Financially savvy moms: Time-tested tips for building wealth and security

As we observe Mothers’ Day this coming weekend, it’s important to recognise the major influence that mothers have in helping us form value systems in life. Our mothers often play a crucial role in shaping our approach to various aspects of life, including our attitudes towards money.

How we save, spend and invest is greatly influenced by what we see modelled to us when we’re younger, and we in turn influence our children through the financial habits and decisions we demonstrate. Here are some of the best behaviours we can learn from our moms to share with our kids.

1. Always avoid overspending

By spending more than you earn, you accumulate debt, and it will catch up with you eventually. This is a high-risk approach to finance, and the consequences can be devastating to your long-term financial wellbeing.

US financial expert Suze Orman is known for her philosophy of “people first, then money, then things”.

Top tip: Remove temptation and say goodbye to your clothing store credit cards with sky-high interest rates. Show your kids that if you can’t pay for something outright, you need to save up until you can. Also, don’t fall into the trap of “needing” to have the most expensive brand of something – chances are there is a cheaper option that will work just as well.

2. Have money available for emergencies.

The ideal ballpark for an emergency fund is to save enough to cover your monthly expenses for three to six months in case of unforeseen events. This has always been a must-have aspect of financial planning, because when the truly unexpected happens, having emergency savings to fall back on can be the difference between a tough patch and bankruptcy.

Top tip: Building up an emergency fund means having money that is easily accessible and should earn a return that keeps up with inflation. Money market funds are a good option, or other fixed-income unit trusts, as these generally earn a higher rate of interest than traditional savings products like bank deposits, plus you can access your money within 48 hours without any penalties.

Interest earned should be reinvested to help the fund’s value compound over time. You should also replenish any funds you use to cover an emergency.

3. Don’t overthink it

Investing doesn’t require a degree in finance, nor must you have a “head for numbers”. What you do need is a little bit of common sense and commitment.

Trying to find the best fund with the best returns to invest your hard-earned money will only result in analysis paralysis.

Instead of making a decision and taking action, you’ll be spending time and energy second-guessing yourself. Similarly, don’t be tempted to switch from your current investment fund to last year’s top performer because you think you’re missing out. Almost all funds will underperform at some point – even last year’s winner – and constantly switching from one fund to another may lock in losses for good. Investing doesn’t need to be that complicated.

Top tip: Choose a reputable fund manager with a solid, long-term track record and select a fund that is aligned to your objectives, risk profile and time horizon. Then stay put and ride out the short-term ups and downs of markets unless there are significant changes in your needs or circumstances. In that case, consult a financial adviser before making big changes.

By following the steps above, you’ll be putting yourself and your children in a strong position to build up a healthy financial future, as well as a healthy attitude towards money that will last a lifetime.

Sumayya Davenhill is head of marketing, M&G Investments.