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Lessons in life and money

My son luckily has just landed a job after completing a three-year university degree and he will have his 21st birthday later this year. I would love to give him a present of a couple of thousand dollars but I also want to give him some good money advice, but I can’t claim to be an expert. I learnt my lessons the hard way and I am not sure if I have learnt enough. What can I tell him?

There are many but let’s just give him a few that might make him sit up and take notice.

First, tell him to save at least 10 per cent of every dollar he ever earns. Imagine your boy ends up on an average income for his whole working life of $50,000. If he saves $5000 for 40 years of his working life, he puts in $150,000 but the magic of compound interest kicks in and will become a millionaire and more.

Second, tell him it’s okay to borrow to buy income-generating assets such as a property to rent out, good quality blue chip shares that pay dividends and even a business.

Third, tell him that he should wait for a recession to buy the house of his dreams. Your principal property is capital gains tax-free but unlike a rental property you can’t claim the interest as a tax deduction. Make sure you don’t over-invest in your principal property unless you are happy to sell it in the short-term.

Fourth, understand cash flow. If you buy a house, you should be confident that if interest rates went up by four per cent, you still could service the debt.

Fifth, get great advisers and accountants to show you what you don’t know, but always test out their advice. Read money books and finance sections of newspapers to become more worldly about money.

Finally, you should tell him that money is not everything, but if you have a plan and you link this to your life goals, then money has less chance of causing problems in your life. Hope this helps your son but it seems to me he already has a great start because he has a caring dad. 

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, September 13, 2010

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