Posts Tagged ‘Budgets’

Prepping Kids to Leave the Nest

Monday, January 5th, 2009

Have you bought your Til Debt Do Us Part LIFE PLANNER yet? If you haven’t, time (and stock) is running out. With 2009 shaping up to be a year of change and promise, the TDDUP Life Planner is a great tool to keep you focused on what’s important. 

Alex has another year and a half with me and then, all things being equal, she’ll be heading off to University. Maybe. If she can get her crap together. That’s pretty well how most parents feel when it comes to watching their teenagers approach that age when they’ll be stepping out on their own. We want to do whatever we can to help smooth the way. But sometimes “smoothing” is taken to the extreme and our kids leave home without the good sense God gave a goose!

Prepping for a life on their own starts early, much earlier than most parents think. Whether it is learning how to cook – making KD in the microwave doesn’t count – to learning how often to change their sheets, clean the toilet, or sew on a button, having never been told what to do, or how to do stuff, kids are at a loss. Like the kid who puts tinfoil in the microwave and then claims “but I didn’t know,” your child could be ignorant of some of the things you take for granted, including how to handle her money.

When kids are small, we have no problem redirecting their behaviour, giving them step-by-step instructions for how to do a new task, or patiently watching as they master a new skill. As they get older and start pushing back, we are scared about doing anything that will alienate them. There already seems to be more distance than we want.

Sure, there are the parents who regularly make their kids clean the house from stem to gudgeon. But I’ve been with those kids as they talk about “escaping” home and never coming back once they break free of their parents’ control. One girl I know whose mom refused to allow her to come to a mixed sleep-over party the weekend before she left for university probably doesn’t know that her daughter refers to her as “The Nazi”. Ouch!

So we walk a fine line between helping our kids acquire the basic skills they’ll need to go out on their own and letting them have the space they need to make – and learn from – their own mistakes.

At the very least, our kids should have some sense of what it takes to keep body and soul together: how to clean up after themselves, how to buy and prepare some basic meals, and what to do in the event of certain types of emergencies. That’s not to say that once they leave home you’re cutting the apron strings completely. But it does help for them to know a little somthin’ somethin’ about dealing with the life they’re about to have.

And through all the life lessons there are money lessons you need to be weaving. How to grocery shop on a budget; how to prepare meals that go a long way; how important it is to have a stash of cash just in case the caca hits the fan.

There are the seven essential money skills I think every kid should have before he breaks out on his own. You won’t be surprised at any of these. Not really. So this is your opportunity to take a good look at your kid to see how good a job you’ve done thus far teaching the important money lessons. I’ll cover the first essential money skill in today’s blog, and the rest over the next few days.

Essential Money Skill #1: How to live on a budget.

The thing about a budget is that it not only shows you where you’re planning to spend your money, it asks you to make choices every time you get the urge to spend. Want to go to a movie? If you don’t have any more money left in your entertainment budget, will you use your food budget or your transportation budget to see the flick? It isn’t about NOT seeing the movie. It’s about what else you’re willing to give up to see the movie.

The idea of living on a budget also gets kids used to the difference between their “needs” and their “wants”. They can spend more or less in a particular category of their budget, but they cannot spend more money than they have, so it’s important to understand what their Essential Expenses are: that’s the money they’ll need to spend to keep body and soul together.

TO DO:

Sit down with your child and talk about your own budget, how it works, why you use it, and what it helps you achieve. Never mind the whole “privacy” crap. This is your kid, and if you can’t use your own budget to teach him a thing or two, you’re missing the mark completely as a parent!

For several months before she leaves home, have her work on your budget with you.

Have him make a budget for moving out on his own. Whether he’s leaving home to work or to go to school, if he goes with a plan in hand, he’ll be that much more likely to succeed.  See this article for more information. It talks about how to use a cash flow for managing money, which is the single best way to learn to budget to the dollar.

Keep your hand out of your pocket. If you keep bailing Bunny out of the hole every time she digs one, she’ll never feel the pain and she’ll never learn. Once you’ve established the parameters for how you will help, stick to it. If you’re offering to pay $50 on the cell phone, don’t cover the $100 bill. Pay your $50 and watch the service get cut off! It’s hard, I know. But you know what? It’s way easier to do it now than when she’s got two kids in tow.

Next: Essential Money Skills #2 & #3.

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Posted in Budgets, Kids & Money, Money Management | 14 Comments »

You Want a Budget. You Really, Really Do!

Tuesday, October 28th, 2008

I meet a lot of people – and hear from many more – who want to debate the validity of a budget. Second only to life insurance, budgets are the most misunderstood financial tool around. People see them as constraining, like too tight shoes you squeeze your oversized feet into. People seem them as rigid; think full body cast. People see them as impossible, as in, “I’ve made lots of budgets but they never work!”

Worst of all are the people who throw up their arms and sigh, “I can’t… I just can’t.” Hmmm.

So do you have dreams of things you’d like to have, places you’d  like to go, experiences you’d like to… well… experience? If you want to get from here to there, and you’re not rolling in dough, the way to do it is to make a budget. Your budget is a plan; a plan for how you will spend your hard-earned moolah. Without the plan, you’re diving down the road with a blindfold on. And when you run into the ditch, the ooops can take a long time to fix.

So why does living on a budget makes sense?

First, a budget lets you see if you are living within your means. Once upon a time, before credit was as common as the cold, people knew whether or not they were living within their means because they either had money left over at the end of the month or they didn’t. With credit cards, lines of credit, and overdraft protection, it is much harder to see that you’re not making ends meet because you can fool yourself into thinking you’ve got it covered. However, if you have a budget and you faithfully plug your numbers in, the budget will tell you the truth.

