More Discussions with my son, Simon – Pennies or Pence?!

The “Rule of 72” discussion with my son, Simon, sparked several other conversations about how to manage money effectively. Financial literacy is a crucial life skill, regardless of its source.

Each person has a different set of circumstances, so this is not meant as advice, financial or otherwise. It is meant to raise awareness and encourage discussions with professionals. Simon and I ended up focusing on five things. The conversation went as follows:

Simon: The Rule of 72 got me thinking about other “rules”, Dad. Can you explain those, too?

Scott: Sure. The 50/30/20 budgeting rule is a good start.

Simon: How do I associate the numbers with the rules?

Scott: Well, 50% of your income, the money you actually bring home or see in your checking account, should go to needs, such as housing costs, food, and the like. 30% allocated to wants, these are not needs but stuff you want, and 20% to savings or repaying debt or borrowed money.

Simon: What happens if there is an emergency? How can I predict that?

Scott: Emergencies happen. Generally, it is recommended that you save between 3 and 6 months of living expenses – these are included in your needs – as an “emergency fund”.

Simon: Like a “piggy bank”?

Scott: Sure. Great analogy. Emergency funds are for unexpected or unpredictable financial issues.

Simon: Here’s something I think might help us, too. What about retirement?

Scott: Excellent point. We focus on building a retirement fund or retirement portfolio each year, and benefit from the time value of money. Just like we discussed, putting money away regularly, saving it, is hard. But the benefits are being able to withdraw the saved money when we retire. Some suggest the 4% rule. Maybe it’s 5%? It is a percentage of your initial retirement portfolio each year after many years of saving, which gives you a high chance of lasting 30 years.

Simon: Didn’t Benjamin Franklin say, “A penny saved is two pence clear.”

Scott: Where did you learn the word “pence”?

Simon: I learned it when I realized that pennies cost 3.7 cents to make (!). How can it cost that much, Dad?

Scott: You just discovered an aspect of inflation, maybe that’s why pennies are discontinued! Ben Franklin actually taught another lesson that probably makes the most “sense”: “An investment in knowledge pays the best interest.” Teaching you, and others, definitely “pays the best interest”.

Disclaimer: This is not financial advice. The information provided is for general informational and educational purposes only.