3 Money Rules Grandma Didn’t Know, But You Should

We often use the phrase “it was a different time” when reflecting on the lives of our grandparents, and it is particularly applicable to their approach to money. For many of them, their relationship with money was shaped by the Great Depression or lean years of World War II rationing. These era-defining events created a frugal, resilient mindset where every penny counted, every scrap was saved, and scarcity was always on the horizon.

If your parents or grandparents passed this mindset to you, consider it a gift. A disciplined baseline is a defense against overspending and a masterclass in appreciating what you have. However, modern financial planning has shifted dramatically since the days of tucking cash into a coffee can or under the mattress.

While the virtues of hard work and thrift are timeless, the strategies for growing and protecting your nest egg have evolved. Today, your financial success depends on combining the classic penny-pinching mentality with modern principles of wealth management. This proven combination includes these three “rules” your grandma probably didn’t teach you, but that are essential to your retirement plan.

1. Credit is a Tool, not a Taboo

In past generations, debt was often viewed as a moral failing or a dangerous trap. These fears were well-earned as many people watched homes and farms be repossessed during the Great Depression. Later, the same people lived through periods of double-digit mortgage rates where borrowing felt like an anchor around the neck rather than a steppingstone.

Today, we view debt not as a failing or a taboo, but as a strategic tool to build long-term wealth. When used wisely, borrowing allows you to acquire appreciating assets that would otherwise be out of reach.

One of the most powerful and widely used types of debt is the mortgage. The total interest paid over the life of the loan can be staggering, but many homeowners substantially grow their net worth with their primary residence. To illustrate, consider two facts from the Census Bureau’s “Wealth of Households: 2022” report:

• Home equity accounts for 31.4% of household wealth. The only type of asset that contributes more to wealth is retirement accounts, which constitute 32.1% of total wealth.
• The median net worth of a homeowner, including their home equity, is $406,000. Conversely, the median net worth of a renter is just $9,250.

These numbers show that homeowners tend to hold far more wealth than renters. Home equity is one reason, though income and saving habits play a role too. Used wisely, credit that buys an appreciating asset can strengthen your long-term net worth. That asset could be your home, education that lifts your future income, or investments if you have a high appetite for risk.

Credit cards are another form of debt that has consistently been considered taboo, but in today’s world, that’s not the whole story. It is true that carrying a balance from month to month on your credit cards is a one-way trip to financial trouble, but if you pay them off each month, you can flip the script. In fact, wise use of credit cards can lead to cash rewards, exclusive entertainment, or free travel – just for your daily spending.

Grandma was right about one thing, though – credit cards can be a dangerous trap when mismanaged. In fact, any debt instrument with a high interest rate that isn’t used to buy a long-term asset can devastate your financial plan, so use debt wisely.

2. Wealth Building Needs Compounding, Not Just Saving

The old-school approach to financial security was to save cash and keep it safe – either in an account at a local bank or hidden at home. This approach felt secure, but it ignored the silent devaluation caused by inflation.

In 49 of the past 50 years, the cost of living has increased. If your money is sitting still, it is losing value. So, to preserve purchasing power and grow your portfolio, you need to move beyond saving and embrace compounding.

Albert Einstein reportedly called compound interest the “eighth wonder of the world” for its ability to grow money over time. This example will help you see why he made such a bold statement.

If you save $6,000 each year from age 20 through 60 and put the money under the mattress, you will have $246,000 at the end of that timeframe. On the other hand, if you invest it at a steady 7% per year, you will have about $1.38 million. That simple shift from ‘saving’ to ‘saving plus compounding’ creates an additional $1.1 million.

Of course, this is a hypothetical example for illustrative purposes only, and actual investment results are not guaranteed.

3. Retirement is a Second Act, Not a Short Break

For earlier generations, retirement was a brief period of rest after a lifetime of labor. Life expectancies were shorter, and the “golden years” usually only lasted a decade or so.

Today, medical advancements and a focus on wellness have made retirement a Second Act for your life. It’s common for retirement to stretch decades, and for retirees to be healthy and active throughout that time. This shift changes everything about how we plan for retirement.

Because your retirement could last as long as your career did, your financial strategy requires coordination between saving, investing, and government benefits. Together, saving and prudent investments during your working years and wise choices regarding your government benefits at retirement can create long-lasting income.

Whether your retirement plan means traveling the world, spending quality time with family, or starting a new passion project, you’ll need a comprehensive plan to achieve it. An experienced financial advisor is your partner in this endeavor, helping you turn modern financial rules into an actionable plan that creates freedom for your Second Act.

Find Financial Freedom with Brookstone Wealth Management

A final rule your grandma may not have mentioned is the value of a financial partner. At Brookstone Wealth Management, we help clients navigate the modern financial world through our comprehensive plan, Financial Fingerprint®.

This nimble plan brings together your investments, government benefits, and tax strategies into one holistic view. When these factors combine, you get a clear understanding of your financial situation and actionable steps to reach your goals. Best of all, your success is supported by our experienced team.

Contact us today to discuss how the modern rules of money can work for you and get started with Financial Fingerprint®.