Is Financial Management A Skill? (What To Teach Our Kids)

As we build wealth, we develop the necessary attributes of effective financial management. This is why teaching our children about money is better than giving them money. Passing our wealth doesn’t mean we automatically pass the characteristics of being good financial managers.

Ultimately, financial management is more of a discipline than a skill. Living within your means. Monitoring expenses. Saving for rainy days. Delaying gratification. These are essentials to effective financial management – yet they do not need elaborate skills to perform.

Any person who consistently applies the disciplines mentioned above in his life will do well financially. No doubt about it. But that does not imply we should stay there for the rest of our lives. Helping our children develop a knack for money will not only impact them financially. But also personally and professionally. If you are wondering what money skills you need to teach your children, continue reading below.

Disclaimer: the content of this article is based on the author’s opinion. This post is not intended to give professional advice.

My eldest, Joab, is playing as a baker in Kinder City.

Are Financial Management Skills Natural?

I haven’t heard of any person born with exceptional financial management skills. Ninety-nine percent of self-made millionaires I have talked to and have read about had experienced terrible money problems at some point in their lives. This means they were not naturally gifted in managing their finances. But the immense gap between them and those who still struggle financially is that they found remarkable people who taught them about money. Robert Kiyosaki had his Rich Dad; Warren Buffett had Benjamin Graham; Dave Ramsey interviewed many old rich in his circle.

Let’s not go far. If you consider yourself good with money, it is likely someone has also coached you on managing your finances. Am I incorrect? Perhaps there are prodigies out there. But for the majority of kids, they need someone like their father to be skillful with money to train them.

What Are The Practical Money Skills You Should Develop and Teach Your Children?

Let us not waste the opportunity to teach our children about finance whenever they are ready. A good age to start is five or when you observe they have already grasped the fundamental use of money: to buy stuff. Below is a list of practical money skills we must develop and can teach our children.

Goal Setting

There is no management without a target. The purpose of managing your finances is to ensure your money flows in the right direction. Goals serve as the backbone of financial management. But setting relevant goals is not as easy as it sounds. It requires skill to be able to determine worthwhile objectives. What I am about to tell you next may have already become a cliche. The SMART goal-setting method has already been taught and used everywhere. SMART is an acronym for:

  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Time-bound

The details of this goal-setting method are beyond the scope of this blog post. You can follow this link to learn more: How To Make Your Goals Achievable. But essentially, goals must possess these five qualities to be effective. Of course, this concept might be too advanced for our kids to grasp, especially if they are under ten. As parents, perhaps we can help them set short targets they can aim for, like buying a toy, starting a savings fund, or helping a cause.

We bring our kids to the grocery store to teach them about budgeting. It seems they spent it all on snacks.

Budgeting

If goal setting is the backbone, budgeting is the heart of financial management. A written budget is a level up of living within our means. It is a skill that will make all aspects of our finances work together. As the heart pumps blood to different organs in our body, budgeting is the process of directing our money to the various priorities in our lives. Here is a simplified version of what a budget looks like:

  • Savings – 20%
  • Necessities – 50%
  • Giving – 10%
  • Wants – 20%

This figure shows you will allocate 20% of your income to savings, 50% to your needs, 10% to charities, and 20% to buy anything you want. Let’s say you receive a payment of $1,000. Here is how it is going to look in actuality:

  • Savings – $200
  • Necessities – $500
  • Giving – $100
  • Wants – $200

Feel free to use and tweak this example according to your needs if you still do not have a budgeting system. Here are other creative ways to budget:

  • The envelope system — distribute the actual cash in four to seven envelopes and label them according to your priorities. The fund in those envelopes should only be spent in the category written on them.
  • The pay-yourself first method — determine how much money you want to keep before spending what is left.
  • The “no” approach — A simple idea where you say no to yourself when you do not have the money to spend. This method’s primary intention is to keep you from getting into debt as it discourages you from using credits or loans.
  • The zero-based budget — is the practice of spending your income on paper before expending it in real life. The total, in the end, should be zero. This method makes you think hard about where to spend the money you have currently on hand.

