We teach our children to share, to find the joy in giving, and that the world doesn’t revolve around them. Just as we try to model the social behaviors we want our children to take into adulthood, financial ideas and habits start developing at a young age. Whether we are conscientiously teaching them or they are merely observing our dealings with money, they are learning. However, I’m about to tell you to be selfish and teach your kids to do the same.
As parents we want the best for our children, but do we want to leave them with the financial burden of caring for us in our later years? We cannot sacrifice our retirement savings to “benefit” our children. I watch people put off their own retirement savings to put money in a college fund, pay for an extravagant vacation, or buy a new car, but who is going to pay your bills when you retire? Unless you plan on retiring in the next few years, the only thing you can be certain of is that the future of social security is uncertain. And with an enormous and continuously mounting national deficit we cannot expect the government to cover our expenses in retirement. So assuming you are debt free and have a comfortable emergency fund, what should you do with the extra money you have each month? First and foremost you should be putting money in a retirement fund. Yes, this means before you contribute to a college savings fund. If you work for a company that matches some of your 401k contributions, start there until you receive the full match (it’s free money!) and then put any other money you can into a Roth IRA*. Once you maximize your retirement investments, then you can start putting money away for college. Remember, your children can always get loans and scholarships to help pay for college, but nobody is going to give you a loan to pay your monthly bills in your retirement years.
Did you have a hard time picking a name for your baby? Maybe you already have names picked out for your unborn children. What about your savings account? College fund? Vacation fund? Behavioral finance experts have found that earmarking your savings for a specific goal can have a big impact on your savings rate. In a 2009 study done by Amar Cheema and Dilip Soman, they found that labeling a college fund with a childs name nearly doubled how much was saved compared to those without a name attached. Cheema recommends opening multiple accounts and giving them labels to help motivate you to reach your goals. So, what will you be naming your savings account?
Getting ready to shop the upcoming holiday weekend sales? Maybe you’ve already been busy with back to school shopping. Have you ever thought to calculate how many hours of work those dollars spent just cost you? It’s a powerful tool that might make you step back and reevaluate how you shop and what you buy. I’m sure you have an idea of your gross salary, but lets look at what you actually take home after Uncle Sam, health insurance, and your 401k among other things take their share. Go and get your most recent pay stub. It’s in your organized file cabinet, right? Divide your take home pay by the number of hours the paycheck covers. What did you come up with?
Lets say your result is $20 per working hour. So now we’ll apply that to your purchasing power. Your $6 a weekday morning coffee and muffin habit means you have to work an hour and a half to pay for it. The $60 video game, 3 hours. Those must have designer jeans at $200 a pair cost you 10 hours at work. $460 car payment is 23 hours in the office. That one payment is over half a week of a standard 40 hour work week and we still need a place to live and food to eat.
Want another view? Include the hours you spend commuting to and from work and any other work related activities you do outside of the hours that paycheck covers. Sadly, that $20 just dropped even lower. This isn’t a way to shame you into not spending your money, just a tool that might make you think about how hard you really work to make that purchase. Remember it’s not just a dollar amount, but your precious time spent working to earn that dollar.
We all know by now we should be using compact fluorescent light bulbs, unplugging electronics and appliances that aren’t in use, washing our clothes in cold water, and adjusting our thermostats when we aren’t home. These will all help save us money every month on our utility bills and it’s just better for our earth. But what other ways can we be green in our lives and help us keep more money in our pockets?
Some retailers will pay you to recycle! Office Depot and Staples offer a store credit for every ink or toner cartridge you recycle with them. M.A.C. cosmetics will give you a free lipstick when you return 6 of their primary packaging containers. Recyclingforcharities.com allows you to recycle electronics such as cell phones, cameras, and PDAs. You select the charity you want your unused product to benefit and then you can take a tax deduction (assuming you itemize your tax returns).
Another great idea is Freecycle.org where you can find items other people no longer need and get them for free! No, you aren’t going to find a brand new stainless steel fridge, but if you want to try your hand at camping, you can probably find someone who has an old tent lying around that they no longer use. In fact, it’s a great way to help clear out some things you no longer need but are still in usable condition. After all, we want to enjoy life, not just a garage full of clutter.
I came to realize this a while back when I worked at the airlines. We were hourly and everything was driven towards being on the clock for some people. But we live in a knowledge based society and most of us aren’t getting paid by the hour anymore.
If money is a poor motivator, then what do we do? What do you think?
My guess is that at least some of you have kids that cost money.
Well, of course, Derek, kids cost a fortune.
Right. That’s why you have a very critical lesson to begin teaching your kids right now, this summer. The lesson is connecting work with reward.
In the summer time, we take vacations, send the kids away [...]
A few years ago my wife and I were walking through Home Depot on our way to the paint section. When we got there, another couple of similar age struck up a conversation with us about what rooms we were painting, etc; you know, small talk. By the end of the conversation, they said we [...]
When you first began working as an adult, how much money did you think would be “enough”? How about after you were five years in?
Even I recall performance reviews from years past where I thought, “If I only made 10% more, it would be enough.”
Enough for what? What do you work for? Do you work [...]