Often money is seen as the “be-all, end-all” solution to our problems. But here’s the thing – you need to speak the language of money basics to have the freedom to make choices. And money well-managed is at your service and ready to be at least some of the solution to the challenges and opportunities life throws your way. So how do you learn to speak the language of money?
Save a portion of every paycheck
Save a portion of every dollar you earn or are gifted. It’s a habit that should be taught often and early to our children. Saving and investing wisely forces you to make choices, take advantage of opportunities, cover risks and deal with life’s inevitable challenges to health and home.
Make savings automatic where you can. Take advantage of savings options at work, like a 401(k) or for my beloved teacher friends, a 403(b). Understand all your work benefits that can save you money. If you do not, meet with your HR rep and talk with them until you do understand. Many companies will match your contributions to their savings plans if you participate. Don’t leave money on the table by not participating. You need to have some savings in order to make choices down the road – so make sure you understand all your savings options.
When I first got married, I encouraged Michael to get his 401(k) set up at his new company. It took some time, but we finally got it done. But that gap in time from when he started versus when I started – which was 10 years sooner – made a big difference. Compound savings is no joke. Understand the Rule of 72 – and if you don’t, look it up now. Memorize it. It’s a critical money basic to understand so you can use it to your advantage.
Live within your means
Live within your means. That’s a tougher basic rule as society encourages you to do just the opposite. Credit cards whisper, “buy now pay later!”. And pay you will IF you do not understand compound interest. Mortgages promise you the American dream of home ownership, but only if you can pay that monthly tab which includes taxes, maintenance and other costs one rarely thinks of when plunking down the 10 or 20 percent required to close the deal. Student loans promise an education and better pay when you graduate and enter the workforce – but again, only if you can pay back that debt – with interest.
Bottom line – to live within your means you need a budget. Do the math before you enter into any money agreement and understand the costs upfront before you commit. Then utilize your savings to make the big choices you need to make.
Learn how to minimize your money risk. As many of you know, Michael and I are entrepreneurs. Early on when we started Money Savvy Generation – about 24 years ago – we were sitting at the dinner table with our in-laws. My mother-in-law looked at me and asked if we had life insurance. I looked at Michael, and we both shrugged. We had not even thought about life insurance. We were young, healthy with two young kids. Bingo. Two young kids. Healthy now. But what about later?
A year later I was diagnosed with cancer. Luckily, we listened to our mother-in-law and got life insurance. It was a comfort knowing that that insurance was there to help support my family in the event things did not go well. They did go well, but it helped me during my recovery knowing I had done what I could to minimize the money risk with life insurance.
Watching the news recently and seeing that so many people in Florida do not have flood insurance made me sad. We live in Arizona, and we have flood insurance! Homeowners insurance, flood insurance, jewelry riders, you name it. Consider it as a hedge worth taking to minimize your money risk.
Minimizing risk, living within your means and saving a portion of your paycheck will maximize your options when it comes to money. With these tips, you’ll be speaking the language of money in no time! Think about this over the holidays and consider starting fresh with new and healthy money moves in the New Year.