This weekend I will give a toast at a party celebrating my parents’ 50th wedding anniversary.
After I roast them for a few minutes, I plan on thanking them for setting an example of what a healthy marriage should look like (if you’re going to be at the party, don’t spill the beans. I know some of their friends read Investment U).
Kids very often model the behavior of their parents, good or bad. And that’s true for a variety of subjects – financial behavior, personal relationships and dealing with stress are some of the more prominent ones.[ad#Google Adsense 336×280-IA]My parents weren’t the greatest investors in the world, but they did teach me valuable lessons when it comes to handling my finances.
Don’t buy something you can’t afford.
Save some of what you earn.
Don’t get into debt.
Basic stuff, but lessons that served me extremely well as an adult.
But not everyone is as fortunate as I was to have parents who set a good example.
Barron’s reported this week that there are 35 million Americans who admit to rolling over credit card debt of more than $2,500 month to month.
And 41% of adults gave themselves a grade of C, D or F on personal finance knowledge. If you’re among them, don’t fret. You’re reading this, which means you want to improve your understanding of how to make, save and keep more money.
The good news is it’s not rocket science. The better news is that you can be that example to your kids or grandkids so that your behavior leaves a legacy of financial success.
Build for the Future
My favorite way of investing for the future is to own shares of companies that pay dividends that are increased every year. I call these stocks Perpetual Dividend Raisers. And since I don’t need the income from those dividends today, I reinvest them, which will create wealth and generate a lot more income in the future.
You can simply tell your broker to automatically reinvest the dividends, and each time you are paid, the dividends are used to buy more shares or fractions of shares. Then, because you have more shares, you get more dividends, which are used to buy more shares, which generate more dividends… Through the power of compounding, you can easily triple your money in 10 years – and that’s in safe, conservative stocks.
If you do need the income today, you can also invest in these stocks. Just collect the dividends instead of reinvesting them. That way, you’ll receive more income each year. And if you buy the right stocks, the ones that have solid dividend growth, your buying power will actually increase over the years.
On Monday, I was on CNBC talking about exactly this type of stock.
Though I strongly believe in this strategy, there are plenty of other methods of investing. Value investing, growth investing and momentum investing are just a few. You can also simply invest in a long-term portfolio like The Oxford Club‘s Gone Fishin’ Portfolio, which is composed of mutual funds designed to generate above-average returns safely over the long term.
I have most of my long-term investments in the Gone Fishin’ Portfolio and reinvested in Perpetual Dividend Raisers.
Talk About It
Regardless of which method you choose, talk to your kids and grandkids about it. If you explain to them that if you’re successful, some of the money will be theirs someday, their enthusiasm may perk up.
Let them see you reading investment books, websites or newsletters. If you make a great trade and are excited or have a losing one and you’re down, tell them why. Show them what you did right or wrong and what you might do better next time.
Your kids don’t have to become Warren Buffett for you to have taught them important life lessons. You spend your life working hard to provide for your family; be sure you’re teaching them how to provide for theirs.
Punching a clock doesn’t do it anymore. They need to understand how money works and how it can be put to work.
Be that role model for them. That’s a legacy that could carry on for generations.
Source: Investment U