A Letter To My Daughter On Becoming Financially Independent

Dearest Alex,

I am writing this letter filled with my love and admiration for you. You are nearly an adult but you will always be my child. In recent months I have seen you blossom in many wonderful ways, having a maturity to listen, debate and being more curious about the world around you. This is a perfect time for me to share some of my experiences and pass on some lessons about money. As your great grandmother often said, “Poor or rich, money is good to have.”

Alex, you come from a long line of strong women (great grandmothers, great aunt and your grandmother) who began and managed their own businesses. Yes, their spouses were part of the operations (bakeries and retail stores). However, these wonderful women were way ahead of their time when gender inequality was the norm. They were hard workers and frugal to a fault in that they didn’t get to enjoy the fruits of their labor.

2020: The Year Of The Woman

I believe you will be successful. My hope is for you to realize and enjoy your accomplishments. Disparity still exists between the sexes 100 years after women got the right to vote. Women are still paid less than men for similar jobs. Raising capital is more difficult with their credit scores lower than that of men with higher pay. Things are getting better for women and I want to make sure you use all of the advantages you can.

I have so much to share with you while you are open-minded and capable of absorbing lessons that will help you to form good money habits. The earlier you learn about money the more ingrained these good habits will become. I have already see the evidence in your money mindset.

Alex, I know you think you already know a lot, and you do but I have a lifetime of experience in finance to share with you. Dad and I have been transparent with you and Tyler about some financial mistakes that arose in the past year. We have made some good changes like our recent move as a result.

Your First Inquiry Was About Reverse Mortgages

Alex, your interest in finance dates back to when you were nearly three years old. You and your brother shared a room. Dad and I would read to you and then I would draw letters on each of your backs. You would guess at the letters. As Tyler was older, we would ask him to guess the letter and then give a word starting with the letter.

One day, Tyler correctly said, “R,” and he shouted out “Reverse Mortgages!” as his word. You jumped out of your bed running around the room saying, “I never heard of that, how does he know it, what is it, I want to know!!”  Dad and I were hysterical at your reaction. Tyler didn’t know it other than parroting the term from a recent commercial. However, you demanded an explanation. We were happy that you wanted to know and we explained it as long as your attention span would hold (not much in those days!).

So here are my 16 recommendations:


1. Save More, Spend Less

Living within your means is essential. Put some money in your savings account rather than spend all that you make from your part time jobs. Last summer, we opened a savings account for you. We were proud of your working at several jobs including waitressing, being a camp counselor, being a server for a caterer in town and babysitting. You asked for your own savings account so that you would not be tempted to spend it all. I liked how you felt empowered with some money in the bank.

While you can withdraw the money for a bigger purchase, we encourage you to save as much as you can. We don’t give allowances to either you or your brother. Instead, we give you money for needs at school, clothes, and entertainment with friends. When you need more, we discuss it with you so you can justify what you want not only to us, but for yourself.

Wants Vs. Needs

Knowing the difference between wants and needs is an essential concept. Needs are easier to peg as they satisfy a basic living requirement. We may think many of our wants are needs but aren’t always. The more something looks and feels like a luxury item the less it is a need.

2. Why You Need Financial Independence

Having access to your own accounts provides financial flexibility and some financial independence. Women live longer than men. They are often widowed first, earn less from years of caring for others (children and their own parents). When couples divorce, it is usually the woman who less money to live independently. Conventionally, women often are part of the short term planning in the household such as the budget, saving and reducing costs. However, in most households even today men predominantly handle long term financial planning which are investments, retirement savings, buying insurance and estate planning.

As a result, I want you to be self-reliant and have own money and understand all aspects of financial management.  Even after you have a partner, you should always maintain your own accounts along with joint accounts for what you own and owe jointly. You and your partner should work on financial plans together.

