If you’ve got children, one of the most important things to teach them is money management. As I mentioned in the about me section, I started learning about the stock market from looking at the charts in the Globe and Mail when I was seven years old. However, I was introduced to money from a very young age, and feel that’s a lot of the reason why I take such care of my finances. Here are some of the lessons I was taught as a child and that gave me the financial basis which has resulted in my financial independence:

When I was six and in the second grade, quite possibly one of the few things the disaster of a teacher that I had taught us was debits and credits. We had to buy and sell fake items with fake money, and then list them as debits and credits in a little book we had. It taught us to trade and the importance of keeping a positive balance, as if we ran out of money we couldn’t get any more goodies without selling something. This was such a simple exercise, and yet it taught us at six years old to take care of our money.

One thing that my mom did which I found to be really helpful was make me buy stuff at the grocery store myself. If I wanted to get a chocolate bar, she would give me a 2 dollar bill (remember those?) and I would wait until she was finished and run the transaction through as my own. Handing the teller money and having her give me back change when I was little helped teach me about spending money in exchange for an item I wanted.

I opened a savings account when I was 12 years old. Having a debit card was a big thing at that age, and it encouraged me to save my money so that the balance in my account would grow. If there was one thing I could add, it’s that I would allow children to access online banking, as it gives them another outlet to see just by how much their balance has increased and make them feel more like an “adult” who gets to look at their money on the internet.

Let kids make spending mistakes. If they make their mistakes young, the effects won’t be as severe as if they make their first mistakes when they’re older.

I was always taught that debt was bad, and that credit cards are ALWAYS to be used in emergencies only. Stressing that credit is bad and saving/investing is good is one of the most important lessons you can teach kids before they get let loose in the world. Otherwise, there’s a good chance they’ll find themselves unable to pay $3 000 in credit card debt. You can’t baby them forever, and making sure they know what they’re doing financially from a young age is a great way to ensure your children remain financially responsible for the rest of their lives.

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There’s a difference between financial freedom and a high salary. Many people assume that the higher your salary, the more financially free you are, when that’s simply not true. Financial freedom occurs when your monthly expenditures are equal to the passive income you generate. For example, mortgage brokers often receive “trail”, a small percentage of the monthly payment of loans they prepared. This is passive income: they have done 100% of the work associated with that loan, and now receive this money every month with no extra effort involved. Once a mortgage broker has written enough loans so that his or her trail is equal to monthly expenses, they could do absolutely no work and still be receiving enough money to live from. This is financial freedom.

Compare this to an executive of a company with a salary of 1 million dollars per year. Should they lose that job, their lifestyle will likely take a hit: they may have to downgrade homes, cut back on use of vehicles, maybe even sell a car. The executive’s lifestyle is directly related to their salary, their direct income, not their passive income.

One of the phrases you’ll hear me use the most often is that you should make your money work for you, not the other way around. Passive income is the perfect example of this. It’s not difficult to get passive income: I met a man once named Derek Foster, who retired when he was 34. When he was in University, he started putting aside $200 every month to purchase high-yield dividend stocks. These stocks accumulated, and every three months he would receive dividend cheques. These cheques became larger and larger, and there was no work required from him, other than saving $200 every month and choosing whether he should put it into Coca Cola or Colgate Palmolive. When he was 34, these cheques became large enough that they equalled his expenses, and he retired.

Dividends from stocks, rental income from investment property, trail commission: it’s all ways to get passive income, which is the “true” way to get rich. Once you’re financially free and living off passive income, any extra money you make can go to other investments, savings, etc. You should always aim for passive income, always aim for this financial freedom. It’s much less stressful to be financially free than to have a higher salary but still be working that 9-5 job.

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