Monthly Archives: October 2010

How To Raise Money-Smart Kids

Posted on by  at  5:00 am
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The following guest post is from Neal Frankle of Wealth Pilgrim. Wealth Pilgrim is a fantastic resource, and on my list of daily reads. After reading the post, head over to Neal’s site and sign up to receive his posts.

If you have kids, you likely worry more about them than you worry about yourself.How do you make sure they don’t fall in the same financial traps you fell into?

I know how you feel.I have 3 kids. The oldest is 22. The middle one is 19 and my youngest is 11. I worry about them.

I was fortunate enough not to have made huge financial blunders growing up – I didn’t have any money to be stupid with. I never had to worry about getting out of credit card debt. I didn’t even have a credit card until I got married.

Because I was so broke growing up I was super careful and never spent money I didn’t have.Fortunately, my kids haven’t grown up under the same circumstances.

That’s why I worry.

They really don’t know how hard it is to make money. And they don’t know what it’s like to go without.I want to make sure they don’t fall into the traps other people do.

The question is how? Here’s the approach I’ve taken so far:

1. Talk

I’ve told my children about my experiences growing up and I think that’s helped. I’m also lucky to be in the business. I talk about how to spot and avoid scams.

But it’s been more important to tell them about our situation in real-time. When my business suffered in 2008 I told them what was happening and what it meant to us as a family.
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Of course I tried to put it in perspective. I explained that we weren’t going to be homeless and we weren’t going to go hungry, but when things got lean, we had to scale down.

I later learned that by doing so I did them a favor.

They already knew there were problems. By talking about it, they were able to reduce their anxiety. Things weren’t as bad as they’d imagine.

2. Stay Calm

Kids think of money like you and I think of water. You go to a faucet. You turn it. Water comes out. It’s a no-brainer.

For kids, we are they faucet. They don’t understand how we earn money and what it takes. I can’t expect my kids to really “get “ that until they experience it for themselves. With young kids, I have to remember they have limited experiences and just can’t really understand it fully. That’s why I encourage them to work as soon as they can. With or without a college degree, any job can be a great job.

3. Encourage them to love spending money.

You probably think I’m nuts…but give me a chance to explain.

Too often, kids think of saving as the opposite of spending. Not so. You can either spend money now or have more money to spend in the future. You can either spend money on something you don’t value or wait and spend money on something that’s truly important. Frame it that way and you’ll see your kids embrace a new attitude towards current wasteful spending.

Once kids understand that money ain’t like water, this concept will be clear. They’ll understand that money is a limited resource and must be spent wisely.

4. Put them on a budget

Give them a fixed amount and let them do with the money as they sit fit. Advise them often, but let them make their own decisions and accept the consequences. When they blow it, don’t bail them out.

If the kids are in college, divide up the support you send into 12-monthly installments. Don’t pay for tuition, room or board. Add it all up, divide it by 12 and put that amount in their accounts each month. Let them learn how to work within a fixed income.

5. Jobs.

If you can, let the kids work for their money. Even if they are full-time students, they can find things they can do to earn money. Encourage them to be resourceful. They can even use Craigslist to find jobs. The bottom line is to give them as much experience as possible in handling their own affairs and refusing to bail them out.

What have you done to raise money smart children?

State of the Blog: Where’s Frugal Dad Edition

Posted on by  at  10:25 am
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A number of you have emailed to ask about the unusual posting schedule here at Frugal Dad over the last few weeks. I am overdue in providing an update, and I need to catch you up on a few things that have been happening in the Frugal family.

Another Loss

Some of you may remember that last September we lost my mom aftera year-long recovery effort following an aneurysm and subsequent stroke. She was 54 years-old, and the glue that held our little family together. We were very close – best friends, in fact, and her loss affected me deeply, as it did my kids and my wife (and many others who knew Mom).

It also took a toll on her dad, who had to deal with something none of us should have to face – the loss of a child. Even when our kids are grown, we expect to outlive them as part of the natural order of things. Unfortunately, it doesn’t always work out that way.

My grandfather was like a dad to me growing up, so naturally when we lost my mom, he and I grew even closer. In fact, he lived with us, sharing our home with my wife and kids (and our dog, who quickly became his dog). It was great having everyone under the same roof; something we had done earlier in our marriage.

Sadly, in May of this year my grandfather was diagnosed with inoperable lung cancer. He opted for chemotherapy and wanted to fight. Would you expect any less from a 29-year Marine? But the damage was done. We lost him October 1st.

