9 Money Lessons You Should Teach Your Kids

While you teach your kid about the social norms and guide them through their life, it’s important that you also teach them about the importance of money and how to value it. Here are a few lessons you can teach them very early on.

1: Patience is a virtue

The very first money lesson that you can teach your kid is “it pays to wait”.

Your kids are smart and sharp; they know that you probably have enough money to fulfill their demands. Whenever your kids demand something, ask them to be patient and wait.

This teaches your kid that not every outing means that they’d get to buy stuff. This practice will inculcate good behavioral habits like patience and restraint in your child.

2: Either this or that

Teach your kid about plenitude.

Wants and desires are mostly impossible to satisfy. Teach your kid that what they have is more than sufficient. It is natural for a child to desire too many things- that too, all at once.

You must teach them the concepts of necessity, need, want, and abundance. When they demands for too many things at a time, make them choose only one of them.

Making a choices helps them develop a better understanding of prioritizing things.

3: Earning a living is tough

When you swipe that card to pay your bills, your child might not realize that credit card bills need to be paid in full or that late payments can result in huge penalties.

Make your kid understand that everybody has to work hard to earn a living.

The best way to teach this is by introducing a reward system. When they put in extra effort to do something, acknowledge it with a reward and let them know that they have earned it.

4: Borrowing and interest

Teach your kids about basic principles like debt and borrowing. Make them understand that if you borrow something (like a loan from the bank), you have to pay it back within a stipulated time period.

Here’s a simple exercise to teach your kids about borrowing and interest rate. Borrow a small amount from your child and then pay them back with interest at a later date. Explain that you had to pay interest on the borrowed amount and hence the child gets a higher amount than originally lent (and in turn, the parent had to return more money than borrowed).

5: Money management

Pocket money is the ideal way to start with the money lessons.

Give them a fixed monthly pocket money at the beginning of the month- and not a single rupee more. Make them understand that expenses need to be managed with what they have.

6: There’s no free lunch

From an ice cream cup to a toy, everything has a price tag.

You can teach your kids that managing finances is imperative for a sustainable living. For every need or want, you have to endow a cost- be it money or time.

When you plan your monthly budget, make your kids sit beside you and help them develop an understanding of how money gets spent; Even the nice aunty that comes to clean the house requires to be paid.

7: Save for a rainy day

Savings will come in handy during the time of crises.

Make them understand that it’s better to save as much as possible from your income in case of future emergencies.

The best way to teach about crises and saving is by skipping on the monthly allowance once or twice. This would inculcate good habits of saving in your child and help them learn how to save money and manage a crisis.

8: Live within your means

There are times when your kids will be influenced by their peer group and make demands which are out of your budget. Never be hesitant to tell your child that it’s out of your budget.

Your kids should know about affordability and be able to live within their means.

9: Start early

You child needs to know that the earlier they start saving, the better it is.

If they need a bigger present for the next birthday, let them start saving from today. The earlier they start saving, the sooner they can reach their goals.

When they are older, you should probably teach them the most powerful word in finance- compounding.

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6 Investing Lessons from the Richest Man in the World - Warren Buffett

Warren Buffet is no stranger to the world of investing. There’s a lot to learn from the most successful man in the world of investing.

Here are six lessons from Warren Buffett that you can use to invest better.

1: “If you buy things you don’t need, you will soon sell things you need.”

You can make more money not only by investing or taking up a second job, but also by resisting the temptation to go out and just splurge. As the saying goes – a penny saved is a penny earned.

Key Takeaway: To be a successful investor, you need to use due diligence. Spending wisely is not about being miserly, but about being smart. Invest in assets that give you good returns over the long term- one that helps you secure your financial future.

2: “Price is what you pay. Value is what you get.”

Most of us know this- the money we pay for something and the value we get out of it, most of the time, does not have a correlation. You could possibly buy a posh apartment for 1 crore rupees. But staying in the apartment does not guarantee a high quality of life- does it?

When it comes to investing, especially the stock markets, the price of a stock is mostly governed by market sentiments and not necessarily by the profitability or value of the company itself. Warren buffet suggests to buy stocks when the price you have to pay for the stock is less than the intrinsic value of it. He says, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Key takeaway: Instead of trying to time the market and extract every rupee profit you can possibly get out of your investment, invest in assets that will generate inflation-beating long term returns and hold on it for a long time (In buffet terms, forever).

