Are You Teaching Your Kids to Follow Your Financial Habits?

My oldest is 10, and he does chores around the house to earn an allowance.  He works hard, and we’ve taught him to set aside a percentage for investing (10%), for saving (20%), and for giving (10%).  That leaves him to spend 60% of everything he earns.

And spend he does!

He finds it extremely difficult to let his spend money sit and grow so that he can buy something bigger.  Instead, as soon as the money hits his hands, he wants to spend it even if it’s a fairly insubstantial amount and can’t buy him much.

He just can’t seem to save up for the things he wants.

Instead, he’s enticed by advertisements.  He reads the newspaper and magazines to find free catalogs to send away for, and then he wants to spend his money on any little thing.

Teaching Financial HabitsIt’s driving me crazy.

His money, his life.  I should let him spend the money and be disappointed when he has no money to spend later.

Actually, that’s already happened.  When we first moved to Arizona, he saw a 2015 calendar at Costco for $15.  This calendar had scenic landscapes of Arizona and was quite pretty.  I told him to wait because as 2014 came to a close, he could get calendars cheaper.  But he couldn’t wait, and then in December and January, he was disgusted to find how cheap calendars got.

Still, his behavior hasn’t changed.

As a parent, I wonder how much I should interfere.

You see, when I was young, I was just like my son.  I spent every Saturday at the mall, my money burning a hole in my pocket.  I HAD to buy something, even if it was just a pair of socks I didn’t need.  Every week, I walked through the same stores, buying stuff I didn’t need, just like my son buys the stuff he doesn’t need now.

However, my mom never stepped in.  She gave me a wide amount of freedom.  Whatever money I earned was mine to spend how I liked.   She didn’t even ask that I set aside a portion of it for savings.

I was a responsible kid and bought my own car, paid my insurance, paid for gas, and also bought my own clothes.  I think she figured that I was handling my money well, so it was up to me to decide what to do with the rest.

When I was a teenager, my friend and I used our money from our job to go out to eat and see a movie every Friday.  Sometimes we’d go out to eat on the weekdays, too.

What a waste!

Imagine if I had instead invested just a small portion of that in a Roth IRA.  Or if I had saved it to pay for part of my college education.  Maybe I wouldn’t have graduated with $25,000 in student loan debt.

Even now, I have a hard time saving, though I am getting much better.  I’m finally able to stick to a budget and make saving a priority.  It’s taken me 40 years to break bad spending habits that I learned in childhood.  Let’s be honest, getting a hot deal isn’t really a deal if you don’t need the item and it robs you of the ability to save.

I want to teach my son this lesson now, so he can be more financially responsible than I was for many years.  But that lesson is oh so hard to teach.

How much do you guide and interfere in the way your child chooses to spend money?

 

Do You Have a Rainy Day Cash Fund?

Everyone should have a rainy day cash fund.  Not an emergency fund.  Although, you should have one of those as well.  No, a rainy day cash fund should be exactly that.  Cash.  Easily accessible, and easily spendable. Ahhh!  Did he just say “easily spendable”?  Yes.  I did.  Why would I say something like that?  Common advice is that you should put your money in an account where it isn’t easily spendable.  Especially your emergency fund.  You don’t want any everyday “emergency” to drain your emergency fund dry.  It’s for real emergencies.  An engine in a car that stops working and needs repairs.  Although, some would argue that’s what a car repair fund is for. Those quasi “emergencies” aren’t what a rainy day cash fund is for either.  Sorry.  I’m sure some of you wanted me to tell you that it was smart to have a little stash of cash that you could hide away for those tools you really, really, “needed”.  But, it’s not for that.

What is a Rainy Day Cash Fund for?

Rainy Day Cash FundIt’s still for real emergencies.  Just not the kind that your emergency fund is for. Consider.  A major power outage happens.  You really, really, need a tank of propane to light up to heat your house until the power comes back on.  You get to the gas station, or wherever you buy the propane from, except they don’t have any power either.  Their credit card reader isn’t going to take your debit card.  In fact, they’re writing down transactions and calculating change with a calculator.  Without power, it’s a cash only transaction.  If you don’t have any cash, you’re headed back to your cold house without any propane to heat the house with. Taken to an even farther extreme (a Prepper extreme, you might say) you could find yourself in a situation where regional or national economies fail entirely.  Of course, having cash in that regional or national currency probably isn’t going to do you much good.  That’s why you hear all the stories about preppers stockpiling gold and silver.  They believe that in a situation of economic collapse, everyone will revert back to gold and silver for bartering with each other.  In the show, Revolution, which is about the total loss of the power grid and the destabilization that follows, you’ll often see people paying each other in diamonds. I’m not saying that you’ve got to have a couple of coffee cans full of gold coins out under the tree in the backyard.  For most of the situations you’ll find yourself in, a little of ol’ greenback will do you just fine.

