Friday, November 27, 2009

Money Management

Written by Leslie

In the recent year I was introduced to a pretty simple concept that I've incorporated into Alexis's learning money management. She has done an amazing job staying consistent when distributing her money accordingly and is developing such a sense of pride along the way.

There is something to be said for the traditional methods of teaching and the importance of learning the basic skills of reading, writing and math. However, when entering adulthood and the "real world", these skills will only take a person so far when balancing a checkbook, budgeting and saving vs living payday to payday.

Our education system does not provide much guidance in terms of teaching our youth the value of money management. It is our job, as parents, to instill in our children our own personal values and guide them into responsible adults when managing their own finances. It is too often we send our children out into the "big world" with no true foundation of such an important life virtue all the while creating poor habits that creates a loss of control- allowing our money to control our lives, dreams, future. How can our children possibly be set up for success if we have little or no control of our own finances and money management? The beliefs and habits we demonstrate as a family is typically what is carried on by our future generations.

I believe one of the most important beliefs in teaching our children about money is

Money doesn't control ME, I control MY money.

The first step is to create systems to gain control of your money. I was taught an easy approach to this system by using jars. However, you can do the same with multiple accounts and managing your money online or simply transferring funds accordingly. I'm going to go into detail on the jar system which is easiest for children to learn.

Such a cliche, but the concept of "paying yourself first" is the most powerful thing you can do for yourself when managing money. So, I've got this system broken down 2 ways. One, for the parent to use as a guideline-"lead by example"....the other is for the tween to follow. Obviously there are certain expenses that the parent incurs that a child has the priviledge of not needing to budget for. Here's the breakdown for the parent and the suggested percentage breakdown into each account:

Financial Freedom Account (FFA) this account is your "goose egg" and you NEVER kill the goose. The monies from this account will always be distributed monthly or quarterly into some form of interest bearing account or investment.

Long Term Savings Account (LTSS) this account is your savings account when saving for large purchase items; car, down payment on a home, home repairs/improvements. Basically a savings for a rainy day or a long term goal.

Necessity (NEC) this account is for household expenses that are typically fixed monthly costs; mortgage payment/rent, car payment, phone bill, utilities, etc

Play (PLAY) this account is my favorite....for vacations, spa days, treating yourself, dinners.

Education (EDU) this account is for education, whether it be a child's education, seminars, a college course for self improvement

Give (GIVE) this account is for church and charity

FFA 10%
LTSS 10%
NEC 55%
PLAY 10%
EDU 10%
GIVE 5% -or if 10% tithe, taken from NEC account

Now for the Tween/Teen/Child, the breakdown would be a little different depending on age for simplicity:

Lex's is

FFA 10%
LTSS 55% (typically these are items that they save for to eventually spend)
PLAY 25%
GIVE 10%

The two main goals with this system are to control your money and not feel victim to your money, and secondly, balance is crucial. What I mean by this is putting all your money into savings or into bills and not feeling you'll ever have an opportunity to take a vacation in the near future, no matter how big or small (could be one night in a local resort hotel)...or circulating your money by giving to church or charity (creating the law of attraction, what you put out, will circulate back to you tenfold), these are simple principles that will free you up to feel more confident in your money management because you maintain balance with playing, giving, saving and your expenses.

Now, with the economic challenges we're experiencing these days, many would argue that either

A. They do not have the income to distribute into these additional accounts, only into the Necessity Account
or
B. We have no income coming in right now, unemployment checks are barely covering monthly food costs.

I would say to these people, start small. Even if it is just a dollar a week and breaking it down into the jars accordingly. It's the act in doing it. A child's allowance isn't much more than a few dollars weekly. It's the act itself. These principles will be remembered and applied in their adult lives.

The habit is created by doing it.

Live by example.

Talk to your children about these concepts and the importance of.

The first step is getting the jars and labeling them. Put them in a place where you can see them, preferrably clear jars so you can see your abundance. Not focusing on the lack of, but what you have-even if dollars at a time, you're more abundant than most of the world's population.

Gratitude for what is.

Set your child up for success.