11 Money Lessons for My Children

I have reflected a lot lately. 

Recently, my wife and I discovered we were having a boy for our second child.  Our hearts have been overflowing with excitement (and anxiety) as we prepare to expand our family to four.  Currently, we have a beautiful, bubbly baby girl, still an infant.  Realizing by year’s end I will have two children under the age of two weighs heavy on me.  As I reflect on myself, the man they call ‘Dada’ I want to make sure I am preparing myself to meet the expectations required of fatherhood. 

Since the creation of The Motivated M.D., discussing and writing about personal finance has become a part of my life.  My children may be far too young to absorb any of my rantings, but I can start to think about how I will educate them regarding finance.  These will be lessons that will become applicable to their understanding of money later in life.  What follows are 11 money lessons for my children. 

1. Money can buy happiness…to an extent

Children, over the course of your lives, you will hear the phrase ‘money can’t buy happiness’ in multiple different iterations.  As your father… I couldn’t disagree more.  Let’s make something clear, there are many incredibly important aspects of life that money cannot buy…directly.  These include time, quality social interactions, love, freedom, joy, etc.  However, individuals who are smart with their money can create opportunities for these to be present in their lives. 

See, there have actually been studies looking at this by some of the brightest minds our society has to offer.  Interpreting this research can be tricky, but it is important to know that a higher income does correlate with slightly more emotional stability (with diminishing returns).  This does not necessarily mean that more money equals more happiness, but there is an association.  Why is that exactly?  Well, you could ask ten different people and you would get ten different answers.  

It buys you financial security

As your father, I think one of the most important things money can bring you is security, both now and in the future.  Having financial security provides a safety net that can protect from uncertainty, like the loss of a job, market volatility, health related changes, or burnout.  I hope you never have to experience the distress of not knowing if you can ‘make ends meet.’ 

I would argue that money actually can buy you happiness.  It can afford you the ability to provide for your family, and the more you have, the more you reinforce your financial foundation.  Money allows your mother and I to make sure you always have a roof over your heads, food on the table, and the opportunity to play, study, and feel safe.  Not everyone shares these same opportunities, don’t forget that.  Work hard in life to secure a competitive job, live below your means, and save!  The security this lifestyle will offer you is one of the best things money can buy.

2. Avoid debt at all costs

Look kids, there is another topic that is near and dear to my heart…avoiding debt!  Debt is when you need to purchase something, but you cannot afford it.  When this happens, you can borrow the money from someone else (usually a bank, or the federal government) but then you are on the hook to pay all that money back…and then some.  The ‘and them some’ is what we call interest.  Interest is the eighth wonder of the world…when it works for you.  Interest can also be the bane of your existence when it works against you. 

Sometimes debt is unavoidable.  Other times debt is a necessary evil to motivate or educate you on the relative value of a dollar (now versus later).  Akin to understanding money, understanding debt is equally as important.

Let me tell you a brief story…

As you know, your mother and I both chose careers in medicine.  As such, you get to call mommy and daddy ‘doctors.’  We love our jobs and we wear the label of ‘physician’ as a badge of honor, but achieving this dream was no easy feat.  I know you cannot comprehend these numbers right now, but when your parents finished medical school, we were $670,000 in debt!  Now, this debt was necessary to become the physicians we are today, but even in our late twenties we had no idea just how large that debt was.

Your father is no fan of debt.  In fact, he quite despises it.  However, it is just a part of life.  If you have to take on debt, you better know how you intend to pay it off.  Your parents live on much less than we make so that we can eliminate our debt as fast as possible.  Knowing how important it is to eliminate debt is critical to your happiness.  You take after both of your parents, but if you inherited my gene for ‘debt aversion’ then I assure you the sooner you rid yourself of debt, the happier you will be…it’s in your blood.

3. A dollar now is worth more than a dollar later

I know you want those dolls now or that new video game, and you’re unwilling to wait for the holidays.  I get it, it’s tough!  If you have saved enough money to purchase it on your own, be my guest!  Honestly, if you have the self-control to save for what you want (in cash), then you deserve to buy it.  If you are reading this and you have that level of self-control, then you are already better with money than most people. 