For kids and beginners, I personally recommend the pay-yourself first method. I use the 20/80 principle. Save 20% and spend the rest.

Selling

Income is the lifeblood of financial management. And this is, more often than not, the idea our children miss. They believe money simply comes out of the ATM or mom’s drawer. Children should understand how money is generated. They must know it requires knowledge, skill, and hard work. Giving them money without any effort will only make matters worse. This is why teaching kids about selling is vital. Through this process, they will learn the concept of getting paid by providing value to others. Below are a few ideas to teach our kids about selling:

  • Set up a lemonade stand in weekend markets.
  • Encourage them to sell clothes and toys they no longer use.
  • Allow them to join a fast-food kiddie crew.
  • Bring them to your office.
  • Do some role-playing at home.
Role-playing is one of the most effective methods of teaching children. Jrue pretending to be a hamburger vendor.

Investing

One of the quotes by Warren Buffett that resonates with me profoundly is this:

If you don’t find a way to make money while you sleep, you will work until you die.

Warren Buffett

Do you want your kids to become wealthy? Then, teaching them about investing is non-negotiable. Investing is the practice of making money to make more money. It is a skill of buying valuable assets that have the potential of giving future returns. I admit this is a challenging concept to teach our children. Even adults will struggle to grasp the whole notion of investing. But fundamentally, all they need to understand is the idea of interests.

Generally, interest is the money you earn for lending money – or pay when borrowing. My mentor told me he understood this concept at a young age because his parents always doubled the money he saved at the end of each week. He said his natural response was, of course, to save as much money as he could. We can copy and paste this with our kids since that is how investment also basically works in real life (but at a much slower pace). Putting our money in instruments that earn an interest rate of 10% per annum will double it in about seven years.

Giving

The problem with the pursuit of money is that it can take control of our hearts. If we are not careful, we may live our lives for nothing else except to accumulate more wealth. This is often the result of fear, pride, and self-centeredness. I don’t know about you, but I do not want my children to live that way. If we are teaching them about money, let’s make sure we also train them to defend themselves against its side effects. Thus far, the best antidote to prevent materialism from taking control of our hearts is our ability to give back. It is like saying, “money, you are not the master of my life. In fact, I can give you away!”

Giving is also a valuable measuring stick for how much control money has in our lives. We should evaluate ourselves each time we find it difficult to share our wealth. Aside from paying off my debts, being generous has also been my journey for the past five years. I have been training myself to be detached from money, so I can manage them much better. This is true financial freedom.

What I did was dedicate a budget for giving. I called it the Giving Fund. All tips and help I extend to others come from that fund. I must say it was one of the best decisions I ever made in my life. It made me more cheerful when giving, knowing it won’t affect my family’s daily operations. Some ideas to teach our children about giving:

  • Instead of selling, encourage them to give away toys and clothes they no longer use.
  • Allow them to put their own tips after dining in a restaurant.
  • Teach them to give 10% of their earnings to their chosen charities.

Decision Making

Last one before I close this post. Making sound decisions is part of financial management. There are myriad decisions we have to make when managing our finances. We sure will make many dumb ones, but what is critical is we should dare to decide. Many are paralyzed because they are too afraid to commit mistakes. This is what I typically see with most children and adults nowadays. It’s either they became too comfortable about someone calling the shots for them, or they have had a painful experience the last time they made a decision.

I train my kids by encouraging them to make choices. I help them by giving some pros and cons, but it will ultimately be up to them. It can be as mundane as what clothes they want to wear; to as critical as which ice cream flavor they want to buy. In the end, I tell them there will always be consequences whenever we make the wrong choices. And it’s okay. The important thing is we man up and learn from it.

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What Does Financial Planning Include?

