Beating Broke

Personal Finance from the Broke Perspective

Why You Should Allow Teens to Have Natural Consequences

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Allow Teens to Have Natural Consequences

As parents, we often don’t want to allow teens to have natural consequences. However, that’s the worst thing we can do for them. Every decision a human being makes has consequences—either good or bad or a mixture of both. We learn from these consequences and hopefully make better decisions next time if the results are negative or the same type of decisions if the outcomes are positive. If parents don’t allow teens to have natural consequences, we enable them and deny them essential learning experiences.

Why You Should Allow Teens to Have Natural Consequences

Older teenagers are navigating the adult world and learning what is acceptable and what isn’t. In addition, they realize that they can now make their own decisions and live with the consequences.

How My Mom Allowed Me to Have Natural Consequences

The summer I was 17, my friend and I booked a flight for January from our homes in Michigan to my grandparents’ winter home in Florida. We thought flying to Florida in the middle of winter would be a relaxing way to start the new year. I paid for the ticket myself with money from my summer job.

What neither of us knew was that my friend’s life was about to go off the rails. She started using drugs heavily, and by the fall, we were no longer friends. I dreaded the upcoming trip to Florida. I didn’t even talk to my friend anymore. How could I stay with her at my grandparents’ home for ten days?

I asked my mom if I should call our doctor and see if he would write a medical excuse for why I could not go on the trip so I could get my money back for the ticket. She said I could try. When I called the doctor’s office, the receptionist chastised me for asking the doctor to lie. I was embarrassed and learned my lesson. I flew to Florida with my friend. The trip didn’t go as badly as I worried it might, and that turned out to be the last time we spent together.

How My Friend Is Allowing Her Daughter Natural Consequences

I was reminded of my own natural consequences story while watching my friend, Sandy, interact with her daughter, Julia. Sandy doesn’t have much money to pay for Julia’s college, so throughout Julia’s high school career, Sandy advised her to apply for scholarships. She told Julia how those scholarships could be used for tuition and living expenses. In addition, she talked to Julia about the harmful effects of student loans. However, Julia steadfastly refused to apply for scholarships. She also refused to get a job.

In addition, Sandy wanted Julia to learn to drive because the community college Julia planned to attend was 30 minutes from home. Julia attempted to learn to drive, but she quit after a few tries.

Allow Teens to Have Natural Consequences

Julia decided to take the bus to go to college, but she hated it. Now, she wants a car, but she has no money. She has pestered Sandy to help her get a car and pay for gas and insurance, but Sandy refuses. So instead, she’s asking Julia to find a way to pay for this herself since Julia previously refused to apply for scholarships or get a job. Meanwhile, she can take the bus even if she doesn’t like it.

Final Thoughts

Watching your child struggle is difficult. However, if parents allow teens to have natural consequences, they learn far more than having parents lecture them.

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What to Do with a Sudden Large Sum of Money

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Sudden Large Sum of Money

For years, my aunt and uncle helped their aging relative, Dottie. They didn’t receive any financial assistance for the five to ten hours a week they spent maintaining Dottie’s lawn, cooking her meals, and driving her to doctor’s appointments. They put in that time, week after week, because they loved her and wanted to make the remainder of her life more comfortable. However, my aunt and uncle were in for a surprise when Dottie passed away. They discovered not only that Dottie had a small fortune, but that she had left all of her money to them. My aunt and uncle raised a large family and had always lived on a bare-bones budget, yet suddenly, they had inherited a sudden large sum of money.

My aunt and uncle’s situation was not unique. Many people fall into a large sum of money through inheritances, insurance settlements, gambling, or other ways. If this happens to you, what should you do with the money?

Do Nothing for a Few Months

The best thing to do is nothing. Yes, you heard me. Take the money you received, put it in a bank account, and do nothing with it for a few months to a year. Take time to get over the shock of your good fortune. Take time to plan out how best to use the money.

If you don’t take the time to let the money sit, you may blow it on all of the things you’ve always wanted but could never afford—a new boat, a vacation home in the mountains, nights out at fancy restaurants, etc. Take the time to get used to having so much money before you do anything with it.

Consult with a Financial Advisor

You may also want to consult a financial advisor and see what she recommends you do with the money. However, choose carefully. Some financial advisors are paid based on the products that they sell you, so they may push products that aren’t the best use of your money so they can also benefit from your windfall.

