June 15, 2020
Father’s Day is an occasion for celebrating all of the wonderful dads in our lives. But instead of buying your dad a gift that he doesn’t really need and might not even want (a necktie? with a matching face mask? another pair of socks?), why not give the gift that every dad secretly craves: a sympathetic ear for his hard-earned advice?
That’s right: This year for Father’s Day, one of the best gifts you can give is to let an actual father offer you some helpful advice about money, work and life. (Editor’s Note: The author of this piece is a father of two children, ages 12 and 10.)
People often look to their fathers for financial advice. As a father, there are several attitudes about money, work and life that I hope my own children will take to heart as they grow up. Sometimes having the right attitude about money, and developing the right relationship with money, can give you a better foundation for success.
1. Believe in Yourself, and Invest in Your Future
I want my children to grow, go to college and hopefully get on track for a fulfilling, rewarding career and a comfortable life. Most fathers have certain dreams for their children. Maybe we don’t want our children to grow up to have a specific career or to be doctors or lawyers, necessarily, but we want our children to be healthy, happy and doing work that they feel good about, that helps them feel confident about the future.
Whether it’s college, trade school, the military, a vocational apprenticeship or some other formal training program, most people will be better off for the rest of their lives if they invest in their future with post-secondary education or career training. Don’t be afraid to borrow some money to go to college, so long as you finish your degree and know the true ROI. Don’t be afraid to start a business, if you believe in your vision and are willing to work hard.
Money that you invest in yourself—in your future earning power and your career skills—is money well spent. You never know what future opportunities may materialize if you can get an education and set yourself on the right career track. If you have a dream in life, start working toward it when you’re young. Choose yourself, believe in yourself and invest in yourself to make it happen. This dad will be cheering for you every step of the way.
2. Understand Bad Debt vs. Good Debt
Your father hopefully taught you a thing or two about debt. Most people go through life having different kinds of debt, whether student loans, a mortgage, a car loan or occasional credit card debt. There’s nothing wrong with taking on debt, so long as you can manage your payments and the debt helps you reach your most important goals.
It’s important to understand that some debt is considered “bad” and some debt is considered “good.” Ideally, you should only borrow money for things that have traditionally increased in value—such as houses, or higher education, or investing in a business.
Generally speaking, student loan debt is good debt because it’s usually offered at a low interest rate, and many times it helps you qualify for better-paying jobs than you could have gotten without a degree. Mortgage debt also can be good debt, because it helps you afford a comfortable home to live in, and the interest rates tend to be (and right now are) quite low. If everyone were required to pay all cash to buy a home, the U.S. housing market would collapse.
If you need to borrow money to start a business, or get a small-business loan to help manage your business operations, this also is usually good debt because it helps create a way to make money and build something for yourself.
Whether a car loan qualifies as good debt depends on the choices you make. Most people need a car to get to work, or to drive their kids to school and activities. However, there’s a huge cost difference between having reliable transportation and driving around in a status symbol. Make sure your monthly car payment is manageable, and that you’re still saving plenty of money.
Some debts are bad. These debts, if you’re not careful, can hold you back from getting where you want to go in life. Credit card debt is often a form of bad debt. That’s because credit cards may charge higher interest rates than other types of debt.
If you cannot pay off your monthly credit card balance in full, if you find yourself juggling multiple cards and scrambling to make minimum payments or if you are racking up late fees and interest charges, you are likely spending too much on your credit cards. Avoid carrying balances on your credit cards. Paying 22% interest on credit card debt is a bad situation to be in.
The key is to not to use credit cards to live beyond your means. If you do find yourself carrying a balance on your credit cards, make sure you understand exactly how much you owe, how much it will cost to pay off and how you plan to get out and stay out of debt.
Credit cards can be a wonderful convenience and a great cash management tool. Credit cards can give you the flexibility of having a few extra weeks to pay for big purchases, let you earn reward points for travel or other spending goals, and make online shopping easier and safer.
But if you’re living on credit, you need to change your lifestyle. Don’t rack up high-interest debt to pay for restaurant meals and clothes and short-term consumer purchases. Debt should help put you in a better situation in life, not drag you down.
3. Invest for the Long Term
Everyone needs to save for retirement, starting from the first paycheck of your first real job. The more money you can save while you’re young, the more time you will have for your money to grow, thanks in part to the magic of compound interest.
