Well it's that time of year again- Graduation. Whether you, your children or even grandchildren have graduated from high school, the stats are very alarming. America is the most marketed to country in the world. Everyday we are bombarded by things we 'should' buy, consume and finance to pay for later, because we 'deserve it'. As a result, many of our young people fall into the idea that they have to have everything at once. These ideas just cause a real mess!
The average 18 year-old leaving for college is one of the most susceptible and vulnerable groups simply because they are young, inexperienced and have never had any training on personal finance, in school or from their parents. Thankfully, some states, seeing the need, have started to change their high school curriculum to include a semester of personal finance required for graduation. Utah is one of those states. A few years ago when the state was deciding what course to use, Zions Bank (a local bank) stepped up and paid to have Dave Ramsey's high school course put into every high school in the state. The competition?- curriculum put out by the credit card companies. Talk about a conflict of interest.
In the past, these young freshman have been subjected to a mine field of credit card offers on college campuses. You probably remember the tables set up the first week of school- sign up for a card and get a free t-shirt or pizza. Talk about being sent to the slaughter. Thanks to the legislation passed last year, it is now illegal to get a credit card if you are under 21 without income verification and a parent co-signer. This in effect is cracking down on the marketing on college campuses. We have yet to see if this is actually working, but I hope it will help somewhat. Sadly, some enabling parents will gladly co-sign for their college student to give them 'experience' and to use for 'emergencies'. First of all, for the inexperienced college student, going out with friends every weekend is an emergency. Secondly, this is like giving your child a loaded gun, it could kill their financial future. Many students end up dropping out of college to get full-time jobs to pay for the credit card debt they have accumulated. Of course doing so activates repayment of any student loans they have taken out. So it ends up being more of a burden. As you send off your freshmen to school this fall, please remember that nationwide only about 50% of those starting college actually get a degree within 6 years. Looking back, and I'm sure many of you can relate, I only wish I new then what I know now. That is partly why offer a counseling package for graduates and newlyweds. After all an ounce of prevention is worth a pound of cure, isn't that how the saying goes?
Friday, May 28, 2010
Tip & Quotes of the Week May 21-28
Kids and Money
What are you teaching your kids about money? Even if you're not actively doing something to teach them, they are learning from your example. If you are mismanaging your money chances are your kids will too. On the flip side, if you are really good with your money, that doesn't guarantee that they will be too. In fact, if you are well off, the lifestyle you have just might cripple your child's financial muscles.
Homework:
Be deliberate with what you teach your kids about money. If you don't they will probably make the same mistakes you've made or worse. Chances are, if you're like me, your parents didn't teach you anything about finances. I was fortunate to have an interest in it, so I taught myself. I would challenge you to change your family tree. Break the cycle of financial ignorance in your home. Remember 'normal' in this country is broke~ become exceptional (and teach your kids how to be too).
"Children have never been very good at listening to their elders, but they never fail to imitate them." James Arthur Baldwin
"Loving a child doesn't mean giving in to all his whims; to love him is to bring out the best in him, to love what is difficult."Nadia Boulanger
"If you must hold yourself up to your children as an object lesson, hold yourself up as a warning and not as an example." George Benard Shaw
Friday, May 21, 2010
What is Your Financial Legacy?
While I was in Nashville last month, I read a very interesting article in USA Today about Generation Y's challenges with money. The average college student now days graduates with over $23,000 in student loan debt. On average they have more than 3 credit cards, with 20% of them carrying balances over $10,000 (source: Fidelity Investments). Now to some of you, this might not seem so bad, but remember, many of these kids don't have jobs to repay this debt so the parents end up picking up the slack.
A few years ago, there was a documentary made called "Maxed Out". If you haven't seen it I would recommend it (with the caveat that it does have some language in it so try to get an edited copy of it). It talks about a lot of things regarding credit card debt and the problems it causes. But it also spotlights the dangers of college students' financial illiteracy when it comes credit cards. Some of the stories (and others like them) in this documentary spawned the new credit card legislation that went through last year. While this act is a start as far as prevention, it WILL NOT replace the need for you to educate your children about money. If you don't teach them, who do you think will? Would you really trust the credit card companies to teach your children about financial responsibility? That seems like the ultimate irony. You wouldn't want drug dealers to teach you kids about the dangers of drugs? So why is this any different?