3. Know How To Spend Responsibly

When you have your own money, you should track your spending and start a budget. Make and set boundaries as to what you need and comparison shop. You have done a terrific job at pinpointing some unit prices for groceries and searching for coupons. You often challenge yourself to find the cheapest prices for certain items. A word of caution here. Searching for cheapest prices may not always result in the best value. Sometimes you need to make a judgment call. For example, a mattress should last a long time but you don’t want to cut corners if will affect your sleep on a daily basis. You need to determine value that based on what the item is and for whom it is for.

Delay gratification for some purchases that are not needed. Recognize you can’t have everything you want at the same time. Prioritize what is most important. Often what we want changes day to day based on the flimsy reasons we had in the first place. Alex, I can’t tell you how many things I bought that are brand new that I thought I would wear or use and are still in a closet. And the tags are still on! That’s when I start packaging things to go to thrift shops. In truth, I could have saved the money for something else.

4. Build Up Your Credit

Understanding how credit gets built and works is going to become very important as you get older. You just began high school but as you move towards going to college, you will be able to get your own credit card. Building your credit is like having a good financial reputation. You must be at least 18 to apply for a credit card. If you are under 21, you must provide proof of independent income or assets to be able to pay your bill.

When you are under 18 years old, you can become an authorized user to a credit card I already hold. Dad and I would monitor your spending and use limits. You would not want to be on such a card if our credit scores showed we had poor credit. Even being an authorized user may not help you build up credit though most do. It depends on the credit card issuer if they report on your activity. The best reason for authorizing you as a user is for emergencies and I would consider using a low-limit credit card once you understand how credit works.

Review Your Credit Report Regularly

Once you have a card, you need to review your credit report for errors at least once a year. You can do it for free once a year through annualcreditreport.com and from each of the three credit bureaus. Your credit report may be required by many people like your employer, your landlord and for getting loans. You need to pay all your bills on time to ensure a good payment history. It will take time for you to build up your credit score because they consider how the length of your credit history, amounts owed, new credit and your mix along with your payment history.

Alex, one of my pet peeves is how lax Dad had been in the past about paying our bills. You probably heard an argument or two. He is a loving father but I would not take any cues from him on credit and debt. Come to me with any questions once you have your own card.  I have been doing all the bills, paying them promptly, bringing balances to zero.

5. Avoid Credit Card Debt

Thus far, we have not provided you or your brother with access to a credit card. Having a credit card is not an evil to be avoided if used responsibly.We encourage you to use cash so that you feel your spending in real time and so you can easily track your patterns. When you use your card to buy things, you will receive a bill with a debt balance that can grow very quickly if you only pay the minimum payment required by the credit card company.

The  card company prefers you pay only the minimum so they can charge your balance with a very high interest rate of 15%-20%. The lower the credit score, especially for new and young users, the higher the interest charges. Many people pay only the minimum amount which is usually a small percentage of the balance such as 1%-3% or a fixed dollar amount of $25-35.

Pay Your Balance In Full

The problem with this is that your balance will mushroom quickly as 17% interest on interest on the original amount you borrowed. This represents the magic of compound interest working against you. Let’s say you bought a coat for $1,000 with your card with a 17% interest rate. You paid only the $35 minimum amount required by the company. At that rate and paying only the minimum, it would take you 37 months to pay for the coat that now costs you $1,290 ($1,000 plus $290 in interest). (Alex, you need only basic math–add, subtract, multiply, and division–or an online calculator to figure out most amounts).

A credit card can be convenient when you don’t want to carry cash around. To avoid credit card debt,  you must pay the whole balance in full. Unfortunately, many people struggle with paying off their credit card debt balances. They quickly discover that the items they bought cost so much more with interest tacked on.

6. Saving For Retirement In Your 20s

Retirement is likely far from your mind. That is is why I am raising it as worthwhile to discuss here. Did you know that 35% of Gen Zers are already thinking about saving for retirement and 12% are doing it? As you know, I talk a lot about saving money. That’s because there are so many ways to use the money you have saved such as spending for living costs and things you truly need, saving for college, investing and retirement. The longer you have to save, the more money you can have when you need it most.

