to set a goal. The idea that we will be scoffed at and people around us would say, “Well, it looks like Jose couldn’t hack it”  “He set a goal and didn’t make it” “It looks like we can’t trust him for anything” is paralyzing for some of us.  That’s the dialogue we tell ourselves, but it’s just simply not true.  Alfred Tennyson wrote “Tis better to have loved and lost, than never to have loved at all.”  Just replace the words loved with “set goals” and you have a powerful statement to combat almost any excuse we have for not setting a goal.  One last Bible verse…”The heart of man plans his way, but the Lord establishes his steps”.  This verse could quite easily be manipulated to say “what’s the point?”, “even if I set a goal, God’s going to do what He wants”.  But, I don’t think this verse says that at all.  I think this verse says “You need to have a vision, a thought, a goal, a desire.  And, once you do, God will help you”.  The Lord will establish your steps!  Think about that for a moment.

goal

This New Year you can make a resolution because it’s easy and there is no real commitment to that resolution.  Or, you can take some time over the next couple of days and think about what you’d really like to accomplish over the next twelve months.  You can choose to have a goal and start to make your first steps towards that goal and I believe God will help you accomplish it.  And, once you do, celebrate.  I remember some friends shared with my wife and I that they paid off all of their debt and they were taking a weekend trip downtown to celebrate the win.  Celebrate.  Jump for joy at the fact that you accomplished something you set out to do.  What is a goal you’ve recently attained that you’d like to share with the world? Post it below.

Let’s have a better year striving towards things that matter in 2017.  Let’s set some goals that are going to help us become better people, to manage our money better and to be healthy.  But, let’s have some substance to those goals. Let’s have a target.  I’ll share one goal with you that I have for 2017.  I will sit for the CFP examination by Nov 14th, 2017.  What is one goal you are willing to write down and accomplish for 2017? Share below.

Many Blessings,

Jose Cuevas
Vice President
Wisdom Investments
jose@wisdominvestments.com

P.S. If one of your goals revolves around money management, give me a call at 847-290-0753.

 

 

 

 

Prediction Season

Thanks for taking a moment to read this valuable information. Please visit http://www.highfivefinancial.com/contact-us/ to receive more valuable financial planning tips and news. View this video to see more about how we help our clients make smart decisions with their money.

Prediction Season

December 2016

The close of each calendar year brings with it the holidays as well as a chance to look forward to the year ahead.

In the coming weeks, investors are likely to be bombarded with predictions about what the future, and specifically the next year, may hold for their portfolios. These outlooks are typically accompanied by recommended investment strategies and actions that are aimed at trying to avoid the next crisis or missing out on the next “great” opportunity. When faced with recommendations of this sort, it would be wise to remember that investors are better served by sticking with a long-term plan rather than changing course in reaction to predictions and short-term calls.

PREDICTIONS AND PORTFOLIOS

One doesn’t typically see a forecast that says: “Capital markets are expected to continue to function normally,” or “It’s unclear how unknown future events will impact prices.” Predictions about future price movements come in all shapes and sizes, but most of them tempt the investor into playing a game of outguessing the market. Examples of predictions like this might include: “We don’t like energy stocks in 2017,” or “We expect the interest rate environment to remain challenging in the coming year.” Bold predictions may pique interest, but their usefulness in application to an investment plan is less clear. Steve Forbes, the publisher of Forbes Magazine, once remarked, “You make more money selling advice than following it. It’s one of the things we count on in the magazine business—along with the short memory of our readers.”[1] Definitive recommendations attempting to identify value not currently reflected in market prices may provide investors with a sense of confidence about the future, but how accurate do these predictions have to be in order to be useful?

1. Excerpt from presentation at the Anderson School of Management, University of California, Los Angeles, April 15, 2003.

Consider a simple example where an investor hears a prediction that equities are currently priced “too high,” and now is a better time to hold cash. If we say that the prediction has a 50% chance of being accurate (equities underperform cash over some period of time), does that mean the investor has a 50% chance of being better off? What is crucial to remember is that any market-timing decision is actually two decisions. If the investor decides to change their allocation, selling equities in this case, they have decided to get out of the market, but they also must determine when to get back in. If we assign a 50% probability of the investor getting each decision right, that would give them a one-in-four chance of being better off overall. We can increase the chances of the investor being right to 70% for each decision, and the odds of them being better off are still shy of 50%. Still no better than a coin flip. You can apply this same logic to decisions within asset classes, such as whether to currently be invested in stocks only in your home market vs. those abroad. The lesson here is that the only guarantee for investors making market-timing decisions is that they will incur additional transactions costs due to frequent buying and selling.