The last few weeks were rough, with him in and out of the hospital. Once again, I tried to balance the roles of caretaker, full-time employee, father and husband, and blogger. Obviously, with only so many hours in the day, blogging took a back seat. I wanted to write more about the experience at the time, but honestly, I just had no motivation to do so.

Our family is doing well. We miss him terribly, but are comforted in the knowledge he suffers no more. He lived a full life. He loved his family, and he loved his country, and sacrificed much for both.

Focusing On What’s Really Important

The loss of my remaining family has been tough, and I am blessed to have my wife and her family, and my children, surrounding me. I have learned a number of important lessons throughout the illnesses and deaths of both my mom and my grandfather.

Prior to their illness I had my priorities screwed up. I was distracted by things that now seem so insignificant, like sports, politics, and even money. Not to say money is insignificant, but it is certainly not worth obsessing over. And trust me, neither are college football and politics.

When a loved one is seriously ill, and when you lose them, noises going on outside your little world become much quieter. It’s like someone has a giant mute button and tunes out all of life’s distractions. The only thing worth focusing on is that loved one, and when they are gone, the memories of that loved one.

All that to say that I am weary of the petty arguments going on today, when so much more is at stake. I am sick of the current political climate. I don’t want to turn this into a political rant, but I have to say that I could not possibly care any less about following the twists and turns and debates of every single race across the country. The name calling. The mud slinging. The attack ads. The cheesy ads. The amount of money wasted on those ads. It is all rather sad.

When I sat at my grandfather’s funeral watching the Marine Corps fold the flag draped over his coffin, listening to Taps, all that “noise” went away. Everything about our country, and our freedoms, and our future, seemed crystal clear.

Here was a man that gave nearly 30 years of his life to his country. He fought for that flag. Politicians like to tell us that they will “fight for us,” but how many of them really mean it in the same way members of our Armed Services fight for their country?

Standing in the halls of Congress delivering a tough speech is not the same as standing on top of an armored personnel carrier fending off enemies trying to kill you and everyone else inside. That’s a real fight. That’s life and death.

Shame on those who take our liberty for granted. Shame on those who pretend to uphold the values of our forefathers, and then undermine them at every vote. I will never believe my grandfather, and the millions like him, fought and died for nothing. I have always been proud to be an American, and always will be.

“I am an American” need not be stated apologetically, rather it should be exclaimed proudly. I hope the younger generations remember the lessons of that great generation, and carry them forward for us.

Back to Blogging

Thank you for allowing me a moment to vent. That felt good! Over the next few days I plan to get back to regularly scheduled programming here at Frugal Dad.

Let’s get back to basics. Let’s remind each other of the way our grandparents used to do things. Let’s challenge each other to get out of debt, to build a strong emergency fund, to be more self-sufficient, to strengthen our position so that we may lend a hand to others.

Thank you for sticking with me. Thank you for your thoughts and prayers. Though most of us have never met, I feel a kinship with many of you, and I am inspired by your success. Keep the comments flowing. Feel free to share new ideas on Facebook, or via email. Feel free to ask questions. Feel free to challenge ideas. Tell your friends about the blog, so that we may grow our frugal community even more.

I look forward to another year of sharing life’s ups and downs with you. May we all have more ups this year.

Borrowing Money is the Same As Buying Risk

Posted on by  at  3:56 pm
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To borrow, or not to borrow…that is the question. Not for me; I don’t borrow money.

It is easy for those of us recovering from a debt binge earlier in life to declare we will never again borrow money. However, life is not without temptation, and sometimes the temptation has less to do with the acquisition of stuff, and more to do with things like cash flow, interest rates, and other more sophisticated finance concepts.

For instance, take the issue of cash flow. Let’s assume I am interested in a new (to me) pickup truck. I find a good deal on a late model used truck for $18,000, and I can finance the truck through my credit union at 2.99%. I find a similar good deal at the dealership on a new truck for $25,000, at zero percent interest, and have plans to make it a million mile pickup truck.

The obvious savings can be realized by choosing the used truck over the new one. Further, I could pay cash that I’ve been saving up and avoid the 2.99% interest, and any other fees associated with financing a car. However, that would leave me $18,000 less in savings. Do I care? Maybe.

Let’s also assume I have about $25,000 in savings. Paying cash for the used truck would drop my cash reserves down to $7,000, well below my comfort level for emergency savings. Paying cash for the new truck would leave me with nothing.

Financing the new truck at zero-percent interest is an attractive option. I’d likely only have to pay a couple thousand dollars the day I purchase the truck (for tax, tag, title, etc.), preserving $23,000 of savings for other emergencies.

