The 7 Best Financial Tips Our Fathers Taught UsJune 22, 2020
Your parents have an enormous influence on your life, even when it comes to your finances. In a study published by the Journal of Economic Psychology, researchers found that parental mentoring leads to lower credit card debt and great financial responsibility among college students. While we hate to admit it, the science proves it: dads really do know best — except when it comes to dad jokes.
In honor of father’s day, here are some of the top financial tips we’ve learned from our dads.
1. Don’t spend what you don’t have
When you want to make a big purchase but don’t have enough cash, there are plenty of options to finish the transaction. You can use a credit card, take out a personal loan, and many retailers now offer buy-now-pay-later financing when you make a purchase online. While those options allow you to get what you want right now, resist the temptation to use them.
According to fatherly advice, paying interest on purchases — especially when they are “wants” and not strict necessities — is a costly mistake. Interest charges can cause you to pay much more than the purchase initially cost, and lead you into debt.
Instead, only use your credit card when you can afford to pay off the balance in full each month. Otherwise, save up money in a separate savings account, so you pay for what you want in cash.
2. Treat your own finances like a business
One of the best pieces of fatherly financial advice is to treat your household finances like a business.
Many people don’t really have a clear picture of their finances. Without knowing how much money is coming in or what their goals are, it’s difficult to come up with a financial plan or evaluate whether or not they’re on track.
By treating it as a business, you know exactly what’s going on and have a detailed plan for the future. To get started, follow these steps:
- Create a monthly budget: Figure out how much money you earn each month and how much you spend. Track your finances with software like Mint® or You Need a Budget.
- List your current obligations: Make a list of your existing debt, including student loans, credit cards, and car loans. Write down the interest rate, minimum monthly payment, and expected payoff date for each debt. Create a debt repayment plan, so you know when you’ll be debt-free.
- Set goals: Establish financial goals, like building a three-month emergency fund or paying off your student loans, and project when you’ll achieve them
- Cut costs: Identify cost-saving measures, like student loan refinancing. By refinancing your loans, you may qualify for a lower interest rate. Over time, you could save thousands of dollars and pay off your student loans earlier. To find out how much you can save, use the student loan refinance calculator.*
3. Make savings automatic
One way to trick yourself into saving money is to automate the process. By setting up automatic deposits, your money is automatically transferred into your savings account before you can spend it. The money is transferred before you even notice the money, so you can’t mentally prepare to spend it. Over time, automatic deposits can help you build a large emergency fund and save for future goals, like buying a home.
4. Treat debt like an emergency
Whether you have student loan debt or credit card debt, interest rates can cause you to pay thousands more than you originally borrowed. Especially when you’re just starting out, paying interest charges is an unnecessary drain on your finances.
Follow fatherly advice and treat your debt like an emergency. Keep your expenses low, avoid lifestyle inflation, and throw your extra money toward your debt to pay it off as quickly as possible. If money is tight, look for expenses you can cut and consider picking up a part-time job or side hustle to earn additional income.
Depending on your personality, you may find that using either the debt snowball or debt avalanche method is the best way to accelerate your debt repayment.
5. Start investing while you’re young
The earlier you can start investing, the better. You can take advantage of compound interest, and give your money more time to work for you.
If your employer offers a 401(k) or 404(b) retirement plan and matches employee contributions, make sure you contribute enough to the plan to get the full matching contribution. Otherwise, you’re losing out on free money, which is part of your employee compensation.
If your employer doesn’t offer a retirement plan, you can open up an Individual Retirement Account (IRA) on your own and make your own contributions.
6. Protect your credit
Your credit is an essential part of your financial record. It plays a big role in your life, affecting the rates you’ll get on your mortgage and car loans.
Make sure you protect it, maintain it, and work to improve it. Review your credit report regularly. You can review your credit report from each of the three major bureaus — Equifax, Experian, and TransUnion — for free once a year at AnnualCreditReport.com.
7. At the end of the day, no one wishes they spent more time at the office
While most fatherly financial advice is about building wealth, one of the most impactful tips is about remembering what’s important in life. Although your career and your finances are a big part of your life, your friends, family, and loved ones are much more significant.
When someone nears the end of their lives, they never wish they spent more time at the office; they do wish they spent more time with the people who matter most to them. Take that lesson to heart and make sure you prioritize the people you love and maintain a proper work-life balance.
*Subject to credit approval. Terms and conditions apply.
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