Along with saving for retirement, you will want to save and invest for other financial goals in the short term. For example, you might want to save for a down payment on a house. You may want to save up a vacation fund for your next big trip. Or maybe you are just getting started in life and trying to save up enough money to have a comfortable emergency fund.
Whatever your financial goals, you need to think about your investment time horizon: How soon will you need this money? How much can you afford to risk and how should you invest it?
If you’re saving for a goal that is still many years in the future, and you can stomach some risk, put that money into the stock market. Investing in the stock market involves taking on risk but, over the long run, it tends to deliver the best opportunities for your money to grow.
If you’re saving for a goal that is only a few years away, keep the money in safer, short-term investments, like a high-yield savings account or certificate of deposit (CD).
Your investment time horizon is the No. 1 priority to consider: How soon do you need this money? Don’t, for example, invest your emergency fund savings in the stock market. If you need access to your money tomorrow, you don’t want to risk needing to sell investments at an inopportune time.
But for longer-term financial goals? Get comfortable with a higher level of risk, which has the potential to earn you greater returns in the long run. Don’t be too reluctant to invest in the stock market because of today’s dire headlines. This will prevent you from participating in the gains to come.
Put your retirement savings to work in the stock market and send your money on a long journey; don’t focus on the day-to-day fluctuations of the stock market. Your money will meet you again in the future after it has grown.
4. Diversify Your Investments
When you invest, you should put your money into a well-diversified portfolio. Consider using low-cost index funds that buy securities from hundreds of different companies; this helps you spread out your risk and improves your chances of getting the best returns on your investment.
Some people like to pick individual stocks; maybe they are passionate about a particular company, or maybe they are knowledgeable about a certain industry and they believe that they can create their own portfolio of stocks. Picking your own stocks can be risky. Stocks go down as well as up. If you invest too much money in one stock, or just a few stocks, you are putting too many eggs in one basket.
There’s an old saying about stock picking: If you buy an individual stock, three things can happen, and two of them are bad. The stock might go up in price (that’s good), but it might go down in price (that’s bad) or it might go up in price but not as much as the broader stock market (that’s also bad).
Most people are not smart enough or lucky enough to beat the market—to be able to pick stocks that can consistently grow faster than, say, the S&P 500. That’s why it’s often better to diversify. Putting your money into lots and lots of different stocks, in the form of low-cost index funds, should help your savings grow more over time than it would have if you were invested in just a few stocks.
5. Diversify Your Career
Just as you should diversify your investments, you also should think about diversifying your career. Don’t expect to rely on one job or one company for your entire livelihood for the rest of your life. Be prepared to change jobs multiple times before age 30. Be ready to keep learning new skills and keep trying new things. Be willing to take calculated risks with your career.
One of the dangers of having a long career is that you might get stuck in a rut. If you’re at the same job for too many years, you could end up feeling stagnant, underpaid or out of touch with the latest tech and trends. And there’s no way of knowing what jobs may be available in the future that haven’t even been invented yet.
If possible, try to diversify your income by starting a side hustle, a consulting or freelancing service or some other small business to make extra money and learn new skills. The future of the economy is heading toward greater flexibility; think like an entrepreneur or a freelancer, even if you have a traditional day job.
6. Money Is Wonderful, But People Matter More
Here’s an old saying: “Money is a kind servant, but a cruel master.” It’s fine to care about money and want to get the most out of your income and make smart money moves. By all means, be smart and careful with your money. But recent events have reinforced more than ever that money really isn’t the most important thing in life.
People are more important than money. Relationships matter more than money. Memories matter more than money. Creativity matters more than money. Love matters more than money. Once you have “enough” money, more money doesn’t really make you happier. (Yes, there are data studies to back this up.) Don’t sacrifice the wrong things in life to chase a few more dollars. Be generous.
Use money as a tool to get what you need, and to live a healthy, happy life. But once you have enough money, it’s time to think more expansively about what you really want your life to become. Don’t be defined by your money. This dad knows that you’re so much better and more beautiful than that.
Happy Father’s Day to you and your dad or father figure. No matter what kind of relationship you have with your dad or with money, we hope these money attitudes can help carry you through life.
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