Of course, my monthly payments will be higher because I’m financing a larger amount, which cuts into my monthly cash flow. And it is a significant obligation to take on a payment of a few hundred dollars every month for 48, 60, or 72 months.

What’s Missing from the Calculations? Risk

This is where the decision gets easier for me. I would much rather pay cash for something up front and own it, rather than be obligated to make payments for many years into the future. Agreeing to the latter adds significant risk to my life.

What if I lose my job in a year and can no longer make payments? What if I decide I’d like to downsize my lifestyle and take a lower paying job doing something I love? What if I got sick and had to live on long-term disability?

It would be much easier to face those circumstance minus a car loan, but is the reduction of risk worth such a large cash outlay? No. Not for me. Which brings me back to the original dilemma – borrow or pay cash. I say neither, given the scenario I presented.

I’ve been in debt, and never again will I go back. I’ve stayed awake at night wondering how I’d pay all our bills. I have stressed over money. I’ve allowed debt to drive life’s decisions for too much of my life. To put it blunty: being in debt sucks.

A Third Option: Do Nothing

If I was faced with this dilemma I would choose option 3 – wait. Wait to save up cash above and beyond our minimum emergency fund requirement.

If I had a solid emergency fund, and another $18,000 in cash earmarked for a new truck, great, let’s pay cash.

If I wanted the new truck for $25,000? Keep saving until I had enough to pay cash without touching emergency funds.

If I needed a truck right now because my current one is beyond repair? Find a used one for $5,000, pay cash, and move up later.

But I Have No Savings and I Need a New…

The point it we always have options, even when we think we don’t. Often times people buy a new car when their current car dies, and they find themselves in a pinch. Of course they finance that new car because they have not planned for their current car’s demise. All cars die. It’s just a matter of time. Might as well start saving for it now.

This discussion should not be limited to cars. Washing machines break. Televisions die. Computers fry. Sofas and recliners eventually get uncomfortable and need replacing. Start thinking about the demise of the things you own today, and plan for their replacement so you won’t be surprised tomorrow.

I suggest saving in sinking funds and targeted savings accounts for these types of events. We maintain savings accounts dedicated to things like home repairs, auto repairs, a new recliner (ours is pretty worn out), a new computer, etc.

When something breaks and needs repair or replacement we don’t have to talk to a loan officer to finance the crisis, we simply write a check from our emergency savings and move on. Even if you can only afford to put back $20 from your next paycheck towards the next emergency, do it.

That $20 every paycheck will soon grow to a $200 reserve – enough to cover a minor auto repair, or replacement part for your refrigerator when it quits cooling. You’ll be so glad you saved money all those weeks, and can finally begin to free yourself from the chains of debt.

Are Student Loans Really Worth the Debt?

Posted on by  at  4:59 pm
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The following guest post is from Ryan of CashMoneyLife.com. You can read more about Ryan, and his websites, at the end of this post.

Trivia question: Which type of debt is more prevalent in America – student loans or credit cards? If you said credit card debt, then you might be in for a surprise. A recent study showed Americans have more student loan debt than credit card debt (Americans owe $826.5 billion in revolving credit, most of which is credit card debt, and $829.785 billion in private and federal student loans).

There could be several reasons for student loans overtaking credit card debt. For example, many Americans are becoming more financially aware and are spending less and repaying their credit cards more quickly. Credit card companies are also tightening their purse strings and not approving as many cards as they did a few years ago. It’s also easy to point at the rising cost of college as the culprit.

Regardless of the reason, this new trend is alarming. Student loan debt is crippling the cash flow of a number of Americans and it should be avoided if at all possible.

Are student loans necessary? Before taking out tens of thousands (or even hundreds of thousands!) in student loan debt, ask yourself a few key questions to determine if the student loans are worth the cost, and if you have any alternatives.

Do you need to go to college? A college degree not only doesn’t guarantee a job, but it also doesn’t guarantee a high paying job. Before you go to college because “it’s expected of you,” or “that’s what the cool kids do,” you should take a few minutes and try to determine your career goals, what is required to achieve those goals, whether or not you need a college degree, and if it is worth the expense. Many times college isn’t the answer and taking student loans while you try to determine your career goals is a recipe for disaster.

Does your degree justify a high priced college experience? Do you know how much your college degree is worth? Take a few minutes to examine your prospective degree and how much you might earn when you enter the job force. You can most likely justify student loan debt if you are completing courses toward one of the highest paying college degrees. But can you justify thousands of dollars in student loan debt if you are working toward one of the lowest paying college degrees? Maybe, but you should temper your expectations.