How Much Cash in a Rainy Day Cash Fund?

Thousands.  Then, please send me a note with your address, and the exact location where the cash is stored. I’m only kidding.  Much like anything else, your rainy day cash fund is a bit variable.  It will depend on what you can afford to just put away in cash.  Although, for most, the rainy day cash fund is well within budgetary limits.  Really, what we’re talking about is having enough cash available that you can afford a tank of gas, or a loaf of bread should you be unable to use a debit card. In almost every case, something like $100 should be plenty.

Where to Put the Rainy Day Cash Fund?

The short answer is, wherever you want.  Just make sure that it’s reasonably secure, and easily accessible.  Buried in a can in the back yard is probably not the best idea.  Your wallet isn’t a very good idea either.  If you’re creative enough, you can find plenty of places to hide that small stash in your house.  If you’re not so creative, there are plenty of pre-devised ways to stealthily hide your money.  Here’s a few easy ones:

  • Tape the bills lightly (you don’t want to rip them taking them off) to the back of a framed picture in your house.  Most people won’t look there, and you’ve only got to take the picture off the wall to reach them.  Just don’t forget they’re there if you decide you don’t want the picture anymore.
  • Under your mattress.  Yes, really.  It’s an old joke, but it’s also a convenient place that’s easily reachable and that most people aren’t going to casually look in if they’re being nosy.
  • In a book.  Pick your favorite book, and your favorite page and place the bills in the books there.  Again, easily reachable, and less likely to be found.  Just make sure that if you ever decide that you don’t need that book around, that you take the money out first.
  • In the freezer.  This is another old one.  Throw the bills into an envelope and place it at the back of the freezer.  Easy enough to get to if you really, really need it, but not so easy that guests (welcome or not) will easily find it.
  • Behind the furnace.  Put the bills in an envelope, along with a decently strong kitchen magnet.  Attach the envelope to the back of your furnace or any metal surfaced appliance so long as they won’t be exposed to flame or extreme heat.  Easily accessible, but who’s gonna go poking around your furnace (or the back of your fridge) looking for loot?

That’s just a few ideas.  What it really boils down to is putting a little cash away for a rainy day when you need it, and placing it somewhere where it won’t easily be found by prying eyes. What do you think?  Should you have a little rainy day cash fund?  How much would you put in it?  Where are some other good places to put the cash?

The Smell of Napalm

Napalm is a sticky, flammable substance that was invented in the 40’s, and used in several wars.  Because of it’s stickiness, it attaches itself to everything, then burns at somewhere over 800 degrees.  When it’s done, there’s no more jungle.  No more enemies walking around.  It’s vile enough, that it’s use on concentrations of civilians was declared a war crime by the UN in 1980.

By now, you’re probably wondering why a site about personal finance is discussing Napalm. Well.  Here’s the thing.  Debt is a funny thing.  Most of us have it.  Some of us have quite a bit.  And most of us would like to get rid of it.  In fact, most of us would just love to Napalm our debt.  One fell swoop.  Drop some sticky burning substance on it and have it gone in a few short minutes.  We’d like that so much that we buy lottery tickets, raffle tickets, and buy books and products that promise some get rich quick scheme.  People with debt are always looking for the debt Napalm.

We like to fantasize about what we would do if we won a couple million in the lottery and set our debt on flames.  Erasing it, with one fell swoop, while getting rich at the same time.  Much like Kilgore in Apocalypse Now, we love the “smell of [debt] napalm in the morning.”

Napalm: War on debt Crime

Instead, we’re given the “debt snowball“, or the “debt avalanche.

The truth is that debt is so easily gained, we want to find a solution to it that is just as quick.  An afternoon with a credit card and a shopping mall can add thousands to the total. Thousands that could take us years to pay off.  We wish we could find the Napalm to incinerate our debt.

Some people think that bankruptcy is that Napalm.  But, as quickly as a bankruptcy can eradicate your debt, it doesn’t leave you without any scars.  For many years afterwards, you, and your credit score, will suffer the consequences of the bankruptcy.  Credit will be nearly impossible to attain.  Prospective landlords and employers are even running credit checks before renting or hiring people.

We need to stop looking for the Napalm.  We need to stop assuming that all is lost.  We need to take some responsibility, find ways to make more money, save more money, and pay down more debt.  We need to stop adding more debt.

If you want to get rid of your debt, it’s a slow burn, not a Napalm strike.  Even in the world of personal finance, Napalm is a war crime.

Original image credit: korea by the U.S. Army, on Flickr