3: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Warren Buffet recommends investing in undervalued stock with great potential and holding on to them forever. In-line with this philosophy (which undoubtedly worked so well, and still continues to work), buying shares of a wonderful company at a fair price is much better than buying a mediocre company at a cheap/bargain price.

Buffet notes that over the long term, mediocre companies gives much lesser returns compared to wonderful companies, so much so that the bargain price for which you bought the mediocre company stock does not seem like a bargain anymore.

Key takeaway: Don’t try and time the market or buy into NFO mutual funds because the NAV is low. Invest whenever you have the money and hold it for as long as possible.

4: Be loss-averse

Majority of investor’s measure performance solely based on return. Buffett advices that you should not strive to make every dollar a potential profit which involves too much risk. Instead you should be loss-averse. Preserving your capital should be your top goal. By avoiding losses you’ll naturally be inclined towards investments with assured returns.

As Warren Buffet puts it, “Rule #1, never lose money. Rule #2, never forget Rule #1.”

The takeaway: While Buffet talks about safety of capital, he’s referring to stock investing where you don’t become greedy and go after too-good-to-be-true stocks. Instead, you focus on stocks that are undervalued and are of companies that you understand and has long-term potential.

Many investors misunderstand this as a recommendation for investing only in Bank FDs or equivalent assets which are mostly considered safe. Investing in Bank FDs is almost always guaranteed to be a losing proposition over the long term since after-tax, the returns you get annualized are below inflation rate.

5: Be tax savvy

Like all billionaires, Buffett too is tax savvy.

Be knowledgeable about tax laws and use them to your advantage. Before you invest, make sure you understand the tax implications of your investment.

For e.g. while investing in Bank FDs might give you 9% returns, the interest is actually taxable as per your tax-bracket. The real return, if you are in the 30% tax-bracket, will fall to just a little above 6%. Now, that’s below inflation rate and you are effectively losing money the longer you invest in it.

The takeaway: Understand the tax implications of your investment fully before making a choice.

6: Limit what you borrow

More is not always good- case in point, loans and credit card debt.

With daily offers from ecommerce companies, it might be tempting to buy that latest mobile phone on an EM. Considering the fact that the phone you bought for EMI (plus the processing fee which is in-directly the interest you pay for the EMI facility), and it loses its value over time (most cases, the moment you buy it), it is best if you limit your borrowing.

The takeaway: Borrow only when it’s absolutely necessary. When borrowing, make sure you understand all the fees associated with it. Sometimes, the real cost of bowing money will be hidden as miscellaneous charges like processing fee.

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7 Mistakes to Avoid When Looking for a New Home

Purchasing a home is a major milestone; owning your own home gives you a feeling of independence that renting can’t offer, and there are big financial benefits, too. A home is likely the most expensive asset you will ever own, however, and it’s not a decision to take lightly. The dream of homeownership can quickly turn into a nightmare, leaving you with enough financial regrets to last a lifetime.

Don’t let the home-buying process make a financial fool out of you. Here are seven of the biggest home shopping and mortgage mistakes to avoid.

1. Treating your home like a short-term investment

A house should first and foremost be for living in -- it’s not always going to be a shrewd investment. Home values don’t always appreciate over time and a house is a large asset that isn't very liquid. For example, if you plan to move in three or four years, you probably won’t be able to recoup the transaction costs and you can even lose money. Buyers must view the purchase of a home as a very a long-term investment. If you want to invest but aren’t ready for that kind of commitment, consider putting your money in a mutual fund.

2. Comparing your rent to a mortgage payment

Just because you pay a certain amount in rent doesn’t mean you can afford the same amount as a mortgage payment. In fact, you can probably afford much, much less than your rent. There are multiple costs associated with purchasing and owning a home: stamp duty, registration charges, various taxes, house shifting costs, insurance coverage, home maintenance, property taxes, and more. Many homeowners are aware of these costs, but underestimate just how much they can be.

