October 24, 2020

Austrianfood

Interesting Business

Carla Fried: 3 big lessons parents need to teach kids about finance | Money

2. What you can borrow is irrelevant. What you should borrow is all that matters. The reality of our financial ecosystem is that lenders are motivated to tell you the maximum amount you can borrow for a car or a house. But those lenders don’t have a clue (or vested interest) in helping you juggle all your financial goals. Buying the three-year-old used car will always be the financially smart move, rather than paying up for a new car. Buying a smaller house that meets your needs, but doesn’t stretch your budget, can free up cash flow that will give you hundreds of thousands more for retirement: https://www.rate.com/research/news/richer-retirement

3. Your 20s are the best time to save for retirement. Talk about counterintuitive. This is a hard one, no doubt. But if you ever want to give your kids a huge assist on financial security, teaching the math of compound interest is the most important lesson.

Every dollar tucked away in your 20s will have more time to grow than money you save in your 30s, 40s and 50s. Invest $500 a month from 22 to 32 and you will have more than $77,000 assuming a conservative 5% annualized rate of return. At that point, even if you stop saving more, but leave that nest egg growing for another 40 years it will be worth nearly $550,000 at age 72. To be clear: Over just one decade of savings, from age 22 to 32, the young adult invests $60,000 of their own money. Then at age 72 they have more than half a million dollars.