Now, here is a slightly harder lesson to understand.  A dollar now is worth more than a dollar later.  I know this is a difficult concept to grasp, but hear me out.  See if I were to tell you that I would give you a dollar today, or you could wait, and take a dollar at some random time in the future…what would you take?  The answer is…take the dollar now!  See, as time goes on, history tells us what a dollar can buy will ultimately depreciate.  This is largely due to inflation but there are other factors that influence this.  If you take a dollar in the future, it is unknown exactly how much that dollar will be ‘worth.’  Taking a dollar now allows you to immediately put that dollar to work for you. 

Take the dollar today!

It is important to understand that the sooner you can put your money to work for you, the higher your chances of turning that dollar into more dollars!  Isn’t that awesome?!  You can literally make your money create more money.  It’s an incredible thing.  How do you do this? 

Well, for one, you can save that dollar in a bank.  That bank will in turn give you money for allowing them to hold it for you.  You can also invest that dollar and the companies you invest in will give you money for letting them borrow that dollar.  Even the federal government will give you money if you let them borrow your money for a while.  You can use that dollar to buy something cool that others want, then turn around and sell it to them for a profit later…this is called appreciation.  All of these things you can do by taking that dollar today and putting it to work immediately.  Remember this.

4. Don’t let money burn a hole in your pocket

Just because you can spend a dollar doesn’t mean you should spend a dollar.  There are endless ‘wants’ out there to buy.  Every single day of your life you will be bombarded with advertisements, links, emails, commercials, recommendations, etc. all saying that you need to own their products.  Don’t listen to any of it!  Always stop and think before you make a purchase.  If you spend that dollar now, what can you no longer purchase later?  The American culture you were born into is rooted in consumerism and greed.  You will be inundated by the media telling you to Buy! Buy! Buy!  If you have met your needs, are living below your means, and savings, then that is all you really need.  The lavish lifestyle comes later.

Yes, I agree that you have worked hard for your money and you should be allowed to splurge occasionally.  But these expenses should be small and infrequent.  Splurging on a car, or a home, or a large vacation is not a splurge…that’s a mistake.  Larger purchases require planning, patience, and self-control.  Make sure you are able to distinguish the two (I will help you out with this.)  The lesson here is to avoid the temptation to spend a dollar just because you have a dollar to spend.  The sooner you develop this level of self-control, the sooner you gain control over your finances.   

5. Saving is different than ‘not spending’

Saving should be intentional.  There is a difference between choosing to not make a purchase and actually prioritizing savings.  Your mother and I use a method called ‘pay yourself first.’  This means that the day our paycheck hits our checking accounts, we prioritize our savings.  We are ‘paying ourselves’ by making a choice to move that money around and put it to work.  With each paycheck we move money into our retirement, we move money into our investment accounts, and we save money for expenses like emergencies, vacations, and holidays.  By doing so we make sure our future selves have sure footing when it comes to unexpected expenses or larger spending months. 

Make sure saving is a choice.

Yes, sometimes it takes an immense level of self-control to want something but understand that maybe it’s purchase isn’t worth it.  I do not wish to discredit this form of self-control.  It is important to distinguish ‘wants’ from ‘needs.’  Yet, when it comes to ‘wants’ it is important to understand that there is a time and a place to make these purchases, and if it comes at the expense of your ‘needs’ then it shouldn’t be purchased.  Your savings falls into the category of ‘need.’  You need to be saving intentionally.  By doing so you prioritize your financial wellbeing and look out for your future self.  Trust me…your future self will thank you. 