For example, some entry level positions pay in the low $30,000 range and don’t go up much from there. These are noble professions, such as teachers, social workers, and similar professions. But they probably don’t justify financing $30,000 a year for tuition from a private university. Make sure you will be able to repay your student loans when choosing your degree and your school.

Alternatives to student loans. Take a look at all your options before taking out student loans. You may be able to attend a lower priced university, or even take your entry level classes at a community college and transfer to a four year college after you complete your basics. This saves both time and money. Consider living at home during part or all of your schooling to save money, or consider applying for a RA position to get free room and board. Some schools charge a flat rate per semester, regardless of how many course hours you take. If that is the case, load up on hours. You’ll finish more quickly and spend less money. Apply for scholarships and grants. Cash in savings bonds. Work part time or apply for a work study program. Tutor other students. You can join ROTC or the military and then use Tuition Assistance or the GI Bill to pay for college. You could also find a job that offers tuition assistance and go to night school.

There are literally hundreds of ways you can save money on tuition to avoid taking out massive student loans. And in this day and age, that looks like a more attractive option than mortgaging your future for tens and thousands of dollars in student loans.

About the author. Ryan Guina blogs about personal finance, money management, and military money topics at Cash Money Life and The Military Wallet.

Five Daily Activities to Improve Your Finances

Posted on by  at  2:17 pm
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Often times when we set big goals such as getting out of debt, or losing 100 pounds, we immediately feel overwhelmed by the amount of effort required to reach those goals. It’s no secret that the best way to stay motivated is to break these goals down into smaller, more manageable goals.

I like to break things down to daily battles, that if won, will ultimately help me reach my goal. Here are five daily battles I’ve fought each day over the past year and have helped me hit (or get close to hitting) the goals I set for myself back at the first of the year.

1. Maintain a spending journal. Journaling is a great way to introduce accountability into your life.  Whether it is dollars or calories, keeping a journal of expenditures provides a way to keep track of your daily outgo.  It also helps you identify trends that may be valuable in creating next month’s budget, or help in reducing a particular budget category.

Write down all of your expenses in the journal and give them a category (housing, food, clothing, school expenses, gifts, etc.). At the end of the month group these expenses together.  You might be surprised to learn you spend $200 eating lunch out with coworkers every day, or $2.00 a day at the vending machine.

2. Develop a passive income. Developing a passive income is one of the keys to building wealth because it puts your money to work even when you are not. Passive income may be derived from things like interest accumulation, royalties, rent from real estate holdings (although landlords would argue this isn’t exactly a passive activity), social lending somewhere like Lending Club, or you can get close to passive income with activities such as blogging, or selling e-book products online. Even if you only make two or three dollars a day, that is $60-$90 per month that you would not have earned otherwise.

3. Make micropayments on outstanding debts. Many people are now familiar with the concept of snowflaking–collecting small amounts of “found” money and pooling it for a purpose such as savings, paying off credit cards, etc.  Well, I like to take that same method and apply it to debt reduction.

Some refer to this method as “snowballing,” after the other popular personal finance concept, the debt snowball.  Using any extra money I can squeeze out of my budget, or from passive income, I make small payments throughout the month on outstanding debts. If I left the amount sitting idle in my checking account chances are I would spend it before it was applied to debt.

4. Update your budget. At risk of seeming obsessive, I like to update my budget every single day.  I wake up early, and part of my routine is to review my checking account from the day before and mark cleared items in my checkbook.  I then subtract any outstanding credits, and add back any outstanding debits, to balance my paper register with the online system’s current available balance.

Like I said, it may seem a little excessive, but after going weeks without balancing my checkbook register I found this daily action helps keep financial stress away because I always know exactly where I stand.

5. Read something educational every day. I start my day off reading posts from about twenty-five of my favorite blogs. Then I check the news headlines online before moving onto a magazine article or book chapter I’ve bookmarked the night before. Throughout my day I try to carve out time to read some of the newspaper for local happenings, and usually wind up my day reading more from a book. I’ve reviewed a few of my personal finance favorites here:

I had a goal of reading a non-fiction book every week, but quickly burned out thanks to my hectic schedule.  Perhaps a book every other week is a more feasible goal for this year.  Either way, the idea is to read something educational every single day. And if you can sneak in something finance related, even better.

I have discovered the hard way over the years that success usually comes to those that win the daily battles. You might have noble goals such as to lose 50 pounds in 12 weeks, or pay off 50% of your debt in six months.  However, if you don’t win the daily battles you will not reach those long-term financial goals.