Like all money-related topics, financial planning can be intimidating at first. But you will be surprised this subject is eminently practical as you work your way through it. I’m sure you have already stumbled upon many well-written blogs on how to make your own financial plan. What I can offer you here today, perhaps, is a more simplified approach to financial planning.

Healthy financial planning includes the past, present, and future. You should plan on dealing with past money mistakes to prevent them from affecting the present. Plan your present because how you manage your finances today will impact your future. Finally, plan your future to leave a lasting legacy for your children.

Read on if you want to know more about what is included in financial planning. I will break down what areas in the past, present, and future you need to give more attention to.

Disclaimer: the information in this article is based only on the author’s opinion. It does not intend to give professional financial advice.

Family portraits on a table.
A nostalgic area in my parents’ house. A table with all our portraits since we were kids.

Fixing The Past

We all make mistakes. But sadly, the term “forgive and forget” isn’t commonly applied in the financial world. We should reconcile each matter we had in the past if we want to enjoy our present. This is the part most people overlook when making their financial plans. They thought they could simply sweep their mess under the rug and let it stay there forever.

Undealt issues such as debts will carry over from year to year until you finally settle them. Listed below are a few critical financial matters in the past you must resolve as soon as possible.

Pay Off Your Debts

I grew up knowing being in debt is a normal part of life. Shopping? Credit cards. Business? Get a loan. Need cash? Call a friend. Using other people’s money has always been a part of the equation in living my life. I only learned how harmful debts are after I got married in 2016. I arrived at a point where I no longer had money to pay my creditors, so the only thing I could do was to stay home and hide.

The worst thing about debts is that they grow exponentially over time. The longer you ignore them, the bigger they get. Credit card debts, for example, grow at an average rate of 36% per year. Based on the Rule of 72, those debts will double in only two years! Imagine how immense the number would be if you neglected them for ten years.

Bury The Dead

A close friend of mine was about to start his new company five years after his last one failed. Unfortunately, as he processed the paperwork, he learned an $XX, XXX amount in taxes and penalties needed to be settled before he could open the new business. Later we found out he failed to formally close his previous company.

I also had a similar experience when I reapplied to an internet service. My name got blacklisted from the provider because I forgot to settle the remaining balance for our old address two years ago! My only option now was to look for another provider or pay the unsettled accounts, plus penalties.

When you terminate a business, a subscription, or a service, make sure you close them properly. This is what it means to bury the dead. Leaving accounts open may come back and bite you one day.

Patch Relationships

Why talk about relationships in financial planning? Well, simply put, relationships are vital to your financial health. Losing your spouse, customers, mentors, and support group is costly. This one hit home when I lost one of my biggest customers three years ago merely because I lost my cool. It has become among my greatest regrets and lessons learned in my professional life.

What about marriage? According to Fool.com, filing for a divorce can cost up to $12,900! Why spend that amount when you can patch things up with your wife? More than its financial implications, impaired relationships will also cost us time, opportunities, and emotional well-being to function optimally in our careers.

In his book, The Millionaire Mind, Dr. Thomas Stanley revealed the importance of relationships in building wealth. 3 of the top 5 keys to financial success, according to 1,000+ millionaires he interviewed, pertained to creating healthy relationships. This includes being honest, having good social skills, and having a supportive spouse.

Here’s how they ranked based on the survey:

  1. Being honest.
  2. Being disciplined.
  3. Having good social skills.
  4. Having a supportive spouse.
  5. Working hard.

Mending broken relationships should be part of your financial plan. List the names of people you need to patch things up with. It sure won’t be easy, and there are no guarantees you will be able to fix those relationships. But saving even one of them can make a tremendous difference to your bottom line.

Get Health Insurance

Fixing the past includes watching out for known hereditary diseases in your family. Investigate if anyone in your immediate relatives has experienced some critical illnesses during their younger years. If you found your family has generational ailments, it is wise to get insurance to cover potential medical expenses. This will help you sleep better at night.

