Helping your child get their financial footing is a lot like teaching them to ride a bike. When you first start out you’ll need to give them lots of help and guidance.
The older they get, the more confidence they’ll have and the better they’ll be able to keep their financial balance. The ultimate goal, of course, is to have them become financially independent.
There are lots of ways to get them headed in the right direction. Here are some to consider:
- Help them understand needs versus wants. Their needs include essential things such as food, clothing, and shelter. On the flip side are their wants – a new cell phone, a puppy, a new car. Explain that “needs” should come before “wants” when dealing with finances.
- Set the example when it comes to living within your means. Don’t overspend and don’t buy things for the sake of having them. Kids pick up quickly on your habits and will usually mimic what you do.
- Teach them the importance of creating a budget and sticking to it. This includes explaining income and expenses and striking a balance with the intent of incurring little or no debt. Show that a budget is one of the most important financial tools at their disposal, and that it should be relied upon and updated on a weekly or monthly basis.
- Let them pay their way. As your child gets older and starts incurring regular expenses – cell phone usage, car insurance, gas – have them contribute toward paying these expenses. It makes them aware of how much things cost and gives them a better appreciation of what you’re paying for. It also allows them to take another step toward their financial independence.
- Don’t’ give your kids everything they want. Whether they’re a toddler or a teenager, you should explain when you think something they’re asking for is unnecessary or isn’t within your budget.
- Encourage children to get a job in their teen years. From part-time work during the school year to a full-time job during the summer, having them earn an income is an essential part of their road to independence.
- Discuss credit cards with them. Teach your child the proper way to use a credit card, gain a credit history, and maintain a good credit score. This means paying your credit card bill in full every month. Explain to them that if they only pay the minimum due, they will incur interest charges that will continue to pile up until the balance is paid off. In other words, they’ll be living beyond their means and creating debt that could become unmanageable. On the other hand, if they establish a good credit record, it will pay off when they go to get a loan for such things as a car or college tuition, because lenders will be more inclined to provide funds based on a solid credit history.
- Don’t let them ignore bill due dates. Teach your children the importance of paying their bills on time – another factor that comes into play as far as maintaining a good credit background.
- Teach them to save! Explain to them the importance of putting aside funds in a savings account on a regular basis. Then take it one step further and allow them to start saving at an early age. Many banks and other financial institutions have special savings accounts designed specifically for youngsters, as well as for kids in their teenage and college age years.
Becoming healthier is something lots of people strive for in the New Year. Attaining a leaner physique is a popular resolution, but don’t forget about your financial shape. That’s why we suggested last week that a slimmer, trimmer financial you can be achieved by taking the first step of tracking your spending habits.
Now it’s time to assess those habits in detail and then create a workable, realistic budget based on your findings. Of course, part of your budgeting process includes tallying up your income for the week or month. Once you’ve scrutinized both sides of the ledger, you’re ready to move forward.
Don’t make the mistake, however, of becoming too stingy with your funds. After all, you want to enjoy life while still living within your means. You can have both as long as you take a moderate approach.
Other things to consider when crafting your budget include:
- Taking the money you save on trimming back on “wants” like daily specialty coffee treats or twice-weekly nights dining out and placing it in a savings account. Tip: use direct deposit to accomplish this goal. After all, if you don’t see the money you’re setting aside, you’ll be less inclined to miss it.
- Paying down credit card debt. If you have multiple credit card balances, tackle the one with the highest interest rate first. It may mean paying the minimums on the other cards while diverting more funds to the one you have targeted. Once that balance is paid off, move onto the card with the next highest rate, and so on. Debt consolidation loans could also be helpful in managing your overall debt if the interest rate and payback terms are reasonable.
- Using your debit card instead of credit card to pay for things like clothes, groceries and gas. This helps get you off the credit card/debit card merry-go-round, a ride that makes it too easy to spend beyond your means. Put aside a certain amount of money each month and spend only that.
- Establishing an emergency fund. Experts recommend setting aside enough to cover 3 to 6 months’ worth of living expenses should something arise like loss of a job, an unexpected household repair, or an extended illness. Creating this fund may take some time if you’re faced with other expenses such as credit card debt. But even if you can only place some money in the fund every other week, it’s better than having no back-up fund at all. Setting up a savings account with small direct deposits or automatic transfers from your checking account is a good tip for building an emergency fund. Make deposits your budget can handle each week or month and watch it grow.
Once your budget is established, don’t be afraid to make adjustments to it. You’ll probably need some time to tailor it to your needs and ensure it’s a healthier fit for your financial lifestyle.
The New Year gives you chance to make a fresh start, as in “out with the old and in with the new.” And a good place to begin with a clean slate is with a budget.
Knowing where your money is coming from and where it’s going is a great way to restore your financial health. If you already have and maintain a budget, kudos to you! But if you’re like many people, having a budget isn’t high on their list of priorities.
Yet if you really think about it, it should be. A budget helps you learn how to live within your means. It provides a financial blueprint for the present and the future. And it teaches you financial discipline.
So where do you start? The first step is to track your spending. Whether it’s on a daily, weekly or monthly basis, it’s important to record everything you spend your money on. This will provide a baseline going forward.
There are essentially two spending categories – needs and wants. Your needs include food, transportation, housing, utilities, insurance, and clothing. On the flip side, things you want but don’t necessarily have to have range from going to concerts to eating out to weekly outings at your favorite watering hole.
To get a true appraisal of where your money is going, you’ll need to record every dollar spent. Yes, it’s going to be a time-consuming effort, but at the same time it’s going to be enlightening and educational. And you might be surprised at just how much you devote toward nonessential items.
Once you’ve accurately tracked your spending over a set period of time, it’s on to the next step – analyzing your spending patterns and creating a realistic budget. Look for helpful insights to get you headed in the right direction next week.