Did you know the fastest growing segment of the population to declare bankruptcy is 18-24 year olds? That's right, fresh out of college, just starting out and crushed under the weight of debt. This is so sad because I firmly believe there are certain things a teenager should know how to do before they leave home. Things like basic cooking and laundry skills are good, but if you don't want your 30 year-old to be living in the basement make sure they have a basic understanding of personal finance. Some of you have experienced this with your children and others of you are currently on the child end. Teach your children to build good financial muscles, this is vital whether they are 3 or 30 (it's just a lot harder if they are 30). Wherever you are on this spectrum, start today to make changes for the better! This is not an easy process because it's easier in the short term to give in to their demands. Ask yourself, what will my financial legacy be to my children and grandchildren? Remember that true financial peace starts with financial independence.
A few years ago, there was a documentary made called "Maxed Out". If you haven't seen it I would recommend it (with the caveat that it does have some language in it so try to get an edited copy of it). It talks about a lot of things regarding credit card debt and the problems it causes. But it also spotlights the dangers of college students' financial illiteracy when it comes credit cards. Some of the stories (and others like them) in this documentary spawned the new credit card legislation that went through last year. While this act is a start as far as prevention, it WILL NOT replace the need for you to educate your children about money. If you don't teach them, who do you think will? Would you really trust the credit card companies to teach your children about financial responsibility? That seems like the ultimate irony. You wouldn't want drug dealers to teach you kids about the dangers of drugs? So why is this any different?
Did you know the fastest growing segment of the population to declare bankruptcy is 18-24 year olds? That's right, fresh out of college, just starting out and crushed under the weight of debt. This is so sad because I firmly believe there are certain things a teenager should know how to do before they leave home. Things like basic cooking and laundry skills are good, but if you don't want your 30 year-old to be living in the basement make sure they have a basic understanding of personal finance. Some of you have experienced this with your children and others of you are currently on the child end. Teach your children to build good financial muscles, this is vital whether they are 3 or 30 (it's just a lot harder if they are 30). Wherever you are on this spectrum, start today to make changes for the better! This is not an easy process because it's easier in the short term to give in to their demands. Ask yourself, what will my financial legacy be to my children and grandchildren? Remember that true financial peace starts with financial independence.
Tip & Quotes of the Week May 14-21
Envelopes?
If you know me at all, or have read my blog regularly, you know that I am old school when it comes to budgeting. When it comes to spending on everyday purchases; groceries, entertainment, and clothing, I use cash only. I won't go into details here as to why, but I will tell you that having used credit cards for the first 10 years of my adult life, cash is so much better. I don't dread the bill at the end of the month anymore, because I don't have one. Now that is real peace!
Homework:
I know I have challenged you to do this in the past but it's a good exercise. For three months put the credit cards and debit cards away when it comes to everyday purchases. On paydays or once a week, take out the money that you need in cash and put it in an envelope. I tell you to do this for 3 months because it takes that long to get comfortable and master the art of knowing exactly how much you need in those envelopes. My post will go into much more detail as to how to do this.
"How little you know about the age you live in if you think that honey is sweeter than cash in hand." Ovid
"Never ever discount the idea of marriage. Sure, someone might tell you that marriage is just a piece of paper. Well, so is money, and what's more life-affirming than cold, hard cash?" Dennis Miller
"Debt is dumb, Cash is king, and the paid off home mortgage has taken the place of the BMW as the status symbol of choice!"Dave Ramsey
Friday, May 14, 2010
The Envelope System
I know I have mentioned this when I talked about budgeting. Please go here to read what I said about how cash will really works in your favor. You also know, if you read my ramblings how passionate I am about this system. This concept really is so old school, but it works! As you've read, I recommend using cash for everyday purchases. In my tip of the week I challenged you to use this system for 3 months. So let's talk about it.
There are certain categories in a budget that just make more sense to use cash for. These include but are not limited to: groceries, eating out, entertainment, clothing & blow money. The question often arises, how much do I put in the envelopes? The answer to that question depends on many things; family size, income level, and amount of debt you have. For groceries I would recommend somewhere in the range of 5-15% of your take home pay. This range applies mainly if you are not on the extreme low or high ends of the income spectrum. If you net $10,000/ year you need may more than $125/ month for groceries, especially if you have a family. Likewise, if you net $500,000/ year you wouldn't need to spend over $2000/ month on groceries. But for the average income in this country of $48,000/year this range works well.
Now let's talk about eating out/ entertainment. Did you know that in general there is an inverse relationship between one's consumption and one's net worth? That's right, the more you consume (spend), the less you have to save. What I tell my clients is to look at the overall picture. How much debt needs to be paid off? What do they want for the future? How badly do they want to get out of debt and change their lives? This category isn't a necessity to have. It's for fun and enjoyment. Yet some of us have been so lopsided by spending too much in this category that we've made a real mess of things. Going cold-turkey is not the answer either for most people, unless you are in very dire straits. Some entertainment isn't a bad thing, but you really have to decide what you are willing to sacrifice to achieve your goals.
