Thought I’d share few financial moves that have worked well for our family over the years. Maybe some of them will be a fit for you.
Building a Child’s Wealth
Establish a custodial brokerage account for each child while they are still toddlers. Deposit a modest amount into each account on payday, and slowly start building a diversified portfolio of solid stocks, bonds and funds, making sure you reinvest dividends. By the time your child needs to pay their first tuition bill, it will already be fully funded — a far better situation than going into debt as schools here in the U.S. tend to encourage. When your son or daughter graduates, and they take over ownership of the account, he/she will still have a nice leftover stash to start out their lives. They may even ask you to continue to manage their portfolio while they learn how. (Custodial accounts can be used for any purpose, not just for education, so that’s why I recommend them over 529’s here in the U.S., but not everyone agrees with this approach.)
Credit Cards
We treat credit cards with the same respect we would a loaded gun. If we use one for a specific budget category (like food, for example), we pay it off every month. Don’t be tempted to use a credit card for an emergency since it often creates an even larger emergency. Instead build an emergency fund so you can pay cash when someone throws you a curve ball.
Selling your house
I’m a big fan of selling my own houses, rather than using a realtor. Realtors can be unnecessary and expensive encumbrances to selling your home. Paying an uninvested third party a windfall commission (when it takes years to earn and save that money) doesn’t make a lot of sense, especially when the process isn’t complicated. It’s actually fun meeting and working out pricing and closing dates with the folks who love your house. Realtors tend to run interference in those relationships, isolating buyers from sellers because it’s in their interest to do so. A free initial consult with a lawyer who handles real estate transactions will simplify the process and your paper work. Promoting the property is fun too, and there are so many resources for doing that today.
Giving
Teach your children the gift of generosity by showing them. Involve them in your giving and volunteering and service. At the end of the day, modelling seems to be the most lasting parental teaching method.
Budgeting
Establish a zero-based budget for each pay period, giving each dollar a job. When the money lands, pay yourself first, transferring retirement and any other special savings out of your chequing account as a first priority. Then pay your bills. Subordinate spending for what’s left over. Discretionary spending should never displace savings.
Save for Everything
To avoid going into any manner of debt, save for everything that has a significant bill attached: insurance … your next vehicle … travel … property taxes … home furnishings … home improvements … emergencies … auto maintenance … concerts. Make saving a non-negotiable budget item. Don’t spend until you have it saved. Waiting in a culture of instant gratification builds character.
Children’s Allowances
Until your son or daughter is old enough to hold a part-time job, pay your children an allowance of twice their age once per month, beginning at five or six years. That formula works out nicely. Take them to the bank to open accounts when they are still young. It will melt the hearts of bank staff. Then when your kids want to buy something (that you approve of), encourage them to save for it on their own.
Don’t Escrow through Mortgage Company
Pay your homeowner’s insurance and property taxes yourself rather than escrowing through your mortgage company. Make this a foundational condition of doing business with a lender when purchasing your next house. If a lender refuses, find another lender. Better to save monthly for these items than to overpay your mortgage company for them.
Retirement
Start putting money away when you are still in your 20’s. The sooner you start, the sooner you can stop. Procrastination is the biggest obstacle to building wealth. Start small and start now, and be disciplined about it. Slowly build a powerful portfolio of diversified stocks, mutual funds and bonds. If you are risk-adverse, just know that diversification is the best insurance against risk. Get into the market and stay in the market, no matter what the market is doing. Ride out the corrections, buy your favourite stocks when they are “on sale”, and take some profits when things are soaring.
Windfalls
Every once in a while one of you will receive a bonus, an unexpected cheque in the mail, or a nice tax refund. To avoid the natural temptation to spend all of it, work out in advance with your husband or wife, a formula for saving and investing part of it.
These are a few approaches that have helped to put our family on a firmer financial footing. I welcome your comments, especially money moves that have worked at your house.
Blessings on your home,
robert
Peace in the Home 