Set Your Teen Up For Financial Independence By Paying Himself/Herself First
To set your teen up for financial independence might seem like a daunting task. You might even say that you have not reached financial independence, so how could you set your teen up for such a goal. The answer is, it is incremental.
Teach your teen the concept of paying yourself first. Tell them to put aside a little every month that they can never touch. Even if its just $50. Today’s teen might squawk at $50 per month. They have the mentality of “Go Big or Go Home.” But “Go Small but go Consistently” is a better motto.
For example, have them go to Bankrate.com and look at the Roth IRA calculator. Have them put their current age, let’s say 16. Then put $50 per month until age 65 at 7% interest rate. They will see that at age 65, they will have $227,399.40 by simply saving $50 per month.
In terms of budgeting, keep it simple. Tell them to put at the top of a sheet of paper how much they earn. Then have them put fixed expenses (this would of course include $50 per month for the Roth IRA). By simply tracking their spending, they will see where they spend their money, which is half of the battle.
Set Your Teen Up for Financial Independence by Teaching Her to Live within Her Budget
Back when most of us parents were in college or working for the first time when we ran out of money for food, we ate ramen. You remember those days! When today’s teens or young adults run out of money, many of them simply put food on a credit card. We must teach them that when they run out of money, they need to eat ramen.
More to the point, help your teens or young adults make a budget. Below you will see a simple budget plans for teens/young adults. They do not have many expenses, so keep it simple.
Obtaining Financial Independence by Purchasing Real Estate
Suggesting that you should purchase real estate for your teen sounds odd, counterintuitive and expensive but not really. What many of the financially astute individuals are doing is actually purchasing a property when there child is born or shortly thereafter. They get a 15-year loan or a 30-year loan with the understanding and intent to pay it off in 15 years. They rent out the house in one of the cities that have stable rent. When their child is 15 years of age and getting ready to consider college, they own a home. To pay for college, they can sell the home, obtain a cash-out refinance, or use the rent to pay monthly for college tuition. Genius, right?
In Part 2 of “Setting Your Teen Up for Financial Independence,” I will discuss the cities that have stable rents and some degree of cash flow. Until then, if you have teens, begin to assist them with creating a budget. If your children are not yet teens, work on your own budget to see the amount you can save for the down payment of a home for your child, instead of putting the money in a 529 plan.