You’ve raised them, educated them, and now your adult “kids” are on the verge of moving out. But before they leave the nest there’s one more important lesson to pass on – how to manage their finances!
1. Help them develop a budget
The first step in managing money is knowing what’s coming in each month and where it’s going. I’m the first to admit that building a budget is not a fun task, but it’s so important. Get them to record every expense for at least three months with an app such as Mint. Once this is known, a budget can be drawn up for essential expenses, savings, and “fun money.”
2. Encourage them to build up a “rainy day” fund
As we learned from 2020, life is unpredictable. A job loss or major home repair can be devastating. Encourage your kids to establish a financial safety net that should have a target of three to six months’ salary. This type of savings account is needed first before they can save for the long term.
3. Start investing early – and regularly
Time is your greatest asset when it comes to building wealth – the earlier you start, the more time it has to grow. Once the emergency fund is in place, encourage them to set up a monthly withdrawal from their bank to an investment account (such as a Tax-Free Savings Account) – even a small amount each month adds up.
4. Teach them to use credit wisely
Credit cards are a huge convenience, and often offer such benefits as travel points. However, it’s critical to pay them off in full each month by the due date to avoid significant interest charges. Keep an eye on due dates – even payments made a couple of days late can damage their credit history. If the banks consider them to be a higher risk, this will make it more difficult or expensive to get credit (such as a mortgage) in the future.
5. Do taxes online together
If you prepare and file your own income tax return online with tax preparation software, show ’em how it’s done! Have them gather their tax information and help them prepare their own return. Make sure they register online for “My Account” with the Canada Revenue Agency.
With a little guidance, you can help protect them financially, assist them in reaching their goals, and avoid future requests for money from the Bank of Mom and Dad!
Business Owners
The most overlooked area of financial planning for business owners and incorporated professionals is the lack of integration between corporate and personal assets. When the majority of your assets are in your corporation you need very specific, specialized and personalized financial advice.
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