Monthly Archives: October 2008

What to Tell Our Children About the Economic Woes of Today

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 classphoto102008.jpg
Photo courtesy of freeparking

I chose the image above because according to the owner it was taken around the Depression Era.  Notice the expressions on the kids’ faces.  It’s as if their faces tell the story of the struggles felt at home.

Kids are intuitive creatures.  They often pick up on subtleties lost on many adults.   Over the last few weeks my oldest child has overheard conversations about money, the stock market, and the broader economy.  She’s also heard news reports about the upcoming election, and how the struggling economy is playing a major role in the ongoing political debate.  My daughter is eight years-old; old enough to pick up on these conversations, but not quite old enough to grasp all of the concepts.  She asks questions about the political candidates, about foreclosures and taxes and job layoffs.  Other parents might be fielding similar questions in response to conversations their kids have overheard. Here are the age-appropriate approaches I recommend for addressing their questions.

Small Kids and Money

My son is only four years-old, and he is oblivious to most problems with our economy.  As long as his basic needs are met he couldn’t care less what the market is doing!  What he would be able to detect is financial stress between me and my wife, which is why we try to limit any discussions about money around him.  Like I mentioned in the opening paragraph, kids are very intuitive.  He very easily picks up on stress in the home, even if he can’t yet identify its cause.  For this reason, try to avoid money discussions around young ears.

Preteens Have Lots of Questions

If your kids are anything like mine their favorite question is, “Why?”   I hear this all the time–why is the sky blue?  Why do you have to go to work?  Why are some people rich and others aren’t?  Some of these questions are easier to answer than others.  Preteens are old enough to understand some basic financial concepts, such as compound interest and primer discussions on debt.  However, any worries expressed in the household over finances and overheard by preteens often lead to insecurity as kids start to think something bad will happen to their family if they go broke.  For this reason, try to keep things general when discussing money rather than fully disclosing your financial problems to your preteen. Statements like, “We have some debt and are working extra hard to pay it off” acknowledge the problem, but focus on the steps taken towards a solution.  That’s what kids this age need to hear most.

Teenagers Have All the Answers

If preteens have all the questions, teenagers have all the answers. Don’t believe it?  Just ask one.  If you are struggling financially it makes sense to include your teenager in discussions affecting your household, such as a parent taking on a second job, or selling the family car to lower your monthly payments.  If kids know about the difficulties you are facing as a family they will be less likely to question the sacrifices made during tough times.  Not that there is a problem with simply telling kids no, but sometimes it helps to explain why you can’t afford to do something or buy something in the context of a larger plan to turnaround your financial situation.

Although you are freely telling teens about your financial difficulties, it is also important to reassure them that things will be okay–that you will pull through as a family, and you are busy making sacrifices to support them.  Older teens may even feel inspired to pitch in by picking up a part time job, and this provides a great opportunity to do a little character building that will last a lifetime.  As a parent, you know your kids better than anyone, so tell as much or as little as you feel comfortable sharing, but always do it with their best interest at heart.

How To Avoid a Spending Relapse During a Crisis

Posted on by  at  6:00 am
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 ambulance102008.jpg
Photo courtesy of Paul Keleher

When things are running along pretty well it becomes easier and easier to settle into a routine of saving money, making frugal choices and avoiding new debts. However, if your life is like mine, just about the time you get settled something comes out of nowhere to completely derail your plan.  Earlier this year Murphy came to visit (you know Murphy, if it can happen it will).  We went through a few demoralizing weeks with problem after problem–things breaking around the house, people getting hurt, etc.