What to Do with a Sudden Large Sum of Money

After you’ve taken a few months to set the money aside and get used to the idea of having a fatter bottom line, you are ready to decide what to do with the money.

Set Aside a Portion to Spend

Sudden Large Sum of Money

If you receive a large amount of money, the first thing most people want to do is spend it. Go ahead and spend some of it, but first, decide what amount you will use frivolously. Maybe you decide on 5% of the money.

Take that 5% and have no guilt buying what you want. Whether that is expensive meals out, or a vacation, or a new car, enjoy the money guilt-free. But, stop spending after that and make wise choices with the remaining funds.

Pay Down Debt

One of the best ways to use a sudden large sum of money is to pay down or pay off your debt. After you pay off debt, you can start with a clean financial slate. Then the money you make every month will be used for the present and the future, not servicing money you spent in the past.

Create an Emergency Fund

How’s much is in your emergency fund? If you have nothing saved or only a thousand dollars or two, use your windfall to bulk up your emergency fund. Experts recommend saving six to 12 months of expenses in an emergency fund. If you have a steady, reliable job, go for the lesser amount. If you’re a freelancer or have a job that may get cut when the economy stalls, save enough for 12 months.

Invest

After you pay down your debts and bulking up your emergency fund, consider investing. This is one of the best uses of the windfall because you’ll continue to earn money through investing, making your windfall grow.

Contribute to Your Retirement

Getting a sudden large sum of money can make your financial future brighter when you contribute to your retirement accounts. However, the government limits how much you contribute to your retirement each year. Depending on how much money you receive, you may not be able to use it all by contributing to your retirement, or you will have to space your contributions over several years.

Buy a House

Sudden Large Sum of Money

If you don’t own a home, now might be the time to buy one. However, even though you have a sudden large sum of money, don’t buy your house based on that money. Instead, buy a house that you would have been able to afford before you received the money. This assures that you won’t spend more than you earn. Use your newfound money to put down a hefty down payment.

By choosing a house you can afford based on your salary, you’ll be able to keep and maintain monthly payments on the house even if you lose the money you just inherited. (Sadly, many people who receive large windfalls end up broke a few years after.)

Contribute to Your Children’s College Funds

Another option is to contribute to your children’s college funds. When it’s time for your child to go to college, the money will be there waiting. You can contribute to a 529, or if you want to save money for your child without earmarking it for college, you can contribute to a Uniform Gift to Minors Act (UGMA).

Final Thoughts

When you come into a sudden large amount of money, you have many decisions to make. Take a few months to a year and do nothing. Wait for the shock to subside. Then, choose from one to several of the above options when deciding what to do with the money. Choose the options that will best serve you and your family. And don’t forget to earmark a small percentage of the money to spend and enjoy.

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Personal Finance is a Life Skill

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ChristianPF posted a very thought provoking article a while back.  In it, he talks about how spending money wisely is a life skill.  The choices that we make in spending our money are the root of how we live our lives and can bleed through into the businesses that we run or work for.  Basically, the way that you spend money is a very important.

I think I would take it one further.  Not only is the way that you spend your money a very important skill, but, as the title of this article states, the entirety of your personal finance management is a life skill.

Schools all around the world concern themselves with teaching children life skills.  Skills like writing.  Reading.  Wood Working.  Mathematics.  Science.  And even Cooking (0ne of my favorites).  Perhaps personal finance isn’t as important as things like mathematics, writing and reading (the three Rs), but I would argue that it’s just as important (or more so) than the rest. I would argue that personal finance is a life skill.

Improper management of your personal finances can lead to some pretty dire circumstances in your life.  You can find yourself falling into a trap of revolving debt and upside-down mortgages.  Too easily, you can find yourself making the choice between ramen and gas to go to work.  And yet, people continue to put personal finances aside as something that isn’t all that important.

Over the last decade, I’ve spent my time learning many of the tenets of personal finance management.  Even with the knowledge I had gained, it was a very difficult trip to take.  I started as close to the bottom as I cared to get.  I’m still a long ways from the top, but I’m getting there.  And most of that is owed to learning to manage personal finances properly.

Take the time today to learn something about taking care of your finances.  Teach it to your children.  Teach it to your friends.  If we all learn a little bit more each day, week, and month, we can turn our situations around and help more people.  The more people we help with this, the less likely that our economy will ever find itself in this situation again.