The track record of professional money managers attempting to profit from mispricing also suggests that making frequent investment changes based on market calls may be more harmful than helpful. Exhibit 1, which shows S&P’s SPIVA Scorecard from midyear 2016, highlights how managers have fared against a comparative S&P benchmark. The results illustrate that the majority of managers have underperformed over both short and longer horizons.

EXIBIT 1.      Percentage of US Equity Funds That Underperformed a Benchmark

funds-underperformed-benchmark

Source: SPIVA US Scorecard, “Percentage of US Equity Funds Outperformed by Benchmarks.” Data as of June 30, 2016.
Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor’s Index Services Group.

Rather than relying on forecasts that attempt to outguess market prices, investors can instead rely on the power of the market as an effective information processing machine to help structure their investment portfolios. Financial markets involve the interaction of millions of willing buyers and sellers. The prices they set provide positive expected returns every day. While realized returns may end up being different than expected returns, any such difference is unknown and unpredictable in advance.

Over a long-term horizon, the case for trusting in markets and for discipline in being able to stay invested is clear. Exhibit 2 shows the growth of a US dollar invested in the equity markets from 1970 through 2015 and highlights a sample of several bearish headlines over the same period. Had one reacted negatively to these headlines, they would have potentially missed out on substantial growth over the coming decades.

growth-of-a-dollar

In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. MSCI data © MSCI 2016, all rights reserved.

CONCLUSION

As the end of the year approaches, it is natural to reflect on what has gone well this year and what one may want to improve upon next year. Within the context of an investment plan, it is important to remember that investors are likely better served by trusting the plan they have put in place and focusing on what they can control, such as diversifying broadly, minimizing taxes, and reducing costs and turnover. Those who make changes to a long-term investment strategy based on short-term noise and predictions may be disappointed by the outcome. In the end, the only certain prediction about markets is that the future will remain full of uncertainty. History has shown us, however, that through this uncertainty, markets have rewarded long-term investors who are able to stay the course.

Thank you for taking the time to read this update. Please share it with your friends and family.

To receive valuable financial planning tips and news, please go to http://www.highfivefinancial.com/contact-us/

To Learn more about how we help our clients make smart decisions with their money, please go to http://www.highfivefinancial.com.

Go to the About us page to learn more about The Christian Financial Planner.

Source: Dimensional Fund Advisors LP.
Diversification does not eliminate the risk of market loss. Investment risks include loss of principal and fluctuating value. There is no guarantee an investing strategy will be successful.
All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

 

 

 

 

 

7 Ways To Teach Your Kids About Money

7-ways-child

A couple of weeks ago, I had the rare opportunity to spend some one on one time with my oldest son. He is 8. You would think that me being in the financial services industry, I would talk to my kids constantly about money. Well, I don’t. We have some conceptual conversations here and there, but we don’t really talk about money the way we should. Well, that all changed two weeks ago.

As my son and I sat in the car talking, he asked “Dad, how much money do you have?” I paused for a moment and then replied with the approximate dollar amount of my portfolio. My son’s eyes lit up and he said “Wow, that’s a lot of money”! Now, you may be saying to yourself, why on Earth would you tell your child how much money you have? The answer to that is I wasn’t completely certain at the time. However, the conversation went further. “Dad, how did you save that much money”? I replied, “Son, I saved that money little by little and I invested in the market, so I could earn a return which would help my money grow”. He says “How”? At that moment, we were sitting in the car outside of Wal-Mart. I had the perfect opportunity to show him. I said, “Son, what is Wal-Mart”? He responds, “A store to buy things”. I said, “Yes, and that store sells items made by other companies”. You can take your money and give it to Wal-Mart, Wal-Mart then takes your money and tries to make more money with it. “Does that make sense, Son”? “Kind-of, How does Wal-Mart make more money”? “Wal-Mart buys products at a discounted price, then they increase the price, sell it to you and basically that’s how they make money”. “So, do you think Wal-Mart would be a good place to invest your money” I asked.  “I don’t know”, said my Son. “Ok, Son. Tell me, do you like watching the Disney channel?” “Yes”. “Do you think the Disney channel will be around for a while”? “Yes”. “And, what about Disney World? Do you think people will continue to want to go to Disney World”? “Oh Yes, definitely”, said Zj. “Well, do you think Disney would be a good company for you to invest some of your money”? “Yes”. Our conversation continued to talk about companies that made toys, food, toilet paper and more. This conversation had me thinking about how people talk to their kids about money. So, I thought I’d share my thoughts.

