According to a broadcast on NPR, the European banks are blaming America's current financial crisis on too little regulation, too much debt, and not enough savings. Europe sounds like me!
Regulation: You have to have a good understanding of what is happening with your money to be able to manage it. If you've worked in business you've undoubtedly heard the old adage, "what gets measured, gets managed."
Debt: In order to get and/or remain debt free, we must spend no more money than we make, and preferably less than we make.
Savings: It's important to have money set aside each month for all known expenses, and equally as important to have a long-term savings plan to send your offspring off to college, and to someday be able to quit working.
It's a good bet that the government won't bail you out to the extent that they're bailing out the banks right now, since your collapse doesn't jeopardize the global economy. So maybe we as individuals should follow the example of the European banks rather than the American banks.
Tuesday, September 23, 2008
Monday, September 22, 2008
Teaching Kids About Money Management (Part 2)
Although we never want to scare our children about money, I believe that open, honest conversations about the way we spend our money teaches our children to make better choices.
The other day my husband was at the grocery store with our daughter. When they were checking out she asked her dad when she could have a credit card so that she could buy anything she wanted. (Editorial note - my husband was actually using the check card, buying groceries on the credit card is a sure-fire way to take on unnecessary and unwanted debt!) My husband explained to her that using a credit card didn't get you anything you wanted. When he signed the card it was his promise to pay that money back.
He also talked to her about the difference between getting things that we want and getting things that we need. He told her we need groceries so we regularly spend money on them. My husband, who has a horrible CD habit, explained that those are things he wants and that mommy makes him save up his money to buy those!
So a quick trip to the grocery store turned into a good money management lesson and now our 7-year old knows more about how to use a credit card than some kids who are 18 years old. Take any opportunity you can to talk to your kids about how to use their money, it's much easier to learn how to do it when they're young than to learn the hard way and have to work their way back out of debt.
The other day my husband was at the grocery store with our daughter. When they were checking out she asked her dad when she could have a credit card so that she could buy anything she wanted. (Editorial note - my husband was actually using the check card, buying groceries on the credit card is a sure-fire way to take on unnecessary and unwanted debt!) My husband explained to her that using a credit card didn't get you anything you wanted. When he signed the card it was his promise to pay that money back.
He also talked to her about the difference between getting things that we want and getting things that we need. He told her we need groceries so we regularly spend money on them. My husband, who has a horrible CD habit, explained that those are things he wants and that mommy makes him save up his money to buy those!
So a quick trip to the grocery store turned into a good money management lesson and now our 7-year old knows more about how to use a credit card than some kids who are 18 years old. Take any opportunity you can to talk to your kids about how to use their money, it's much easier to learn how to do it when they're young than to learn the hard way and have to work their way back out of debt.
Tuesday, September 16, 2008
In Case You Needed Another Reason To Get Healthy
In case you needed another reason to get healthy, how about your long-term financial goals? This is a very interesting article by Dan Kadlec that appeared in Time Magazine. It makes perfect sense and is one more source of motivation for making healthy decisions.
Saturday, September 13, 2008
Teaching Kids About Money Management (Part 1)
A coworker posed the question to me about how we teach kids to manage money today. Money is much less tangible than it used to be, we get our money direct deposited and electronically transfer it to other accounts. We pay our bills on line and most of us use debit cards (or credit cards, but check out previous posts to see my opinion on that!) Kids today don't often see cash to understand where all that electronic money is coming from, which can lead to later financial trouble.
I am a firm believer that kids should start with cold hard cash money when they're first old enough to start purchasing things. It helps to give them a solid grasp on what money is. It then becomes easier to explain to them when they start getting gift cards how the money is loaded onto them and that they can only spend up to the balance on the gift cards. Which also helps them to later understand debit cards and the even more abstract idea of credit cards.
My kids' school district teaches math using a curriculum called "Everyday Math" that was developed by the University of Chicago. I think it's a phenomenal math curriculum that teaches math the way we think about it. But the other thing that I really like about it is that it has kids use actual coins and bills to learn about money, and also has them use symbols for the same money. So they start to see different depictions that all represent the same money. OK, I've spent enough time on that soap box. I'll post again on this topic since there is so much to talk about here.
