Our parents have a lot to teach us, if we’d just listen to them. You spend most of your teenage years thinking your parents are the least cool people on the planet, so surely anything they say isn’t worth listening to. Then you go to college and bask in the freedom of not having to hear your parents constantly giving you advice. It’s a great time. Finally you join the real world where you slowly but surely realize that all that advice your parents had been giving you over the years was for your own good. Thankfully, your snotty teenage self did absorb some of the things your parents had told you, even though you ignored it at the time.
Looking back, there are several things I learned from my parents that have proved to be invaluable. Today, I’d like to talk about things I learned from my mother.
Pay your credit card in full every month
Here’s an amusing story. I was in my 20′s before I learned that it was even possible to not pay your bill in full every month. I asked my mother, “why would anyone need a $10,000 limit on their credit card? Who spends $10,000 in a month?” My mother had to explain to me that you’re allowed to carry a balance on your credit card. I hope she was at least proud that my ignorance was due to the fact that she had beaten it into my brain that you have to pay your bill in full every month. I had misunderstood the meaning of “have to” to imply that it was required by the credit card company, not to imply that the need to pay it in full is just for your own good.
Thanks to my mom’s mantra of “pay your bill in full every month,” I have a serious aversion to carrying a balance on my credit card. I think I’ve done it about two times in my life (before paying the balance off the following month) and it was much too stressful for me to ever want to do it again.
INVEST IN LOW COST INDEX FUNDS
My mother had to learn about investing very quickly after her mother passed away, leaving her a chunk of money that had been sitting mostly in low interest CDs. She became familiar with Vanguard and their philosophy of low cost index investing. The highest expense ratio you’ll find in a Vanguard index fund is 0.5%. Even if you look at Vanguard managed funds, the highest expense ratio is 0.89%. According to Investopedia, the average mutual fund carries an expense ratio of 1.3%-1.5%. Over the lifetime of an investment, a difference of just 1% in the expense ratio can add up to a lot of money going into your broker’s pocket instead of yours.
Consider two $10,000 investments earning 8% per year for 20 years. The first is in a fund with a 0.5% expense ratio, the second is in a fund with a 1.5% expense ratio. By subtracting the expense ratio from the rate of return, we can see that in the first fund, you’ll lose about $4600 to fees over the 20 year period. In the second fund, you’ll lose about $12,700 to fees over the 20 year period!
Thank you, mom, for saving me thousands in management fees with this great advice!
a car is not a status symbol
To be fair, both of my parents probably contributed to this one, but my mother did most of the driving when I was a kid, so I’ll give her the credit. For her, a car is simply a means of getting from point A to point B. My parents have never owned a luxury car, and they drive their cars for years and years. In fact, in my entire life, I can only remember my parents getting rid of one car for reasons other than the car dying at a point when it was too old to be worth fixing, or giving it to one of their children. It was our Dodge Caravan that they sold directly to another family before they bought a Mercury Villager.
That Mercury Villager was the car all my siblings and I learned to drive on and used during high school. No, we were not the “cool” kids, in case you were wondering. But while other 17 year-olds were driving (and crashing) the Lexuses and BMWs their parents bought for them, we weren’t sweating things like nicking a lamppost with the corner of the bumper or driving forward into a bush when we meant to be in reverse. You know, the things 17 year-olds do when they’re still getting the hang of driving. When you don’t view your car as a status symbol, you don’t have nearly as much anxiety about little scratches and dents, and that’s a great feeling.
DON’T DEPRIVE YOURSELF TOO MUCH
My mother is of the belief that if you really want something, you can afford it, and you don’t splurge too frequently, you should get it for yourself. (She’s also of the belief that you shouldn’t deprive yourself of delicious food just to shed a few pounds. All things in moderation!) This is advice I sometimes have a hard time following, but for the sake of my sanity, I try to keep it in mind.
It’s easy to get caught up in the excitement of watching your savings and investments grow and become so averse to spending money on anything, that you start to suck all the joy out of life. (Wait, do most people have that problem, or is it just me?) Your happiness is the most important thing, and if splurging every now and then on something you really want is going to make you happier, you should do it with no regrets.
Tune in next time for things I learned from my father!