Question of the week, #6
Rohan Rajiiv asked me this question on my blog the other day. I promised him I would answer it this week. If you have 10 minutes, you can watch a years worth of real leader interviews that he has done over the course of the year on his blog.
What money management advice would you
have for Jessica, Emily and Josh once they graduate and start earning
their own cash? (Philosophy on investing, saving etc etc)
This is a great question. I am going to start with the word budget. I love a budget. Budgets should be realistic. Once you had committed to a budget the key is living with it.
Our kids have been on budgets since high school. Starting in 9th grade they each got ( Josh still is on this program ) a certain amount deposited into their account for them to use over a course of a month. That is basically money for entertainment, transportation, food etc. You can save it or you can spend it but if you find yourself short before the month ends, tough luck.
Once you turn 18 the budget changes. it is like being on a salary. I figured out how much money we had spent on clothes and life in general over the last few years to come up with the right number. A certain amount goes into their account in cash and a certain amount is allotted for charges. They have access to the statements to keep on top of their spending. I go through it once a month to make sure they have stuck to the budget. You can carry money over to the next month but you can't come up short. This money goes towards food, entertainment, clothing and life in general. We pay for travel and extras. Both Jessica and Emily have had jobs that paid them this summer so that is an added bonus. It was important to both of them to make their own cash.
Living on these budgets has taught them (particularly Jessica and Emily because they are basically on salary) how to live within their means. They are forced to make decisions about what they purchase and how they use the cash.
Once they graduate, they should use the same model. The question is how much are you bringing in, what is your rent, how much do you need a week for food/entertainment, how much do you want to set aside for other purchases like clothes. Each need a budget so that you have fixed costs. Taking money out every week and hoping there is enough left at the end of the month for rent doesn't work. Knowing the limits to your expenditures based on your income is the key to living. It also helps you be aware of every single penny. You can actually stretch your cash farther when you know where all of it is going.
I still have a monthly budget when it comes to expenditures and I stick to it. I also take out so much a week in cash that I stick to. Even when it comes to construction projects, we stick to a budget and work from that. The budgets have gone up and down over the years but having those fixed costs works for me. I like to know where I stand.
Joanne, this is real helpful, thanks a lot. I was actually also hoping for a bit more color on how you would teach them to invest their money. In my case, having burnt my fingers pretty bad once 4 years ago, I’ve learnt to make budgets and stick to it.That said, now, the problem is a different one.Once you do have money in the bank, what do you do with it?Do you look to invest some percent of it in real estate? how would you teach them to invest? There’s a lot of literature out there on mutual funds etc etc but how do you make these decisions..Not sure if this is a separate question of the week but this would be really really helpful.
We invest in two things. Entrepreneurs and real estate. There are great funds out there that spread your money into several funds. I prefer those because you aren’t putting all your eggs in one basket.At your age my answer would be do your research and take more risk. Each age group should having a limited amount of risk dependent on age. You can afford to be a little more risky at 25
My belief is that of all the state mandated learning objectives missing in our secondary education system it would be “budgeting”. From elementary school until graduation. These kids are the cellular levels of our future economy. The DNA of our economic and financial fitness future… How we do not suppy the proper nutrition at the highest levels is befuddling. A simple reading, writing and ‘rithmatic formula. What a great post topic…
Can you clarify how the “salary” at 18 is different from the allowance that preceded it. Is it a matter of a wider range of expenditures or are there other nuances?
Prior to 18 is an amount that goes towards day to day living. At 18 the amount goes towards everything including clothes, gas, food, film, winter coat etc
Joanne, you do not know how timely this is for our family. My wife’s dance studio is under assault by new competition and her sales (student base) are down which has cut into our household income and my painting company is only now starting to recover and contribute again to our household budget. On top of this I’m developing a new product idea for the market and she is dusting the dust of her 25 year old business and revamping everything. That’s not all, we have two boys 17 and 19. One is an entrepreneur like us (no accident) and the other a student in college studying business (no accident). Managing our crises, our opportunities and guiding our boys makes this a very anxious time for us. We had lost our budget bearings! We’d just decided that we needed to get back to budget basics. We are all in and involved. Your column is very timely and reassuring. I’ll use it to ‘sell’ the boys on the wisdom of this approach. Thanks a million.
Well done Joanne and Fred. You have laid the ground work for your children’s finacial security no matter how little or much they make on their own once they are out of the house.
exactly. they don’t realize how much they have learned from setting up this exercise. they know how to balance their budget!
wow, that’s highly disciplined to go through your kids’ accounts. Great to have them be conscious of their spending too. And great they work. I’ve had kids turn me down for babysitting because their parents give them everything. I’ll try to emulate.