Listen to your folks. You might become richer.
There are many things in life that we learn from our parents. Some are important lifeskills such as cooking and taking care of babies. Others are more superficial in nature, like picking the best fruits from the supermarket and the most efficient ways to clean a toilet (yes, my dad and I were discussing this a month ago!)
Lessons in financial planning may be trickier. Many of our financial instruments and concepts today can sound alien to our parents, especially if they were born in the 1950s or 1960s.
However, that does not mean your parents cannot teach you valuable financial lessons in their own unique ways. Here are four lessons I learnt from my dad.
1. It is not about how much you earn, but how much you save (or spend)
Seemingly logical, yet so many people, especially the younger ones, miss this point.
A lot of us (myself included) always complain about how little we earn. In fact, we complain about it so often that we almost forget that salary is only half the equation.
Often, our financial health is determined more by our spending habits than our salary. Don’t get us wrong, a high salary helps. But, it will still never be sufficient if you spend more than your high salary. We see this happening when people feel the need to spend above their means to show how successful they are.
Many of us know just how much our parents had to scrimp and save just so that we could go through school without worrying about money issues like they had.
So while you do not have full control of how much you earn, remember that you have full control of how much you spend, and thus, how much you can save.
2. Invest only in what you understand
As far as I could remember, my dad has only ever put his money into two forms of investments, stocks and properties.
In those days, investing and keeping track of stocks meant being glued to the teletext. People then had very little information, aside from what they could find on teletext.
My dad invested in stocks, even though I suspected he never really knew much about the counters he was buying. Not surprisingly, his investments often did not pan out as he had hoped.
Putting his money into properties was far easier. He could make better decisions simply because he understood, and could see and feel what he was buying.
What I learnt is that you should always put your money into investments that you actually understand. There is no point following your friends or a hot tip to invest in something you do not understand.
If stocks are your interest, invest in it. If you enjoy the process of buying and renting out properties for passive income, go for it. If it is starting a business in an industry that you understand and are passionate about, put your savings into it. There are no guarantees that your investments will pay off but at the very least, your chances are higher if you do something you know well.
Think about it, have you ever seen anyone getting rich investing in something they do not understand?
3. Invest In education
A good education is important and provides a headstart in one’s career. Equally as important is the constant need to improve, learn and upgrade.
My dad started his career needing to know nothing more than being able to install and fix telephone landlines. He ended it having to manage people via emails.
I can’t imagine how this will develop for our generation? Will our computer literacy skills become obsolete at the tail end of our careers? Will we have to learn a new technology that hasn’t been invented yet? We’re not sure. But with technology advancing at lightning speed, all bets are off.
The world is constantly evolving. The skills we have today will not be enough for us to survive for the rest of our career.
4. Take risks only when you understand and can afford the worst case scenario
Those of us who invest will know that it is not possible to make returns without taking some form of risk.
However, there is a difference between taking risks you understand and can afford, and taking risks recklessly.
For example, if you are taking a home mortgage, make sure it is one that you can cope even when interest rates rise. The last thing you want is to be stuck with a high monthly installment you cannot afford because interest rates went up while your rental income came down.
My dad missed a few opportunities in his earlier years to invest in properties because he was worried that his finances would have been overstretched. When he finally did invest, it was during the economic downturn (SARS in 2003, the recession in 2008).
He did so not because he was an astute investor who recognized it was time to enter the market, but because he could only afford properties during those times.
Investing at any other time would have been beyond his affordability.
On hindsight, I believe the biggest factor was not so much of knowing when to enter the market, but making sure that your risk exposure is managed to ride out both the good and bad times. Anyone can make money during an economic boom; it is the recession that matters.
You do not need to have a degree in finance or be well versed with financial instruments to be able to handle your finances and investments properly. If our parents could manage it in an era where education was a luxury and information was restricted, I believe we should be able do it better today.
This article was first published on mothership.sg