I am a firm believer that kids should start with cold hard cash money when they're first old enough to start purchasing things. It helps to give them a solid grasp on what money is. It then becomes easier to explain to them when they start getting gift cards how the money is loaded onto them and that they can only spend up to the balance on the gift cards. Which also helps them to later understand debit cards and the even more abstract idea of credit cards.
My kids' school district teaches math using a curriculum called "Everyday Math" that was developed by the University of Chicago. I think it's a phenomenal math curriculum that teaches math the way we think about it. But the other thing that I really like about it is that it has kids use actual coins and bills to learn about money, and also has them use symbols for the same money. So they start to see different depictions that all represent the same money. OK, I've spent enough time on that soap box. I'll post again on this topic since there is so much to talk about here.
Tuesday, September 9, 2008
How to Make a Budget
So I've told you that in order to get out of debt you have to plan for paying that debt down, but how do you go about making that plan? By making a budget. But how exactly do you go about creating a budget?
The first thing you have to know is how much income you earn. If you're salaried this is pretty easy to figure out. The only small challenge here is figuring out the timing if you aren't paid monthly or bi-monthly since most of your bills will be monthly. If you're paid bi-weekly, you have a choice about how to budget your income. You can either multiply your salary by 26 and then divide by 12 to figure out a monthly amount, or you can budget for 2 checks per month and the two times per year that you receive a third check, this can be extra money. The other option is to plan the timing of your checks and plan certain checks for certain bills. The method you choose here should be the one that works best for you.
If you are paid hourly, piece rate, or any other type of rate that doesn't guarantee the same amount on each paycheck, figuring out how much income to count on can be more difficult. You can figure out an average of the amount you bring home on each paycheck, or you can figure out a minimum that you always bring home and treat any additional amount as extra just like the salaried method.
The next step in budgeting is determining what your expenses are. Some of your bills are easy such your mortgage or rent, daycare, car payments and other set expenses which just get plugged into your budget at the amount you pay every month. Bills like utilities, groceries, gas, clothes, etc. are more variable and you'll probably need to figure out on average how much you spend on those bills each month to plug into your budget.
You may find that after you put down all of your expenses, you're spending more than you make each month. This is frequently part of the problem with going into debt, when we continue to add expenses without making sure that our income can support the additional expenses. If this happens, the solution is either making more money (good luck and let us all know if you figure that one out!), or cutting your expenses. Maybe you'll find that you've been spending about $200 per month on clothes. So you can look at spending $100 per month, and not allowing yourself to spend any more than that. If it's your utilities that are causing you to blow your budget you can try setting your furnace 2 degrees cooler and wearing a sweater in the evenings; or spending a little bit of money and getting a programable thermostat. If it's your grocery bill, look for coupons or try a generic brand of your favorite food. The key to getting your finances back under your control is to spend less than you make; and having a full understanding of how much you make and how you're spending that money is the first step.
The first thing you have to know is how much income you earn. If you're salaried this is pretty easy to figure out. The only small challenge here is figuring out the timing if you aren't paid monthly or bi-monthly since most of your bills will be monthly. If you're paid bi-weekly, you have a choice about how to budget your income. You can either multiply your salary by 26 and then divide by 12 to figure out a monthly amount, or you can budget for 2 checks per month and the two times per year that you receive a third check, this can be extra money. The other option is to plan the timing of your checks and plan certain checks for certain bills. The method you choose here should be the one that works best for you.
If you are paid hourly, piece rate, or any other type of rate that doesn't guarantee the same amount on each paycheck, figuring out how much income to count on can be more difficult. You can figure out an average of the amount you bring home on each paycheck, or you can figure out a minimum that you always bring home and treat any additional amount as extra just like the salaried method.
The next step in budgeting is determining what your expenses are. Some of your bills are easy such your mortgage or rent, daycare, car payments and other set expenses which just get plugged into your budget at the amount you pay every month. Bills like utilities, groceries, gas, clothes, etc. are more variable and you'll probably need to figure out on average how much you spend on those bills each month to plug into your budget.