Then we were cruising along ready for a new school year for the kids when my Mom was diagnosed with a giant cerebral aneurysm (she has been hospitalized in ICU for the past 37 days following treatment).  Daily trips back and forth to the hospital have doubled our gas budget (the hospital is about 30 minutes from our home).  Our eating-out budget has gone up as we were often forced to grab something fast in between visiting hours.  The good news is we have made the budget adjustments and avoided taking on new debts, or withdrawing from our emergency fund.  Here’s how we are making it work:

  • Loosen up, but stick to core frugal principles. In a qualified crisis it seems a bit petty to be concerned with pinching pennies, so we have relaxed things a bit by lowering our debt snowball budget.  This allowed us to bump up a few categories that will undoubtedly increase while caring for my Mom.
  • Keep priorities in order.  Loosening up a bit does not mean you have a license to go on a shopping spree.  Many times this is the first reaction to crisis, particularly for reformed emotional shoppers such as myself.  No, buying things may make you feel better by creating a diversion in the short term, but when the bills settle and the “newness” of your purchase wears off, you will feel even more guilty over spending the money which adds to the depression you might already be experiencing.
  • Make budget adjustments as needed. My wife and I are normally reluctant to modify our monthly spending categories.  However, in an emergency a budget committee meeting may be in order.  Try to keep your overall budget amount the same by reducing non-essential categories to make room for essentials.  For instance, in our case food and gas increased almost immediately, so we reduced “Entertainment” and “Gifts” budget categories.  It won’t get us invited to many birthday parties, but you have to do what you have to do.
  • Be less aggressive with debt reduction and savings plans.  Like I mentioned above, we’ve scaled back a bit on our aggressive plans to pay off debt.  As much as I’d like to finish off our remaining balances, it just doesn’t make sense to stretch too far and have to turn right around and dip into our emergency fund, or even worse, borrow money from the credit card we are working so hard to pay off.
  • Get back on track as soon as possible.  In the early stages of an emergency you find yourself sort of going through the motions.  However, as things stabilize you will find yourself slowly returning to your normal routine.  When you recognize this is happening you can rebalance your budget categories and get back on track with your original goals.  Remember through all this that your family is your first priority–not Discover Card.  If it comes down to feeding your family and keeping the lights on, or paying your credit card payments, those other guys will just have to wait!

Weekly Roundup – A Mouse in the House Edition

Posted on by  at  6:00 am
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catandmouse101808.jpg
Photo courtesy of Denis Defreyne

The Frugal household came to a screeching halt Wednesday night when we discovered mice have decided to take up residency in our garage.  My wife is threatening to move out until they are eradicated, and my daughter is terrified.  My son, on the other hand, has decided mice are “cool” and Daddy’s exasperated attempts at catching them is even cooler!  I thought about getting a cat, but I could envision the cat taking off after a mouse, and our dog taking off after the cat, and me chasing all of them.  Besides, knowing my luck the cat would be about as concerned with mice as the one featured in the photograph above.

The mice have taught me a valuable lesson in perservernace.  They found a loose brick outside our garage, squeezed through the crack, chewed completely through the baseboard and are hiding in our garage.  Let’s just hope they leave before deciding to start a new colony behind our freezer.

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Pay Yourself First, and Last

Posted on by  at  6:00 am
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Ever heard that old saying, “pay yourself first?” Who hasn’t?  It is another one of those financial axioms that is much easier said than done.  When we first get paid the last thing most of us think of is saving money.  After all, there are so many other pressing needs.  Car payments, mortgages, credit card bills, and the biweekly celebration at Outback Steakhouse are all vying for our dollars.  But what if we could get just as fired up about saving money as we do spending it?  Even better, what if you could make savings a priority both at the beginning of the month, and the end?

Pay Yourself First

Under the “Pay Yourself First” plan you create some easy ways to divert money from your primary spending account to various forms of savings.  When savings are taken right off the top of your paycheck you’ll be less likely to miss the money, and less likely to spend it if it hits your checking account.  Not everything can be automated these days, but fortunately most banks and brokerages allow automated transfers with a customizable schedule that meets your needs.  Here are a few examples of ways we are paying ourselves first:

  • 401(k) plan contributions are deducted right off the top of your paycheck.  Currently, these contributions are pre-tax, which means in addition to the benefit of saving money for retirement you get the added benefit of reducing your taxable income for the current tax year.
  • Automatic transfers to your high-yield online savings account.  We have a variety of subaccounts at ING Direct where we funnel amounts ranging from $25 to $100 per pay period.  The transfers are scheduled to occur every two weeks, and coincide with my paycheck being direct deposited in my primary checking account (be sure to leave a little cushion to cover these transfers should your paycheck be held up for some reason). Here are a few other of the best online banks to choose from.
  • Biweekly contributions to a Roth IRA.  We take dollar-cost averaging to the extreme, and instead of contributing only once a month, we divide our yearly contributions by 26 biweekly periods and contribute every two weeks.  Once we hit debt freedom we would like to max out our contributions, but for now we are content with making minimal investments just to kick-start retirement savings (and take advantage of the bargains in today’s market).
  • Biweekly contributions to college savings plans for our kids.  Similar to how we’ve scheduled contributions to our Roth IRA, we make biweekly deposits in our kids 529 college savings plans.  It is all automated, so once things are up and running it requires very little maintenance.

