[WORLD] Growing up, many of us absorb financial lessons from our parents, whether through direct teaching or observation. However, not all of these lessons are relevant or effective in today's rapidly changing financial landscape. As someone who has navigated the complexities of personal finance, I've adopted several strategies that differ significantly from the teachings of my parents. Here are four key choices I make with my money that my parents never taught me, highlighting the importance of adapting financial strategies to meet modern needs.
Investing to Avoid Cash Drag
One of the most significant lessons I learned is the importance of investing rather than simply saving. My parents, who were hardworking Vietnamese immigrants, emphasized the value of saving. My mother would often say, "For every dollar you spend, save two." While this advice promotes a strong savings habit, it also comes with a caveat: having too much money sitting idly in a savings account can lead to what is known as "cash drag."
Cash drag refers to the opportunity cost incurred when funds that could be growing through investments remain in low-interest savings accounts. To counter this, I ensure that I maintain at least six months' worth of emergency savings while also actively investing in various accounts like Health Savings Accounts (HSAs), Individual Retirement Accounts (IRAs), and taxable brokerage accounts. This balanced approach allows my money to work for me rather than against me.
Avoiding Credit Card Balances
Another financial misconception that I encountered was the belief that maintaining a small balance on credit cards is necessary for a good credit score. A few years ago, my mother mentioned this idea, which is a common myth. However, I've learned that carrying a balance can actually lead to unnecessary interest payments and debt accumulation.
Instead, I prioritize paying off my credit card balances in full each month. This practice not only helps me avoid interest charges but also keeps my credit utilization low—an essential factor for maintaining a healthy credit score. By applying for credit judiciously and understanding how credit scores work, I've managed to build and maintain an excellent credit profile without falling into the trap of debt.
Embracing Freelancing and Entrepreneurship
My parents held stable jobs for decades, instilling in me the notion that job security comes from long-term employment in a single field. They envisioned a future for me in law or psychology—professions they deemed stable and respectable. However, about ten years ago, I made the leap into freelancing as a writer and later expanded my business into financial education and coaching.
This transition has not only provided me with greater flexibility but has also allowed me to maximize my earning potential. Freelancing has its ups and downs, but it has ultimately given me control over my career path and financial future. By embracing entrepreneurship, I've been able to invest more into savings and retirement funds than I would have in a traditional job setting.
Open Conversations About Money
In many families, discussions about money tend to revolve around successes—new jobs, raises, or home purchases—while struggles like debt or financial stress are often swept under the rug. In contrast, I've made it a point to talk openly about money with friends and family. This transparency helps normalize conversations about finances and removes the stigma often associated with discussing financial difficulties.
By sharing my experiences—both good and bad—I create an environment where others feel comfortable doing the same. Whether it's discussing vacation savings or contemplating the feasibility of buying a home in Los Angeles, these conversations foster mutual support and understanding in navigating our financial journeys.
The financial choices we make today can significantly impact our future well-being. While our parents may have imparted valuable lessons based on their experiences, it's essential to adapt these teachings to fit our unique circumstances and the current economic landscape. By investing wisely, managing credit responsibly, embracing entrepreneurship, and fostering open discussions about money, we can create a more secure financial future for ourselves.
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