Alex, I know you are not retiring for a long time. When you are in your mid-teens, thinking about retirement may seem foolish. However, when you finish college and start your first job, your company may provide you with an employer-sponsored 401K retirement plan.

Here is how it works: you decide how much you want your company to take out of your paycheck to save in a retirement account that will be invested usually in stocks and then held for you. When you get a paycheck it is net of taxes that are taken out of your gross pay amount.

Let’s say you are 25 years old, your salary $75,000 per year and you want to save 6% of your salary or $4,500 for retirement money, your taxes will be deferred (not deducted) on that amount. In addition, you may also qualify for a match from your employer. Usually, your company may contribute fifty cents of every dollar you saved for retirement, meaning an additional $2,250 more from your company for a total of $6,750 a year for a total of  $270,000 ( $6,750 x 40 years).

Compound Growth

After 40 years, you have about $1.4 million in retirement money using an online retirement calculator. By the way, if you push out savings by 10 years, to age 35, your retirement amount drops to just under $700,000. That is a big difference when you delay saving for retirement. These numbers are back of the envelope calculations and when the time comes you can look into the different investment options you have to put your money. Sometimes your employer will match you dollar for dollar so when you save $4,500 in your account, your employer matches your contribution with another $4,500. How about that, Alex?

It’s a bit early for you to know about retirement. I am providing you with this background so you are conversant when you start working at a job that helps you save for retirement.

7. Invest Your Money

A portion of your savings should go into investing in stocks. You have a long horizon and can weather turbulence in the market when you are young. Investing is the best to accumulate money so you can have a comfortable lifestyle. By the way, Alex, when I say invest, I mean buying and holding stocks for the long term. I am not referring to trading stocks which require a different skills.

Did you know women are better investors than men. According to a Fidelity Investments study, women outperformed men by 0.4%.  They tend to less trading, more buying and holding stocks in their portfolio. Women tend to be  more conservative and sometimes too cautious. One issue that crops up for women is that they lack confidence when investing. Gaining confidence by investing in a simulated manner can boost confidence.

Stock Market Games

I recommend Stock Market Games as a great way to get started with understanding basic terminologies and strategies. It is easy to set up and we can do it as a family. Tyler was in a stock market club that used the same game I use for my college students. It is free and has a lot of resources. Let’s start it as soon as you can. You can read some information about simulated stock market games here.

As you know, I was an equity analyst working on Wall Street for an investment banking firm. I have some experience analyze a group of companies within one industry and understanding the financial markets, the economy and many factors that affect stocks. I don’t have any foolproof way to make money but I do use a disciplined approach as every investor should do. The nearest concept to magic is the power of compound interest when you earn interest on interest generated by your investment portfolio. It can boost your portfolio over the long term.

A Disciplined Approach

Diversification of your portfolio is one of the best ways to reduce risk in your investment portfolio. It means that instead putting all of your money into one stock, you buy a basket of several different kinds of stocks in different businesses to offset possible weaknesses in one stock. The best way to do that is through purchasing a mutual fund which is usually managed by a portfolio manager who has expertise in the different stocks in the fund. There are inexpensive ways to invest in such a fund or even an ETF which is similar to a mutual fund.

I want you to be empowered by what you can do when you are handling more money than you have now. The more you know now the better your habits. Later on, you will want to learn about how to buy a new or used car; how to rent an apartment and other personal finance topics. There are more lessons I want to share now so that you can be a strong person to be reckoned with.

8. Advocate For Yourself

This can be hard to do at first. Learning to speak for yourself is a critical skill. You began to do some of this last year and have continued despite being in a new high school. Asking proactively for help, mentoring,  for a raise or promotion are ways of getting what you deserve. The truth is that others often aren’t focusing on your needs and so making them aware is a good step forwards. Standing for one’s self can be difficult but if you believe you have a right to ask and are respectful, advocate for yourself.