Stewarding The Present

Many plans fail because people tend to dwell too much in the past or live in the future. The key to successful financial planning is making the best decision possible with what we have in the present. It is good to learn from the past and prepare for the future. But 70% of financial planning should be about what is happening today.

Set A Goal

Set goals based on what is in your heart currently. Do not think too far. Ask, “What is the one thing that will make the greatest and immediate impact on my life today?” To me, it was paying off my debts. I got sick and tired of owing people money because it has brought a lot of strain on my family. Five years ago, I decided to live within my means and start setting aside a portion of my income to settle my obligations. I did not have a specific timeline on when I should accomplish it. My only mindset is to stick to it until it’s done. Today I still have about 8% left. I pray I can finally pay them all off by year-end.

Give Priority To Daily Operations

Using our current resources to fix our past or ensure the future is tempting. But the priority should be the present. Do not let paying your debts or saving for your retirement hamper your day-to-day operations. So how do you balance the past, present, and future? The ideal way to do this is to create a budget. It will vary depending on your financial capacity. But the ratio I personally used initially was 15/15/70.

  • 15% of my income goes to fixing the past, like debts payment.
  • 15% goes to preparing for the future, such as retirement and children’s college education.
  • 70% goes to fueling our daily needs.

Build An Emergency Fund

Wise management of the present includes planning for unplannable situations. No one plans to get sick, be involved in an accident, be laid off from work, or have their car breakdown. These are circumstances we do not want to be part of, but denying their reality will only put us at a disadvantage. Most financial planners address these matters by setting up an emergency fund.

The emergency fund is an amount intended to cover unforeseen expenses. A healthy sum is about six months to a year’s worth of your monthly expenditures. Some keep their credit cards for this purpose, but that is not a healthy way to prepare for emergencies. Keeping you out of debt is one of the main functions of an emergency fund.

As I write this post, my car battery has actually broken down. Thanks to my emergency fund, I can have it replaced in no time.

Save Your Money

This verse always resonates with me: Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it. — Proverbs 21:20. Not because you have the money means you have to consume it all. Good financial planning includes being intentional in saving your resources. Later you’ll know how crucial this discipline is to your future. But for the present, your savings will give you peace of mind and allow you to seize opportunities that might come your way.

Here is a better look at the wooden table with our family portraits.

Thinking About The Future

There are two kinds of people I have observed when it comes to the future so far. One who doesn’t care. And one who has been living there all their lives. One who only lives for the present. And another who always sacrifices their present in place for a better tomorrow. These are two extremes you should avoid. Living in the present while peeking at the future is the best mindset when planning long-term.

The danger of planning for the future is that it could be romanticized. Since it is still ten to twenty years down the road, we could include pursuits that have no roots. Like, owning a mansion, traveling the world, or retiring to a farm. I’m not saying these are bad or cannot be achieved. But these are, for lack of a better term, low-quality planning. An excellent way of planning for the future is basing them on what you already have today.

Invest

Investing is the act of acquiring assets that can make potential future returns. These can be buying equities from different companies, owning real estate, or joining mutual funds. Investing should be part of your financial plan if you wish to grow your wealth over time. This is why saving is crucial, as we mentioned earlier. You can only invest with your extra cash to prevent it from disrupting your daily operations.

Prepare For Your Children’s College Education

Parents, it is wise to plan for your children’s college education. Sending our kids to college will be one of the most expensive tasks we have to do. The average tuition fee as of today for public schools per year is $21,000; $32,800 for private schools. If your child is less than one year old, don’t be surprised if these amounts triple by the time he/she is ready to go to college. This is the reason I encourage you to prepare for it as early as now. There are a couple of ways to do this:

  • Buy a college plan. This is an ideal option for people who are not investment-savvy. This plan will help them be more disciplined in saving for their children’s education. But I personally do not 100% recommend this because of the low-interest rate and the number of fees involved in the program.
  • Invest in a mutual fund. Another route is to create a nest egg and invest in a money market fund, a bond fund, or an index fund. A nest egg is a term used for the sum of money saved for particular use in the future. I like this approach even though it is a bit riskier than the previous option. Money here has more potential to grow.

