We get some interesting questions from our listeners, and we like to address them on the podcast so the answers can help anyone who might have similar questions. Today we’re answering questions about raising rich kids, hiring help, and a $2 million inheritance.
Question 1: Setting Up Your Kids for Financial Success, Raising Rich Kids
“What steps would you recommend for parents who want to set their child up for the future? I’m specifically thinking about accounts to set up for them or habits to teach them while they are young so they can hit the ground running when they reach adulthood.”
The two most important things parents can do for their children is to ensure they have a good education (not necessarily a college education) and are healthy.
Set up a 529 Plan. It’s a way to save for education expenses. The money grows tax-free, and distributions are not subject to federal taxes when used for eligible education expenses.
Another way to save is through Upromise. This program gives you cash back on spending, which can be used toward your child’s education. It’s free to use, and when you link your credit cards, you’ll get up to 5% cash back when you spend with participating retailers and up to 10% back at some restaurants. Other family members can use the program for your child’s benefit too.
Not everyone is cut out for college. If that describes your kid, don’t push them. They likely won’t graduate but will likely be saddled with student loan debt with nothing to show for it. Everyone should find some career path though that will enable them to do something they like well enough (you don’t have to love it, but you shouldn’t hate it) and make a nice living. There are plenty of well-paying careers that don’t require a degree.
Your child’s financial education should start early, toddler age, and it’s up to you as parents because schools largely ignore the subject. Teach them the value of labor and how money grows when you save it. Raising rich kids doesn’t mean raising spoiled kids.
All parents should create a will or a trust to ensure their children are looked after in the event of their death. Trust, and Will makes this easy and affordable. Parents should also have adequate term life insurance.
Question 2: Oh to be 18 Again
My 18th birthday is in a couple of weeks, and I’ve got about $5,000 that I want to invest as soon as possible. What advice would you give someone in a situation like my own so that I can put that money to its best use?
First of all, well done! We love it when we learn we have young listeners because the younger you are when you learn how to manage your money, the further you put yourself ahead for the rest of your life.
Being so young means you can take a lot of risk with this money. You’re not going to access it for decades, which means it has plenty of time to grow and to ride out the ups and downs of the stock market.
We would put that money in a robo-advisor like Betterment, Wealthfront, or Vanguard, all of which will ensure that your money is invested in a broad swath of the market. Also, make sure that you contribute more money to that $5,000 regularly. Automate this by setting up automatic monthly transfers right into your investment account so you never miss a month and invest the money before you can spend it.
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Question 2A: Regrets, We Have a Few
If you were turning 18 again, what would be the first thing you would do financially? How would you start your journey to financial independence?
Start working as soon as you can and save at least half of each paycheck. It’s actually easier to save when you’re a teenager than when you’re in your 20s because while you aren’t making a lot of money, you also have almost no expenses. Even if it’s not a lot of money, it gets you into the habit of saving so by the time you are making good money; saving is second nature.
An unexpected expense of $400 can force more than one-third of American adults into a difficult financial situation.
Learn the basics of investing; what an index fund is, how compound interest can work for or against you, why investing in retirement accounts should be a priority. You don’t have to know the nuts and bolts at 18 or really any age but knowing a few key things will make you a life-long successful investor.
Learn to devalue cars. Young people (and some not so young people) get caught up in trying to impress people by driving a fancy, expensive car. Here’s a tip; no one worth knowing gives a shit what kind of car you drive. Buy a reliable car that gets you safely from Point A to Point B. Anything spent above that is a monumental waste of money.
Choose your friends carefully and your partner even more carefully.
You are the average of the five people you spend the most time with.Tweet This
The people you allow in your life have a tremendous influence over you in ways you don’t realize. Depending on who those people are, that can be a good thing or a bad thing. Make sure for you; it’s a good thing.
Question 3: So Now You’re a Millionaire
What would you do if you received a two million dollar inheritance? I’m 58 and have very little debt. When my elderly mother passes, I will be splitting her estate with my brothers, and it’s currently valued at 7 million dollars. I would love to develop passive income with my share.
For truly passive income, we recommend turnkey rental properties. Andrew and Laura have bought a couple with Roofstock and have been very happy with the experience. Look for a property that needs no value added and is already cash flowing. You can use the tool Andrew built, Investible, to do your research.
Buy one at a time, don’t go on a spree. You learn a lot from your first property, which will help you make better decisions when you buy each subsequent property.
A good strategy would be to invest all of the money and use the 4% rule. The 4% rule means you can withdraw 4% of your money (in this case, $80,000) a year for at least 30 years and never run out. Take part of that $80,000 and use it for the downpayment on each rental property. Live on the rest and the money generated by the properties.
Perfect, two sources of passive income!
Question 4: Hiring Help
When should you go from handling your own personal investing to handing it over to a professional advisor?
A lot of you might be too young to remember life before the internet, but it has made a lot of things obsolete. Travel agents are a good example. Before the internet, if you wanted to go on vacation, you hired a travel agent to plan and book the trip. How could you do things like research flights and hotels on your own? You couldn’t so you hired a travel agent to do it for you.
But because of the internet, we can do every aspect of vacation planning and booking ourselves for free. Travel agents no longer provide value.
This is largely how we feel about financial advisors. You could spend a few weeks reading personal finance books, blogs, and articles, and listening to personal finance podcasts and learn everything you need to know about investing successfully on your own. For free. So why would you pay someone to do it for you?
If you want to start investing before you have time to read and listen to all that personal finance advise, read this and do what it tells you.
That’s not to say; financial advisors don’t have a place. They can be a neutral party to consult when a couple is arguing over money, and they can help you create a plan to help you reach financial goals. But you don’t need them to invest your money for you. And you should not pay a financial advisor a percentage of anything. They should be paid a flat fee.
Did Y’All Catch That?
Andrew and Laura are expecting! We’re so happy for them and look forward to welcoming more members into the LMM family. Congratulations to the happy (growing!) family! They’ll get to put their raising rich kids advice into practice!
Saigon Scooter Selfie: A Vietnamese Style Coffee stout
Hell or High Watermelon: A wheat beer brewed with real watermelon.