6. Make your money work for you

As we continue on down this list, the topics become slightly more difficult to comprehend.  The concept of making your money work for you means that certain strategies of money utilization beget more money!  By placing your money in certain ‘vehicles,’ you allow your savings to grow faster than if it was housed in a savings account.  By taking on slightly more risk, I can place my money in investments like stocks, bonds, or real estate.  I trade higher risk for the hopes of higher rewards.  The rewards come in the form of interest on my investment.  These investments, if distributed intelligently, can accumulate interest quite rapidly and thus generate more money!

Earlier we discussed how saving should be intentional.  Intelligent saving is more than just weighing the risks and benefits of making a purchase.  You have to make a decision to save.  The next step on the path of your financial education is choosing where to best save that money.  It is important to save a particular amount in easily accessible savings accounts (see the next paragraph on emergency funds) to guard against financial disaster.  Past this, the vast majority of your savings should be housed in locations that will help make you more money.  Things like mutual funds that index the market (index funds), bonds, and real estate are usually great places to start. 

7. Before you do anything…protect against the unexpected

As I alluded to in the last paragraph, there is one critical aspect of savings that must occur first before you consider investing…the creation of an emergency fund.  One the most frequent soap boxes your father will lecture from regards the importance of an emergency fund.  If you want to read more, check out Emergency Fund: Your First Financial Goal.  I wrote that post addressing this exact topic. 

Briefly, an emergency fund is an easily accessible amount of money you keep for financial emergencies only.  What constitutes a financial emergency?  I like to define a financial emergency as any unexpected expense that must be addressed in a timely fashion and whose monetary cost would place one’s budget in jeopardy. 

Here is the simplified version:

Any big expense you don’t see coming that threatens to derail your monthly spending, and is necessary for your livelihood, requires an amount of money ready and waiting to help.  Enter the emergency fund.  Largely, life experiences will dictate your risk aversion.  It is recommended that an emergency fund house 3 to 6 months’ worth of living expenses.  This means you should have a fund of money housed away in a savings account that you could quickly access to maintain your current lifestyle for 3 to 6 months without changing your spending substantially. 

I understand this sounds like a lot…that’s because it is.  No one ever expects to replace an air conditioning unit, total their car, or lose their job, but this happens all the time.  These unexpected expenses can bring individuals to financial ruin.  If you have an appropriately sized emergency fund to support you through these hard times then you are significantly more prepared to tackle what life plans to throw your way.   

8. Luck is where opportunity meets preparation

I am paraphrasing an old Roman philosopher here, but the point is that luck is the introduction of an opportunity to a prepared individual.  As this pertains to finance, avoid falling prey to the stock market trends of the day.  Wait and buy your stocks at a discount.  How do you do this, you ask?  First, you need to prepare.  Building an opportunity fund, or ‘rainy day fund’ is how you do this.  Once you have secured a steady income, built an emergency fund, created an appropriately sized budget, and prioritized saving…then you should consider creating an opportunity fund.  This fund is any amount of money you can responsibly save after achieving all previously mentioned demands. 

Eventually when the stock market goes into a recession (and trust me, it will happen…multiple times during your life I’m afraid) that’s your cue to buy!  This is where your preparation allows you to capitalize on the opportunity of purchasing stocks at discounted prices.  Oh, how lucky you are! 

9. Stay humble

I have nothing but the utmost faith that you will be wildly successful in life.  When this occurs, promise me you will not flaunt your success.  Nobody likes that person.  It is entirely ok to have nice things, don’t get me wrong.  I want nice things too!  There is nothing wrong with having a large home, driving a nice car, or filling your home with expensive furnishings…as long as it does not come at the expense of more important priorities, like the ones mentioned earlier.  There is an important concept here that I need to make crystal clear.  There is a difference between owning nice things and flaunting the fact that you have found success. 

As you navigate your life and your finances grow, you will create more and more opportunities.  These opportunities can take the form of expanding your lifestyle (moving into a larger home).  Some of these opportunities can take the form of more leisurely travel (think flying first class to exotic locations).  Many individuals will not share your success.  That does not necessarily mean they are not deserving of it, or have not worked as hard as you.  Not to discredit your grit, but sometimes life really is about being in the right place at the right time, or knowing the right people.  It is a difficult reality. 

