Financial advice for my daughters.

Recently, I read a quote that said “Most of you don’t want wealth. You don’t even want to be rich. You just want to be free.” I totally agree and I’d take it a step further. We aren’t necessarily chasing financial freedom, we’re chasing freedom from worry. We spend a lot of time, energy, and resources in pursuit of that freedom. What I’ve come to realize is that some of the most popular financial advice can be so restrictive that you end up in bondage to the “process” rather than learning to have a healthy relationship with money.

For a long time, I’ve been interested in investing and thinking about the markets. I studied finance in college, became a financial advisor at the ripe age of 22 - pretending like I knew what I was doing advising people older and smarter than me on how to manage their money. With 3 weeks of training in New York, I was a supposed expert on how to invest and manage wealth for people who had spent their entire life working for it.

It was not an easy job but I learned a lot about managing money, the forces that cause us to make ill-advised decisions with our money, and all the steps on how one can accumulate a secure financial future. Like many other financial planners and advisors, part of my educating people was trying to convince them to save every penny they found under their couch to put into a 401K or IRA to save for their retirement.

Dave Ramsey, a very well known author, speaker, and radio host; has a phrase he likes to use when giving financial advice: “if you live like no one else, later you can live like no one else.” If you’ve read his books or listen to his radio show, you’ll hear him tell people to live off beans and rice and keep track of every penny in order to get out of debt and attain their financial goals. There is a lot of truth to what Ramsey says and he’s helped countless people get out of debt and find “Financial Peace”, the name of one of his bestselling books.

However, I’ve come to disagree with some of the tactics and advice he, or other financial advisors, may give that directs people to be incredibly tight or extreme with saving money today in hopes of accumulating a potential pot of gold in the future. In my opinion, the problem with being so rigid in saving money is: 1. it creates a false sense of security about our future. 2. we can rob ourselves and our families of joy and experiences by being cheap and too focused on funding financial goals off in the distant future.

After Jacob passed, our families relationship with money changed. I was as uptight and worried about saving for my retirement as anyone. We tried to keep a very strict budget that was written out every year and I even taught a bible study class at our church using Dave Ramsey’s book Financial Peace. Even though someone would say I was managing our personal finances in a prudent and responsible way; I had an unhealthy fear of the future and unknown. And, the “saving” gave me a sense of control over the future. Even though I still struggle with this to some degree, the way I define “Financial Freedom” is not what it used to be. I place a much higher priority on trying to live in the present over meeting some future financial goal.

A sudden illness, a crisis, or the death of a loved will show you exactly what’s important in life and where you should be investing time, your mental energy, and money. That being said, I/we are far from perfect on how we handle money. At some point I’ll be trying to teach my daughters about managing their personal finances, so I thought I’d share what I would tell them using Dave Ramsey’s steps to financial freedom with my own twist. I realize everyone’s financial situation is different, so please take this with a grain of salt. Ramsey’s steps are in bold with my comments following.

  1. Save $1,000 for an emergency fund: Agree with this one. You will always need some cash in the bank to help with emergencies.

  2. Pay off all debt: First, don’t ever get a credit card. However, if you do get one for some reason, pay it off and then cut it up. Depending on your financial and job situation, I’m not so worried about rushing to pay off vehicle debt. If you can, it’s best to get to a point where you’re paying cash for your cars. But, I realize that’s going to depend on your income and it may take a while to get there. 

  3. Save 3-6 months of expenses: My goal would be to save up to 3 months in your 20’s and 30’s and then do your best to have more saved in your older years. It’s hard when you’re young, buying a house, having kids, etc. to be able to sock away that much money. Don’t sweat it. Eventually, you’ll find your footing in your 40’s and you can start saving a little more to have a cushion. The key here is balance in saving versus enjoying your family at the same time. Don’t be so tight that you create a weird energy within your family about spending money and saving. Money is a tool, it’s not your master.  

  4. Invest 15% of household income into Roth IRA’s and pre-tax retirement: Disagree. I believe that paying for your kids college is as important as funding your retirement savings. I would balance the way I allocate money between the two. I don’t think you should give priority to building a retirement account over providing your kids with a college education.

  5. College funding for children: See above and I wouldn’t be maniacal about having it totally funded. Do your best to save but realize college is very expensive and you may have to borrow a little as they get through school.

  6. Pay off home early: Try to buy a house that affords you the ability to pay it off in less than 20 years. Assuming interest rates are still fairly low, it doesn’t make any sense (to me) to try and pay off a house in less than 15 years. Keep your monthly mortgage payment below 30% of your monthly household income. Have your house paid off by the time your in your 60’s.

  7. Build wealth and give: Agree with a caveat. You need to start giving to charity and church once you start earning an income. I don’t really believe in building a nest egg for the purpose of retiring and to stop working. I am all for building wealth as long as you’re not making your family miserable on the way to it. There is no guarantee you or your spouse are going to make it to retirement age. So, have balance in saving and spending throughout your life. Invest in making memories now, not just in your latter years.

I realize I’m at risk here for giving bad financial advice. This is just my opinion and I’m sure there are numerous arguments to be made against some of what I’ve written. My hope is that we can pass on to our daughters some lessons we’ve learned by experiencing a life altering tragic loss. There is no amount of money that can help you control your future and there will be challenges you can’t plan for. So accept it, do your best, have balance, live in the present, and cherish your friends and family.