While clothing is a basic need that should be covered, this doesn't mean you have to buy the most expensive brand name clothing at full retail price. Nor does it mean you must limit yourselves to buying only from the thrift store. If you have children they would obviously need clothing more often than adults, simply because they are still growing. For an amount in this category, I say, be reasonable in what your family needs, and shop for bargains. They are out there, both at the mall or the consignment store.
My last category that you may or may not use cash for is blow money. I personally don't use cash for this but many do. My husband and I have our own little checking accounts for this money. We typically use our blow money for things that we buy online for ourselves or just use our debit cards in a store. The important thing to remember is that the money is finite and isn't in your general checking account. As far as an amount, again it really depends on how much you really need to not feel completely out of gas. For some this might be $20/week, for others this might be $20/month. You really need to take into consideration your circumstances and personality. I personally take much less than my husband, because I'm a natural saver and I'm perfectly okay with this. As I've said before this money is to give you breathing room to do what you like in your budget. It's the grease that keeps thing moving. DO NOT, under any circumstances completely eliminate this category. Even if you only get a few dollars a week to buy a soda at work, you need this category.
As you go forward in figuring out what other categories you may need an envelope for, please remember to keep things simple. You wouldn't want to have 15 envelopes to keep track of, 3-5 categories usually will do the trick.
There are certain categories in a budget that just make more sense to use cash for. These include but are not limited to: groceries, eating out, entertainment, clothing & blow money. The question often arises, how much do I put in the envelopes? The answer to that question depends on many things; family size, income level, and amount of debt you have. For groceries I would recommend somewhere in the range of 5-15% of your take home pay. This range applies mainly if you are not on the extreme low or high ends of the income spectrum. If you net $10,000/ year you need may more than $125/ month for groceries, especially if you have a family. Likewise, if you net $500,000/ year you wouldn't need to spend over $2000/ month on groceries. But for the average income in this country of $48,000/year this range works well.
Now let's talk about eating out/ entertainment. Did you know that in general there is an inverse relationship between one's consumption and one's net worth? That's right, the more you consume (spend), the less you have to save. What I tell my clients is to look at the overall picture. How much debt needs to be paid off? What do they want for the future? How badly do they want to get out of debt and change their lives? This category isn't a necessity to have. It's for fun and enjoyment. Yet some of us have been so lopsided by spending too much in this category that we've made a real mess of things. Going cold-turkey is not the answer either for most people, unless you are in very dire straits. Some entertainment isn't a bad thing, but you really have to decide what you are willing to sacrifice to achieve your goals.
While clothing is a basic need that should be covered, this doesn't mean you have to buy the most expensive brand name clothing at full retail price. Nor does it mean you must limit yourselves to buying only from the thrift store. If you have children they would obviously need clothing more often than adults, simply because they are still growing. For an amount in this category, I say, be reasonable in what your family needs, and shop for bargains. They are out there, both at the mall or the consignment store.
My last category that you may or may not use cash for is blow money. I personally don't use cash for this but many do. My husband and I have our own little checking accounts for this money. We typically use our blow money for things that we buy online for ourselves or just use our debit cards in a store. The important thing to remember is that the money is finite and isn't in your general checking account. As far as an amount, again it really depends on how much you really need to not feel completely out of gas. For some this might be $20/week, for others this might be $20/month. You really need to take into consideration your circumstances and personality. I personally take much less than my husband, because I'm a natural saver and I'm perfectly okay with this. As I've said before this money is to give you breathing room to do what you like in your budget. It's the grease that keeps thing moving. DO NOT, under any circumstances completely eliminate this category. Even if you only get a few dollars a week to buy a soda at work, you need this category.
As you go forward in figuring out what other categories you may need an envelope for, please remember to keep things simple. You wouldn't want to have 15 envelopes to keep track of, 3-5 categories usually will do the trick.
Tip & Quotes of the Week May 7-14
Frugality
When you hear the word frugal, what do you think of? Most likely you think someone who is frugal collects lint and never leaves the cave. In reality the definition of frugal is "economical in use or expenditure; prudently saving or sparing; not wasteful" (dictionary.com). The opposite of this is of course wasteful. If you want to build wealth, you have to learn to be frugal. It's not what you make, it's what you keep that makes the difference.
Homework:
Start today to find little ways to save money. The possibilities are endless so be creative. From utilities to groceries and clothing there are ways to trim the fat and save. Remember there are only two sides to this equation- income and outgo. Take control of your outgo!