Promise me, as you grow, you will remain responsible, hardworking, and humble.  All of these things will define how individuals choose to view your success.  For others equally as deserving of their successes, if they shove their achievements down others’ throats, the world will think less of them.  If you maintain your humility as you accumulate wealth, you will also garner the respect of your peers.  In the words of Mark Twain “It is better to deserve honors and not have them, then to have them and not deserve them.”  Good words to live by.

10. Give money, don’t lend money

As your success grows, individuals will gravitate towards you.  For many, their interests will take the form of shared comradery, advice, or mentorship.  Unfortunately, others will migrate to you asking for financial assistance…money.  This is always tumultuous ground.  It can grow more complicated when these individuals take the form of close friends or family. 

Your mother and I, through experience predominantly, have taken the view that it is better if money is given, not lent.  First and foremost, it is your decision what you choose to do with your money.  Later in life, your significant other and you will have to be supportive of one another and make these decisions as a united front. 

For now, understanding that the process of allowing a friend or family member to borrow money is tricky, emotional, and complicated.  It can be mentally taxing weighing the pros and cons of helping someone financially.  You have to put yourself and your family first.  You need to make sure you are not jeopardizing your necessary expenses.  However, there will be times in life where you can make a difference in the form of monetary aid.  In these scenarios, please do not rush.  Stop and calculate if the amount of money requested is something you can appropriately part with. 

I used to ask other questions like: where is the money going? Is it transparent what will happen with this money?  However, I have found it is best not to know.  When it comes to philanthropy, these questions are appropriate.  When giving money to an individual, I have found (as long as I am not funding something illegal) it is better to just not ask.  Part with that money understanding you may not receive the gratitude you feel you deserve.  That is not what this is about.  This is about knowing you helped an individual in need.  Nothing more. 

11. Marry well

My children, one day I hope you will marry your best friend, as I have.  What your mother and I have is something truly magnificent.  Marriage is arguably the most important decision you will make in your life.  Who you choose to spend the rest of your life with will dictate much of who you are and what you can achieve during your lifetime.  Choose wisely and you will live a life overflowing with love, joy, gratitude, and fulfillment. 

Marriage is wonderful for so many reasons, but for the sake of this article I want to address the financial aspect.  You and your spouse will share everything. Everything.  This includes sharing your income as well as your debt.  Make sure you understand the complexities of sharing another’s financial burdens and assets. 

This does not have to be all doom and gloom. 

Honestly, your parents’ marriage strengthened significantly as a result of tackling our medical student debt together!  We had to be honest and transparent about our spending.  I had to accept her credit card debt.  She had to accept my substantially larger medical education debt.  It all comes out in the wash.  We were able to use our love, grit, and determination to educate ourselves together.  We lived below our means, we saved, and we had financial dinner dates!  Misery loves company, and sharing in our financial woes brought us closer together. 

Your mother is my moon and stars.  She is the first person I get the privilege of seeing in the morning, and the last person I get to kiss at night before I sleep.  Your mother gives me purpose.  She makes me a better man each and every day.  Children…do not settle for anything less than that.  If you don’t, then everything else will pale in comparison, including your financial obstacles. 

Take home points

Kids, I know this was a lot.  Please do not be overwhelmed by my list.  This is not meant to be something to be memorized.  It is simply a dilution of all we will tirelessly integrate into your lives as we raise you.  We want you to be strong, independent, responsible, loving, kind, caring, empathetic, determined, and gracious.  As your parents we will demand a lot from you.  We do this purposefully because you are smart and capable.  You were put on this Earth to achieve your absolute potential, and it is a disservice to you to accept anything less than that. 

Part of traversing this difficult world is learning about money.  There has and always will be a massive divide between those who understand how to approach money and those who lack that education.  It is your parent’s mission to make sure you set out into the world armored by this knowledge…amongst so many other things.  This I promise. 

As always…

Stay Motivated!

The Motivated M.D.

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