Growing up in a single parent family, I was always taught to have a frugal mindset. My mother cut coupons every week and her money worries often became mine.
I thought going to college and getting a good paying job would solve all my financial problems. But even though my wife and I have progressed in our careers, the majority of our income has gone towards basic expenses and paying off student debt.
But last year, at age 37, I achieved a net worth of $1 million. We took charge of our finances by saving more, starting side businesses and investing in real estate.
We also wanted to be financially responsible role models for our two young children. In 2020, my wife and I launched Parent Portfolio to help families learn how to build generational wealth and raise financially literate children.
Here are the top five money rules I teach my kids:
1. Always think back to one-time purchases.
We live within our means. So even if our income increases, we never increase our expenses. That’s not to say we don’t enjoy the fruits of our labor – it’s more about being aware.
When my children want to buy a toy, for example, I ask them three questions:
- “Is this something you really need?”
- “Do you see yourself using it often in the future?” »
- “Are there cheaper options that offer the same objective?”
We also support them in our own decision-making process and highlight the value of items we buy and use frequently.
2. Budgeting gives you more freedom.
A lot of people see budgets as being restrictive, but I actually see it as a tool to create more financial freedom; it saves you money by preventing you from overspending.
When my son wanted money for his school book fair, we gave him a budget of $40. For him, it became a game of how many books he could get under $40 that were valuable to him.
Another important lesson: budgeting is not a “set and forget” practice. We review our budgets monthly to make changes based on our current situation.
It’s easy to forget that social media is often just a showpiece. When people post lavish vacation photos or fancy new cars, that’s only part of the story.
We deal with this type of peer pressure by limiting our children’s use of technology. We only allow them to be on their tablets on weekends, and no more than two hours a day.
We also strive to set a good example. We never take our phones out when we eat together, and we use social media opt-out apps to limit our daily activity to one hour a day.
We use age-appropriate language, tools and real-life examples to teach our children more complex financial topics.
To give them a concrete idea of what we do with our real estate business, for example, and where the money we earn comes from, we take them to construction sites and introduce them to the contractors we work with.
We also use a lot of visuals. To illustrate how transactions between banks, borrowers, tenants, and landlords work, I’ve drawn a simple diagram with arrows pointing to each group.
One of the stories I like to tell my children is about the tortoise and the hare. The moral is that it’s safer to do things slowly and steadily.
Building wealth is very similar in that it doesn’t happen overnight. When our children receive monetary gifts, we deposit them in their bank accounts.
“Right now, your mother and I are responsible for providing for your needs and wants,” I told them. “A bank is a safe place to put your money because it allows the funds to grow over time. And when you’re old enough, you can use that money for your own purposes.”
In a world of instant gratification, it’s even more important to teach children the value of patience and to start early.
Jonathan Sanchez is the co-founder of Parents’ portfolio, a website that helps families build wealth and raise financially responsible children. Follow him on Twitter @LeParentPort.
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