Father's Day: Money Lessons Learned From Dad

6/12/2024 - By Pierce Broscious, CFP

Fathers play an important role in teaching us many things when we are children. A few common lessons include how to hold a flashlight steady, how to arrive at the airport early, and that “it’s not the heat that gets you, it’s the humidity.” Another common topic fathers teach us about is money. This is an area I learned a lot about from my dad. Having spent most of his career as a regional business developer for Firehouse Subs, he helped franchisees succeed by guiding them on smart money and business decisions. The money lessons I learned while sitting in his office as a kid inspired me to pursue a career in finance. For this Father’s Day, I’d like to share some of these lessons and how they can be applied in practical terms.

Lesson 1: “Enjoy” your money after you earn it.

This would usually be my dad’s response when I mentioned the newest video game I wanted to buy, with money I didn’t have. What he meant by this was avoid using debt, specifically credit card debt, to pay for the “wants” that haven’t been included in a monthly budget. Rather than use debt, it’s better to leverage a monthly budget first to determine how much money is left over after paying for the “needs” each month. Then you can determine if it’s enough to pay for the “want”. If it’s an expensive purchase that requires multiple months of saving, use Lesson 2 as a roadmap to build toward the amount needed.

Lesson 2: Build an emergency fund and never look back.

My dad would say, “Once you’ve built a solid savings account, everything becomes easier.” Here, he means things get easier both financially and psychologically. Having money available in an emergency can relieve stress and prevent the need to take on debt. What “solid” means is different for everyone. From a financial planning perspective, this number is generally around 3-6 months of living expenses. A great way to build an emergency fund is to treat it like paying a bill each month. Designate a feasible amount and automate the transfers from checking to savings. Also, consider choosing a high-yield savings account to reduce the impact of inflation.

Lesson 3: Take advantage of compound growth.

Or as my dad put it, “You need to make money on the money your money makes.” Compound growth occurs when you re-invest the earnings of an investment. This is different than simple interest, where your money earns a specified rate on a specified amount. Here are a couple of quick examples to illustrate the difference:

Simple Interest: Coupon-Paying Bond

Investment Amount: $100,000

Interest Rate: 5% annual ($5,000 fixed per year)

# Years: 20

Total interest earned: $100,000

Final Balance after 20 years: $200,000

Compound Interest: Diversified Stock & Bond Portfolio

Investment Amount: $100,000

Rate of Return: 5% annual

At the end of each year, the interest you earn is reinvested in your portfolio:

Year 1: $100,000 x 5% = $5,000 --- add this to your total

Year 2: $105,000 x 5% = $5,250 --- add this to your total and so on.

Final Balance after 20 years: $265,330 ($65,330 more than simple interest!)

For long-term goals, compounding can help you reach your goals faster.

Conclusion

I’m thankful to have learned these lessons from my dad. I’m also aware that not everyone was taught these lessons as a kid. My hope in writing this article is that it will be shared to help others who haven’t yet been taught. As an associate financial advisor, my job is to assist others in reaching their goals by helping them make good financial decisions, not unlike how my dad helped his franchisees. If you or someone you know may benefit from speaking with an advisor, please reach out to us.

About the Author | Pierce Broscious, CFP®

Pierce is an associate financial advisor and Certified Financial Planner™ practitioner for Saltmarsh Financial Advisors, LLC, an affiliate of Saltmarsh, Cleaveland & Gund. Pierce works with clients to develop comprehensive financial plans, conduct in-depth portfolio analysis, and provides investment recommendations tailored to clients’ unique risk tolerances and needs. His areas of expertise include investment and retirement planning, and he proudly partners with Saltmarsh’s CPA tax advisors for coordinated estate and tax planning.

Pierce joined Saltmarsh in 2018 after graduating from the University of Georgia with a BBA in Finance. He is an active contributor to the firm’s financial education initiatives through blog posts and webinars and is an emerging leader in Saltmarsh’s firm-wide Growth & Development efforts, having received recognition for his contributions.

Pierce is a native of Pensacola, FL, where he pursues his passion for offshore fishing and boating.