Know how to negotiate, bargain, and debate. These are skills worth having. Women are  particularly weak in negotiating for themselves though they are great advocates for others. Whenever there is an opportunity to join a women’s group that provides training for these skills, go for it.

9. Embrace Learning

I can almost feel your eyes rolling at me. You know that I have always valued continuous learning. Accumulate knowledge and understand both sides of an argument, read different genres and go out of your comfort zone. Deepen what you know rather than read superficial information that expires in a short period of time as forgettable bits. The wealthiest and most successful people read a lot and expand their creativity to build businesses. Warren Buffett, Mark Cuban, Elon Musk, Oprah, Chelsea and Hillary Clinton all read a lot.

I can tell you Alex, that the years I worked on Wall Street 7 days a week, I found myself to be virtually ignorant about many aspects of life. So consumed was I as a telecom equity analyst, I had no time or energy to read a book or learn anything else. It is very important to be interested in all that the world has to offer. Patti Smith, the rocker and author once said, “I have loved books all my life. There is nothing more beautiful in our material world than the book.”

10. Determine Your Goals And Priorities

You can accomplish whatever you want to within reason. Know what you most want to be and design a path that gets to where you want to be and the lifestyle you want to have. There are no obvious shortcuts. Recognize that you may face conflicts that require changes to your plan. Do your diligence to understand your options.

11. Work Hard

It always easier to work hard at a job or in a field you love. I know you can achieve success. Have a “can-do” attitude. Be the best you can be. Collaborate and network with others to fill in gaps when you don’t have all of the skills needed. Alex, know what you don’t know. That is not a weakness.

12. Setbacks Are Normal

Assume you will have some obstacles in life. Setbacks are learning experiences. Reframe the failure to strengthen and motivate you. They may be blessings in disguise and point towards better opportunities. Expect mistakes will happen and learn how to recover from them. You will be stronger. Many great inventors failed over and over before they became famous for their product. The point is to use feedback you are given to learn from errors and to motivate yourself.

13. Avoid Comparing Yourself To Others

How human it is to compare yourself to your friends and classmates or anyone in your peer group. It is natural to do so but unhelpful. Alex, no one earth has your unique set of characteristics, your background,  mindset, your abilities, motivate or your goals. You are you and cannot be truly compared to others. We do it because we want to know if we are doing alright but it is often a false measurement. How do we rate according to societal norms? We are comparing ourselves to statistical averages.

Instead, compare yourself to where you were and where you are going. Be thankful for any and all progress. Don’t worry about what others think as much as how you feel. You can define your own success by setting your own goals, priorities and using your own tools.

14. Time Is More Than Money

Alex, they say time is money but it is a far more precious resource. You can always generate more money but you can’t get back time if it was spent poorly. Be productive of your time. Time value of money is a concept whereby money has the potential to grow in value over a given period of time. When we deposit $100 in cash into a savings account, it will be worth more a year from now if the account earns interest. Treat your time with respect. Use it wisely.

15. Be In The Real World

Put down your phone once in awhile. Make eye contact with others and be socially engaged. It may reduce some stress and anxiety from envying what your peers may be doing. It’s not just you looking down into a 5.5 inch box conveying the virtual world. Unplug your phone and take a look around at the real world rather than the virtual world others want you to see.

16. Be Confident And Appreciate Yourself

This is no small wish for you. Women who came before you have not been treated with equality and even now, we are still not operating on an even playing field. However, things are getting better for women.

This letter is devoted to you. I hope you realize you have wonderful qualities.  I want you to value yourself and be confident about your abilities. Take charge of your future. Keep growing as the amazing person you are becoming. I know that you will learn to handle money with the care it deserves.

Love you,


PS: Alex, I know you are a subscriber but many of the topics I want you to learn more are discussed on the blog and can be found: https://thecentsofmoney.com

Thank you for reading!

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