You may find that after you put down all of your expenses, you're spending more than you make each month. This is frequently part of the problem with going into debt, when we continue to add expenses without making sure that our income can support the additional expenses. If this happens, the solution is either making more money (good luck and let us all know if you figure that one out!), or cutting your expenses. Maybe you'll find that you've been spending about $200 per month on clothes. So you can look at spending $100 per month, and not allowing yourself to spend any more than that. If it's your utilities that are causing you to blow your budget you can try setting your furnace 2 degrees cooler and wearing a sweater in the evenings; or spending a little bit of money and getting a programable thermostat. If it's your grocery bill, look for coupons or try a generic brand of your favorite food. The key to getting your finances back under your control is to spend less than you make; and having a full understanding of how much you make and how you're spending that money is the first step.
Monday, September 1, 2008
How to Eliminate Debt
Nearly all of the advice you read or hear about money management recommends not spending more money than you make. But what do you do if you've spent more than you should have in the past and you're carrying unwanted debt? You make repaying that debt part of your budget.
I once worked as a Before and After School Program director at an Elementary School. When I took over as Director of the program, it was $40,000 in debt on an annual budget of about $160,000. Getting the program back to it's self-sustaining status was a pretty daunting challenge, but one I was willing to take on.
I drafted a budget for the program which included that debt as a monthly expense so that it would be paid off by the end of the year. This plan meant having to cut spending in other areas. We accomplished this by doing a few things differently than we had in the past. We went through all of the craft cabinets and cataloged all of the leftover supplies from old crafts. We then planned our new crafts around those old supplies instead of always buying new supplies. I scheduled the staff differently so as our numbers went down in the late afternoon, staff went home, which worked well for the high school students working in the program. I also worked with families who were behind on their payments to help them to make plans to get caught up.
By the end of the school year the program was not only out of debt, but had a surplus of $4,000 that we were able to donate to the school to buy a marquee sign for the front of the building. My daughter goes to that school now, and every time I see that marquee sign I remember what good money management can accomplish.
So if you're carrying debt that you’d like to get rid of, make it a part of your budget. Decide how much you can pay each month and pay that amount. You'll need to include any interest that you owe as part of the budget or you might just feel like you're only staying even, and absolutely make sure that you’re paying more than the minimum amount required. This might mean making some cuts in other areas, but the result is well worth a few sacrifices. If you stick to your payment plan each month, you’ll be able to get rid of that debt and rest easier in the knowledge that your financial situation is much more secure.
I once worked as a Before and After School Program director at an Elementary School. When I took over as Director of the program, it was $40,000 in debt on an annual budget of about $160,000. Getting the program back to it's self-sustaining status was a pretty daunting challenge, but one I was willing to take on.
I drafted a budget for the program which included that debt as a monthly expense so that it would be paid off by the end of the year. This plan meant having to cut spending in other areas. We accomplished this by doing a few things differently than we had in the past. We went through all of the craft cabinets and cataloged all of the leftover supplies from old crafts. We then planned our new crafts around those old supplies instead of always buying new supplies. I scheduled the staff differently so as our numbers went down in the late afternoon, staff went home, which worked well for the high school students working in the program. I also worked with families who were behind on their payments to help them to make plans to get caught up.
By the end of the school year the program was not only out of debt, but had a surplus of $4,000 that we were able to donate to the school to buy a marquee sign for the front of the building. My daughter goes to that school now, and every time I see that marquee sign I remember what good money management can accomplish.
So if you're carrying debt that you’d like to get rid of, make it a part of your budget. Decide how much you can pay each month and pay that amount. You'll need to include any interest that you owe as part of the budget or you might just feel like you're only staying even, and absolutely make sure that you’re paying more than the minimum amount required. This might mean making some cuts in other areas, but the result is well worth a few sacrifices. If you stick to your payment plan each month, you’ll be able to get rid of that debt and rest easier in the knowledge that your financial situation is much more secure.
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