So a budget gives you control over your money. You set money aside for specific purposes, be it accumulating money for your children’s education, saving for retirement, or building a stash of cash for that trip to Europe you’ve always wanted to take. Often these dreams and aspirations go ignored because by the time you get to the end of the month, the money is all gone.

Wouldn’t it be a relief to have money available to handle emergencies and unanticipated expenses when they crop up? Without a budget, people think of most of their less regular expenses as “unexpected.” Having forgotten about the car insurance bill that comes once a year, they’re shocked and surprised when the bill arrives. With a budget not only would you know when to expect the bill, you’d have set aside 1/12 of the total each month so paying it would be no problemo.

It’s also a lot harder to spend willy-nilly when you’re on a budget because you’ve accounted for where the money is going, down to the last red cent. All my budgets come out to zero at the bottom. If I find a category doesn’t work because there’s not enough in it, then I have to cut from another category to make the budget balance. But every cent is accounted for. No surprises. Course, not everyone is prepared to be a grown up and spend money consciously. Some people like the rush of spending on a whim. They hate budgets. But they’re the people most in need of a budget because they have no self-control.

And if you’re married to one of these people, a budget can be a marriage saver since it will reduce arguments about money. The budget serves as your guide so if you and your partner are having a squirmish over whether or not to buy something, you can always fall back on, “not until we put it in the budget.”

Perhaps the biggest benefit reported by the couples I’ve worked with is the fact that their stress is waaaay reduced and they find that they sleep better! Following a budget means you eliminate unnecessary worrying over money and debt. You’re confident that everything is figured out, and as long as you follow the budget, you’ve created a plan that will get you to where you want to be.

BTW, there’s some work involved in making a budget. If you look under Gail’s Tools on this page, you’ll see Gail’s Guide to Building a Budget. There are a lot of people who have found the Budget Worksheet, but haven’t read the instructions! You’re a bunch of dopes. If you think the budget worksheet and the Magic Jars are going to calculate themselves, you’re more delusional than I imagined a person could be. Wake up! This takes work! Remember this saying:

God helps those who help themselves. 

Are you ready to help yourself? Or are you waiting for someone else to solve your problems for you?

 

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Posted in Budgets, Take Control | 27 Comments »

5 Reasons Budgets Don’t Work

Thursday, August 14th, 2008

People are always willing to volunteer their wisdom about budgets to me. I’m a Budget-Discussion-Magnet it seems. And nine times out of ten, people want to tell me why budgets don’t work. I agree. Most people’s budgets don’t work for a few basic reasons. Here’s my Top 5 List:

Inaccurate Income Projections: I can’t believe the number of people who don’t know how much money they make. People, whazzup with that? How can you have a hope in hell of having a budget that works if you don’t know how much money you bring home. I know there are a variety of pay periods: monthly, semi-monthly, bi-weekly and weekly. But all you have to do is look at how much is coming into your accounts to know how much you actually make. If it varies from one month to the next, then you use the lowest income you have as your basic income, and use whatever extra you earn to fund stuff like home maintenance, vacations, gifts, and the like.

Not Enough Categories: Most people generalize their budgets too much to get an accurate picture of where their money is going. I swear if I see one more budget with “spending money” I’ll spit. It’s all spending money. What are you spending it on?! You have to have enough categories in your budget to give you a real sense of where the money goes and where you may be able to cut costs. Careful now; too many categories and you’ll make your budget such a chore that you’ll toss it in no time at all. Another problem that goes hand in hand with this one is…

Failure to Include Expenses: Not all expenses come in every month. Insurance bills can come annually. Property taxes can come quarterly. Service contracts, dental bills, health-club renewals… there are lots of things that pop up only once or four times a year. If you don’t include them in your budget, you won’t have the money at the ready when the bill comes in.

Cash: People spend cash without keeping track of where it’s going and that throws their budgets out of whack. Some people use bank machines like a wallet, pulling $20 here and $40 there, as needed. The problem with this approach is that money flows away without any record of where it’s gone. And if you know you have a bill coming due in a couple of days, but your partner doesn’t, and (s)he goes into the account for cash, then you won’t have the money available to pay the bill

No Plan to Save: People seldom put a “savings” line on their budget. Despite how well known the “Pay Yourself First” idea is, people still don’t do it. They wait to see how much they have left to save. And it’s usually ZERO, Zip, zilch! If you’re serious about savings it has to be a line item on your budget, you have to identify a specific amount you’re going to save (both for long-term savings and for emergencies), and you need an auto-deduction to a savings account to MAKE IT HAPPEN.

Budgets are a great tool providing you use them the right way. You need to have spending categories that fit your personal situation, your spending habits, and your income. Don’t look to anyone else’s completed budget as a guide, except perhaps for a list of categories you may not have thought of.  Make sure you review your spending patterns to see if there are areas where you’re overspending. There may even be things you’re spending money on of which you weren’t even aware.

Budgeting isn’t just about tracking your costs, it’s about making sure you’re spending your hard-earned money the way you WANT to. Maybe you want to get out of debt. Maybe saving for a downpayment is a priority. Perhaps traveling is your big Wanna. It doesn’t matter what your goals are, if you don’t identify them, you won’t achieve them. And with no goals and no budget you can be sure that another year down the road, you won’t be one iota better off.

BTW: I’ve been getting a lot of questions about how I decide what money goes into the Magic Jars. The Budget Worksheet is the place to go to figure this out. 

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Posted in Budgets | 16 Comments »