Consider Your Life After Retirement

There are only two ways to make money: investments and physical labor. But there will come a time when we will become too old to do manual work. What happens now if you haven’t bought enough assets? Don’t ever think it’s too early to plan for your retirement. The earlier you prepare, the more advantageous it is for you. Here is a plain vanilla method for estimating how much you roughly need for life after retirement: (Caution: this will sound a little morbid.)

  • Let’s say you retire at 65 and have about 20 years left on this Earth. How much yearly allowance do you think is enough for you to live comfortably?
  • If you answered, $48,000. You multiply the amount by 20, and you will see how much you must save before you turn 65. In this case, it’s $960,000.
  • It is also imperative to deposit this amount in a fund that could yield at least 4% annually. This is to help your retirement fund grow in case you outlive it.

Plan Your Estate

If you have assets, plan your estates. Estates are the assets of a dead person. Estate planning is the act of giving your investments to the right people or organizations after you have been promoted to Eternity. Another verse that resonates with me when it comes to planning your estates is Ecclesiastes 2:18-19:

I hated all the things I had toiled for under the sun, because I must leave them to the one who comes after me. And who knows whether that person will be wise or foolish? Yet they will have control over all the fruit of my toil into which I have poured my effort and skill under the sun. This too is meaningless.

Plan your estates. Because your life’s work may only fall to the wrong people if you do not.

Closing Thoughts

Financial planning includes fixing your past, stewarding the present, and thinking about the future. But if I am to rank based on priority, it will look something like this:

  • 70% Present
  • 20% Future
  • 10% Past

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What Are Wealth Management Products?

All desire to increase their wealth. But not all have time to sit down and study the products that can help them do that. This post intends to demystify and simplify the approach of various wealth management products.

Wealth management products are financial products offered by banks or asset management institutions that help you accumulate wealth. The selection can start from a regular savings account to a more advanced investments account. Choosing which product to use requires careful study as they involve certain risks.

As an investor and a business owner, I say you will miss many opportunities if you do not use any of these wealth management products today. I suggest you make time and see how they can help you. If you want to know what products I use, continue reading below.

Disclaimer: The content is for information purposes only. It does not intend to give professional financial advice.

Girl with a scooter wearing helmet
Wealth management products are vehicles we can use to help us accumulate wealth.

Wealth Management Products I Am Using

I like to keep things simple. Especially when it comes to my finances. So please don’t expect anything flamboyant with what I am about to share with you. All the products mentioned below are the ones I believe are enough to help any person build wealth.

Regular Savings Account

I suppose this wealth management product needs no introduction. A regular savings account is fundamental for anyone who wants to accumulate and protect their funds. But believe it or not, I know many friends who would rather keep their cash in a safety vault or cabinet at home. The problem with that setup is it will expose your money to risks like loss, theft, or damage. Taking “cash on hand” literally will put you at a disadvantage.

Money deposited in a regular savings account will give it better protection and accessibility. They are covered by insurance and get the capability to be transferred electronically. Furthermore, you can also track the movements of your funds via an app. The only con I observe with a regular savings account is the amount of interest your money earns. Typically you only make 0.125% per year.

This is why I only maintain an ample amount in my savings accounts. Most of my cash is saved somewhere it can incur higher interest rates. I use my savings account primarily for sending and receiving payments. It is where I pay our bills and tell our customers to settle their purchases.

High-Interest Savings Account

A high-interest savings account acts like a regular savings account but gives way better interest rates. It could range from 2 to 4 percent per year. Why don’t all banks offer a high-interest savings account? Well, not all banks can afford it. Digital banks are the only predominant financial institution that can offer such generous interest rates thus far. It is because they have a much lower overhead cost than others. But besides the point, they also use it as marketing leverage. Many people are uncomfortable entrusting their money to banks with no physical establishment. They hope to attract them by offering 30x more interest than their brick-and-mortar competitors.

