Growing up, I never really paid much attention to the financial wisdom my parents were imparting. It wasn’t until I became a full-fledged adult that I realized how right they were about so many things. My teenage self would have scoffed at the idea that my parents had any valuable insights, but now I see that their financial lessons have been invaluable. In a world where our school education often lacks essential personal finance knowledge, my parents’ teachings have become my financial compass.
Lesson 1: Pay with Cash – Embracing the Cash Envelope System
One of the fundamental financial lessons my parents taught me is the importance of paying for certain expenses with cash. They had their unique twist on the cash envelope system, using mason jars instead of envelopes. Each week, they would withdraw cash from the bank, dividing it into different jars based on their budget categories:
- Entertainment (including dining out)
These jars served as a visual representation of their budget, making it easy to track their spending. If they wanted to allocate more money to a particular category one week, they borrowed from another without withdrawing extra cash. This approach ensured they stuck to their budget, and the transparency of the glass jars made it easy to see how much money was left in each category. They also set aside a personal allowance for each family member to spend on whatever they wanted.
Every five years, they adjusted the jar amounts to account for inflation and changes in their budget.
Lesson 2: Don’t Bite Off More House Than You Can Chew
My parents stressed the importance of buying a home within our means, especially considering the volatility of mortgage interest rates. In the 1980s and ’90s, rates skyrocketed to unimaginable levels, with the ’80s seeing rates as high as 18%. This forced people to buy only what they could genuinely afford.
Today, mortgage rates are significantly lower, tempting some to buy larger, more expensive homes. However, my parents’ advice still holds true: always assume a higher interest rate when calculating affordability. This way, even if rates rise, you’ll still be comfortable with your mortgage payments.
Lesson 3: Have Only One Credit Card
While many people have multiple credit cards, my parents advocated for simplicity by having only one. They emphasized how challenging it can be to manage multiple cards and how easy it is for credit card debt to spiral out of control. Consolidating credit card debt and eliminating unnecessary cards can make managing your finances much more manageable. If you’re struggling with debt, remember that it’s possible to turn your financial situation around. Seek guidance and implement strategies to regain control of your finances.
Lesson 4: Save for the Future
My baby boomer parents understood the importance of preparing for the future. They set up retirement accounts for themselves and education savings accounts for their children. Even during financial ups and downs, they saved what they could.
My mother had a well-paying government job when they first married, supporting my father while he pursued his Ph.D. After I and my sister were born, my mom stayed at home for several years before returning to work when we became teenagers. Throughout these changes, having an emergency fund was a lifesaver. It allowed them to navigate financial crises without undue stress.
One of the most significant lessons I learned from them is that saving isn’t an all-or-nothing endeavor. Even if you can only spare a few dollars, start saving and investing. When you have more, save more. Every bit counts.
Lesson 5: Eat Most Meals at Home
My parents were part of a generation that prioritized home-cooked meals over dining out. They recognized that cooking at home was not only healthier but also more budget-friendly. Given that food is often one of the most significant expenses after housing and transportation, this lesson resonates deeply with me.
Lesson 6: Track Your Finances
When I was just 14, my dad taught me how to balance bank statements for his business. I had no idea at the time that this skill would become so valuable. Back then, there were no apps to make tracking money easy; my parents used paper and pencil. However, they always emphasized the importance of staying on top of their finances.
Today, we have apps like Personal Capital that can organize all your financial information, making it easier than ever to track your financial health.
Lesson 7: Spend Less Than You Make
In a world filled with credit cards, overdraft protection, and easy access to loans, it’s all too easy to overspend. We often compare ourselves to others without considering their financial situations, leading to financial stress and debt.
My parents taught me the importance of living within my means and not comparing my financial situation to others. They emphasized that financial success is personal and doesn’t always equate to having the latest gadgets or luxuries. Keeping a close eye on my own finances and making wise choices has been crucial to my financial well-being.