Pay Yourself Last

During the month we make a game out of trying to best our budgets for the various spending categories we have setup.  Things like food and entertainment are areas where we are typically able to come in under budget, and when we do we sweep that money into our emergency fund to continue building it towards our goal of 6-12 months of expenses.  In the past, we have also used this extra money to boost our debt snowball payment.  The idea is to reset that checking account before the next month starts, and to account for any remaining money by putting it to work for us, rather than frittering it away in miscellaneous spending.

In what ways are you paying yourself first?

What Is Your Definition of Rich?

Posted on by  at  6:00 am
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J.D. had a thought-provoking post the other day at his blog, Get Rich Slowly.  He told the story of a friend asking him what is was like to be rich.  Well, J.D. doesn’t think of himself as rich, and the question got him to thinking about why he doesn’t feel rich.

The question of defining “rich” has even made its way into the presidential election with both candidates recently sharing their ideas on what level of income defined someone as rich.  I think they are both missing the point.  In my opinion, being rich has little to do with income, and more to do with quality of life.  I will share with you my definition of having a rich life, and I encourage you to share your definition in the comments.

I Have Enough Money to Meet My Family’s Basic Needs

When it comes down to it, the only things I really need to survive are food, shelter, utilities and transportation.  If I lived within walking or biking distance of my employer, and the places I need to shop for food, then transportation would be debatable.  I am fortunate to have these basic needs met.  Anything above and beyond this level of spending is really just luxuries.  If you don’t believe me, visit a homeless shelter in your town, or a foreign country with limit resources and an overcrowded population.  You will find a lot of people who are struggling to meet these basic needs.  In this regard, I am blessed.

I Have Enough Money to Indulge In a Few Wants

Above and beyond those basic needs, I also have a few wants, and so does my family.  We are fortunate to earn the resources to allow us to occasionally indulge in these wants.  It could be as basic as cable television or cell phone coverage, or as elaborate as surprising my daughter with Hannah Montana tickets last year (no, this was certainly not frugal, but like I say here often, sometimes you just have to stop and smell the roses!).   Because we can indulge in those occasional treats I certainly feel like I have a rich life.

I Can Afford to Give to Others

Our family has felt strongly about being in a better position to give to others.  In fact, it is one of the primary motivators behind our desire to be completely debt free.  Once we are on solid ground we will be able to give to others in a variety of ways.  One special idea we plan to incorporate into this year’s Christmas spending is to take $100 from our Christmas savings fund, visit a local diner on Christmas Eve, and leave the $100 as a tip to a hard-working waitress.  If someone if out working late on Christmas Eve you know they are working because they have to, not because they want to.  You never know whose life might be forever changed by this single, random act of kindness.  We plan to take the kids along this year and let them experience the true meaning of Christmas.  Because we are able to give to others, we have a rich life.

The Richness of Our Lives is Not Measured in Money or Things

I know, it sounds cliche, but we really try our best not to get caught up in the materialism of today.  We enjoy spending time with our kids, having frugal family fun nights, or just sitting down together and reading books.   It doesn’t have to be anything elaborate.  In fact, we have found the simpler the better!  Ten years ago or so, I didn’t feel this way.  I remember sitting in a cubicle at my first professional job staring at a picture of an SUV I wanted to buy (and eventually did).  Now, I sit in my office and look at the pictures of my kids, and just outside my window I can see the beater I drive sitting in the company parking lot.  What a difference a decade makes!

To sum things up, my definition of being rich is having enough money to meet my family’s basic needs, a few of our wants, and to be able to give some away to others.

What is your definition of being rich?