3. Maxing out your loan

Your mortgage preapproval number is not necessarily what you should spend on a house. Give yourself flexibility and options by choosing a less expensive home. Life can be unpredictable, and it’s easy to find yourself suddenly living in a house you can no longer afford. Skip the hefty mortgage payment and opt for security instead. You can’t put a price on knowing you can stay in your home even if you face a financial crisis or life change, like having a baby.

4. Not planning ahead

Before you even start to shop around for a home, take 12 months to clean up your credit report, get your debt-to-income ratio down and save up as much cash as possible. A few dings on your credit report could cost you thousands over the lifetime of a loan or could keep you from scoring the home of your dreams.

Once your credit is squeaky clean, you can meet with a bank to get preapproved for a loan. Then you will be able to jump quickly on a great deal with a better chance of landing it.

5. Taking too long to make a decision

Right now it’s a seller’s market: inventory is low and homes sell quickly. You have to move fast. There's not a high volume of home inventory out there and many of the lower-priced homes are going for cash.

Don’t let cosmetic issues like paint colors, outdated décor or old appliances keep you from putting an offer in on a home. You can take your time later to upgrade the physical imperfections. If a house is priced well, in your desired location, is the right size and has a great layout -- make an offer! You can worry about that powder pink bathroom later.

6. Failing to shop multiple mortgage brokers

Talk to various lenders, explore the types of loans available and learn the terminology. Know what affects rates and compare the fees charged by different brokers. Your qualifications can be weighted differently and each mortgage company operates in its own way.

7. Trusting online home values

While the internet is a helpful tool for conducting basic research or comparing mortgage options, online home valuation sites can create unrealistic expectations. Work with an experienced real estate agent and ask him to conduct a comparative market analysis based off internal industry data -- it will be more reliable.

A good agent also understands the market and will be able to highlight subtleties that affect home prices. For example, a house might seem like a great deal online but your agent knows that it’s facing in a direction that receives little daylight, the house next door is blighted. Your agent might even have inside information about neighborhood drama -- something you probably want to avoid at all costs.

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Saving

Savings can help you achieve any financial goal. Whether it’s a comfortable retirement, a down payment for a house, or a new car or stereo, you can get there by setting money aside. And best of all, you can have what you want without getting bogged down in debt.

Yet if you’re like most people, you don’t save as much as you’d like to. Or you don’t save at all. Generally people spend more than they earn. Today’s high energy, home and food prices may make saving seem less possible than ever.

But the time is now. And with a little forethought and effort, saving money is not only possible, it’s easy and practical.

Make Saving a Priority

You’ll be more likely to save money if you make it a priority. Sit down and figure out what you’d like to save money for – retirement, a house, car, college, dream vacation – and how much it will cost. Then make your plan:

• Set a timeline for when you’d like to reach your goal.
• Set a schedule by dividing the total goal amount by the number of weeks, months or pay periods between now and your goal date.
• Be vigilant by treating your savings contribution just like any other must-pay expense, such as rent or groceries.

Find Money to Save

While it may seem difficult sometimes just to make ends meet, chances are you have extra money you didn’t even know about. Here are some ways to find it:

• Keep track of everything you spend for a week. You might be surprised what you’re buying, and what you can do without.
• Make purchases with cash. This can help you stick to a budget and avoid impulse purchases. Simply decide ahead of time how much you want to spend and then set aside that amount in cash before you go shopping.
• Lower your bills. Many creditors will give borrowers a lower interest rate if they’re asked. Also, conserving electricity and gas can make a big difference.
• Rank your nonessential expenses. Keep the ones you like the best and cut the items on the bottom of the list.
• Pack a lunch. Or cook more dinners at home. Eating out at restaurants can eat up a lot of money that could be saved.

Pay Yourself First

You're probably inclined to pay everyone else first – whether it’s your landlord or your grocer or the electric company. But it’s vital to start paying yourself first by saving money. Once you’ve made a contribution to your financial longevity and well-being, then you can divide up your money to cover everything else. Don’t worry. You'll more than likely have plenty left over to cover everything you need.

In fact, most banks make this easier. You can have them automatically transfer funds from your checking account to your savings account, money market, mutual fund and other accounts. You might also check with your employer. Companies will often deduct savings from paychecks if asked.

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