Somewhere along the line, we were taught that talking about our money was taboo. We were taught it’s even worse to tell your kids about your money. The other day I had a choice to make. I could be transparent with my son and share how much money I have or I could have skated around the subject. The fact that I shared the truth allowed my son to ask me more questions, which helped me talk about money in a way he could understand. This of course came with a disclaimer to my son that he can’t tell anyone how much money we have, including his little brother who can’t keep a secret to save his life. If you tell the little one something and say “don’t say anything”, he literally looks like he’s going to explode with excitement to tell someone. We can all utilize different means of talking to our children about money. Just because this was a good approach for me, doesn’t mean it is the best one for you. However, there are some universal concepts that we need to begin to embrace with our children.

Without further ado here are the seven ways to teach your children about money

1) Money is a tool:

Money shouldn’t be used to manipulate people or show your success. You have money so that you can Live, Give, & Enjoy. You should balance how you live, with what you give and what you enjoy. If there is a balance in these three areas, then you will be content.

2) Give 10%.

7-ways-give

Teach your children to give 10% of everything they earn before they do anything else with their money. Some people may say “why on Earth would you give 10% before anything else?” The answer is because we are taught to do this in the Bible. We are taught to give of the first fruits of what we receive. Giving before you spend helps you guard your heart against the love of money. Even successful people who aren’t believers of the Bible utilize this concept when giving money.

3) Save 10-20%.

7-ways-save

Kids love to buy things with the money they earn. If you don’t take the time to show them how to save the money, they will spend every dime before you blink. Set up a bank account at your local credit union so your child can experience going to the bank to deposit their funds.

4) Enjoy what you’ve earned.

7-ways-spend

After you’ve saved and given, It’s ok to buy something nice for yourself or for someone else. If you save every penny of what you earn you will not be a very happy person and people probably won’t want to be around you.  Getting an ice cream or a Spider-Man action figure is ok if you’ve already set some money aside.

5) Start a business.

7-ways-business

This could be as simple as setting up a lemon-aide stand for a young child or as complex as trading bit-coin on the computer for your teenager. The point is that you should teach your child to learn how to create wealth rather than just getting a job to work for someone else. While it is important to teach kids the value of work, I’d rather teach mine how to work for themselves.

6) Take your kid to sit in a meeting with your financial advisor.

If you prepare your advisor ahead of time, she will know what she can and can’t say in front of your son. Having your child sit and listen in on a conversation about money from the professional shows your child that the advice of a professional is useful. Your child also realizes meeting with a financial advisor is common and normal. You also set the stage that you don’t have all the right answers and even you need to surround yourself with wise counsel to make good decisions.

7) Set a spending budget for your children.

This one comes from me watching a friend give his debit card to his son the other day. His son wanted to buy something from the coffee shop. Dad handed him his debit card and said “your limit is $10”. His son is 11. This one act does so much, but I’ll focus on a couple of things. One, the child knows he can’t spend more than the budget Dad set. This idea naturally implants the idea of limits being put on spending. Dad could have said, here go by what you want, but having a set limit helps his son make good choices while at the store. The #2 thing this example shows is how much trust you can build with your child with this simple act. By giving that debit card, Dad said without using words “I trust you. Make a good choice”. His son will benefit from that for years to come.

I hope you’ve enjoyed these 7 tips.

Leave a comment with your thoughts.

Please sign up to receive blog updates.

If you’d like to learn more about how we help you “Plan with Purpose”. Please visit our website at www.highfivefinancial.com or call us at 847-290-0753.

Jose Cuevas