"Industry is fortune's right hand, and frugality its left." John Ray
"Without frugality none can rich, and with it very few would be poor." Samuel Johnson
"The way to wealth depends on just two words, industry and frugality." Benjamin Franklin
Friday, May 7, 2010
The Art of Frugality
I've been reading The Millionaire Next Door (another great book that I would highly recommend if you haven't read it yet). I'm not even that far into it and I have been surprised by the facts I've learned thus far about the average millionaire in this country. The typical portrayal of millionaires by the media is rich and lavish lifestyles with fancy houses, cars, and clothes- the best of everything. When in reality 80% of millionaires are 1st generation rich. Meaning they started with from nothing, learned how to work and more importantly SAVE. How do you think they got that way in the first place? I know this sounds really basic, but then most things I talk about are. Think about it, if you spend everything you bring in, it is impossible to build wealth. I have a word of warning to those who grew up in affluence. You are in danger of not accumulating as much wealth as your parents, simply because of you have gotten used to a certain standard of living. Take care to learn the lessons of work and frugality and you will probably surpass your parents.
So how can you become more frugal? There are a lot of little things that you can do that make a huge difference. Let's take utilities for a moment. Did you know that by raising or lowering your thermostat by just 1 degree can save 4% on your heat or ac bills? Using fans are much cheaper than running the ac. Another great investment is to have a programmable thermostat. You can get a good one very inexpensively. I know in Utah you can get an energy audit from Questar Gas and they will give you a bunch of energy efficient stuff for free and credit the fee back to your account. You're not only saving energy, you're saving money.
Now let's talk about grocery bills- planning pays. I have several friends who save big bucks simply by planning their menus around the sales of the week. Some use coupons on top of that and save even more. The time is definitely worth the investment. With clothing, I try to buy things at the end of the season on clearance or at consignment/thrift stores. I once bought a coat in the spring that would fit my older daughter the following winter for $7! These are just a few ideas but there are many more things that you can implement to ave extra money. Of course saving that money is just part of the picture. You need to have a plan for that money. Paying down debt, saving or investing are all good options. Remember it's the little things that add up over a lifetime. There really is an art and style to frugality.
So how can you become more frugal? There are a lot of little things that you can do that make a huge difference. Let's take utilities for a moment. Did you know that by raising or lowering your thermostat by just 1 degree can save 4% on your heat or ac bills? Using fans are much cheaper than running the ac. Another great investment is to have a programmable thermostat. You can get a good one very inexpensively. I know in Utah you can get an energy audit from Questar Gas and they will give you a bunch of energy efficient stuff for free and credit the fee back to your account. You're not only saving energy, you're saving money.
Now let's talk about grocery bills- planning pays. I have several friends who save big bucks simply by planning their menus around the sales of the week. Some use coupons on top of that and save even more. The time is definitely worth the investment. With clothing, I try to buy things at the end of the season on clearance or at consignment/thrift stores. I once bought a coat in the spring that would fit my older daughter the following winter for $7! These are just a few ideas but there are many more things that you can implement to ave extra money. Of course saving that money is just part of the picture. You need to have a plan for that money. Paying down debt, saving or investing are all good options. Remember it's the little things that add up over a lifetime. There really is an art and style to frugality.
Tip & Quotes of the Week Apr 30-May 7
Denial
Denial is one of those strange states of existence that allows us to justify the choices we make. There are extremely powerful emotions surrounding denial. Fear and ignorance run rampant when denial comes into the pictures. When you are in denial about your finances, you might feel like you are okay for the time being. You might tell yourself, "Things really aren't as bad as they seem to be" or "I can pay my bills" or even, "My job is secure, I don't have anything to worry about". Don't wait for life to smack the denial out of you. Consider this your gentle nudge- Take action today!
Homework:
If you are living in denial, especially about the state of your finances, I want you to pull your head out of the sand and face everything head on. This is obviously very scary, but it's like ripping off a band-aid, it hurts for a little while but not forever. You'll never know how deep the wound is until you clean it out.
"Denial ain't just a river in Egypt" Mark Twain
"You will find peace not by trying to escape your problems, but by confronting them courageously. You will find peace not in denial, but in victory." J. Donald Walters
"Delay is the deadliest form of denial" C. Northcote Parkinson
Tuesday, May 4, 2010
Half-Off Sale
For the month of May I am having a fire sale! I guess you could call this my Grand Opening Sale. All sessions booked this month will be discounted 50%. This means that if you are still trying to scrape together the money to pay for it, please contact me by the end of the month. The session can be scheduled for next month if needed. Chances are you or someone you know is in need of my services. It is worth the investment in your future! Don't forget about my referral program (see my website for more details). I'm looking forward to serving you and your family!
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