I generally use a high-interest savings account to park extra cash. Instead of letting them sit in regular savings for a month, I will transfer them here to capitalize on the opportunity to earn more interest.

Credit Card

My wife and I had a furious battle against credit card debts. It took us a couple of years before we finally killed them all. Follow this article if you like to know how we killed eight credit cards. Now why ally with the enemy? For anyone who lacks self-control and does not fully understand how credit cards work, I strongly recommend you avoid using them at all costs. But there are critical advantages if you know how to manage it.

One of the biggest reasons I still use a credit card today is its faster refund process for bad online transactions. There was a time when I bought a computer from an online store using a debit card. The machine wasn’t delivered. When I complained about it, the customer service said she would process the refund, but it would take a while before I’d receive my money back. She said it is more complicated to return actual cash than credit. Thus, advised me that it is better to use a credit card when making online purchases. True enough, I got my refund 60 days after the call.

Money Market Fund

The money market fund is a low-risk type of mutual fund. Money here is generally invested in highly liquid instruments such as cash, corporate bonds, government securities, and fixed deposits. This is where I usually put funds that have no definite use yet, like an emergency fund and nest egg. They are money that is kind of caught in the middle. They are not part of your day-to-day operation, yet they are also the sum you do not like to risk.

Index Fund

An Index fund is a high-risk, high-return type of mutual fund. The money here is commonly invested in equities of different businesses. This is one of my favorite instruments to invest in because of its simplicity and low management fee. But I know many are not elated to put their money here because of the time horizon and lack of excitement. Investing in index funds is a long-term game. At least ten to fifteen years. Commitment is the key if you want to maximize the potential of this fund.

As for me, I discipline myself to put in 10 to 15 percent of my income each month. I have been doing this for the past five years, and it is fun to look back at how much my index fund has grown.

So there. These summarize all the wealth management products I regularly use. I hope it didn’t underwhelm you too much. But if you want something a little more exciting, I’ll share some of the products I am currently testing below.

Wealth Management Products I Am Testing Out

I always find ways to improve the ways I accumulate wealth. That is why I regularly test various wealth management products and see how they can enhance my portfolio. Here are some I am currently experimenting with:

Bond Fund

The bond fund is another low-risk mutual fund. Similar to the money market fund, this instrument consists of corporate bonds, government securities, and cash. The difference between them can be traced to their allocation.

The reason I am considering the bond fund is:

  • It has a higher interest projection than the money market fund.
  • Bonds generally perform opposite the economy. Thus, it is an ideal way to balance my portfolio.

The reason I am not entirely sold yet is:

  • Redundancy with the money market fund since the difference in interest rate isn’t too far from each other.
  • It has a higher risk than the money market fund.

Feeder Fund

I will be honest. After reading much about the feeder fund, I still couldn’t grasp it fully. My vague understanding tells me this is a fund investing in another larger fund. In any case, my motivation for trying this instrument is because it allows me to invest in foreign companies. A Global Technology Feeder Fund offers investment opportunities with tech companies such as Microsoft, Apple, and Samsung. While the Global Consumer Trends Feeder Fund offers Amazon, Sony, Electronic Arts, and General Motors.

REITs

80% of my income from 2017 to 2020 came from leasing out our condominium units. Some I host directly, some via Airbnb. But due to COVID-19, we have to let go of the properties. I never thought I’ll be able to get back into the rental business again until I read about REITs.

REIT is short for Real Estate Investment Trusts. It is a company that owns and operates income-producing real estate. Investing in REITs is similar to investing in mutual funds, but the profits you will receive will come from their rental income. Because of this, I generally do not need to buy my own property and rent it out myself. I can simply invest and let the REIT take care of everything.

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