By Lori Radun
How many times have you replied "We don't have the money for that" when your child asks you to buy him something? His innocent reply is "Get some from the machine or the bank". You think to yourself, "If only it were that easy". Managing money is a tough concept for children to grasp, and sometimes equally as challenging for parents. In order for your children to develop healthy money habits to take with them into adulthood, you, as their parent, must manage your money wisely and be diligent about teaching the concept of money to your children.
So what are the secrets to having a financially healthy family? I had the pleasure of talking with my dear friend Thea, who happens to be a financial planner for A.G. Edwards, and an expert at managing money. Together we compiled 7 secrets to having and teaching financial success in your family.
1. Having a monthly budget to work with is a must. If you have never sat down and figured out how much money you spend in the various categories, now is the time to do that. For two months, actually record every penny you spend and assign it to a category. Typical categories include utilities, housing, entertainment, education, automobile, groceries, health and beauty, dining out, savings, etc. Many people are amazed to discover where their money actually goes. To develop a budget for your family, you need to know how much income the family brings in and your required expenses to live. Assign a specific dollar amount that you will spend for each category. Having a budget is not about limiting yourself - it is about making choices and deciding what's most important to you. If having a fancy car is very important to you, then you cut back in areas that aren't so important to you. If you want to be able to eat out once a week, then consider making cuts in your grocery expense.
To teach your children about budgeting, here are two exercises you can do. At the beginning of the month or whenever the family gets paid, cash your checks and lay all the money out on the table for your children to see. Get out all your bills and work together with your children to match up the appropriate amount of money with each bill. Let them see where the money goes and how much it takes to manage a household.
Another thing you can do with children who are a little more mature is give them a budgeted amount for a specific event, shopping excursion, or vacation. For instance, if you are taking your children to a theme park for a day, give them $75.00 (or whatever amount you want). Then you tell them that whatever they don't spend they can keep! Let your child pay for his own admission ticket, food, souvenirs, etc. Children will learn quickly how to manage their money.
2. Keep your total housing cost to 30-35% of your total income. Some people say the housing cost includes your mortgage or rent and your utilities. Others say that it includes only your mortgage or rent. Either formula you use, if you have a household income of $50,000 per year, then your housing expenses should not exceed $1458.00 per month.
3. Do not carry any consumer debt. The American culture reinforces instant gratification and that is why so many Americans have huge credit card debt. There is nothing more damaging to your financial success than credit cards. I realize credit cards may be a lifesaver for people who are really struggling financially. Believe me, I've been there. But I tell you from experience, use credit cards for emergency purposes only. If you have big ticket items you would like to spend your money on (furniture, vacation, car, remodeling), make a list of those items and put it on the refrigerator. Decide what's most important to you and start putting money away every month so you can pay cash for those items. How do you teach your children this concept? Do not let your children borrow money from you unless they can pay it back right away. If they don't have the money to buy something they want, make them save their money until they do.
4. Strive to put away 10% for emergency savings. I know many people who live from paycheck to paycheck, and putting away money for savings is unheard of. Try really hard to put something into a savings account, even if it is just a small amount. If you have the ability to have money deducted from your paycheck for a 401k or retirement, take advantage of that. Once you get used to that amount being gone, you will adjust and you'll never miss it. Open a savings account for each of your children at a very young age. Take them to the bank and encourage them to save some of their money. Let them experience the thrill of seeing their bank balance rise. Another fun way to teach kids about money is help them decorate 3 separate jars or coffee cans. Label them "Spend, Save, and Donate". Given them a weekly allowance and encourage them to contribute a certain amount to each of their banks every week.
5. Never go over the breadwinner's income. This is advice my mother has given me often and when I was younger, I baulked. Now that I have become wiser and actually made the transition from a two income family to a one income family (with the same set of expenses), I know this is good advice. I know this can be a tough example to live by, but it is worth the effort. You never know when one person may lose their job. If your expenses don't exceed the breadwinner's income, then the rest is gravy.
6. There should be no financial secrets between husband and wife. Each partner in the marriage should know exactly what is happening with the family finances. Funds should be merged and each person should be accountable to the other for financial decisions. Decide between the two of you what dollar limit needs to be discussed first before purchasing. Pay the bills together or at least communicate the financial picture after the bills have been paid. Too many couples divorce over money issues. Do your best to work together on money.
7. Have an "abundance attitude". What does this mean? Realize that money is just a tool. It is not the answer to happiness in life. If your tendency is to hang on tight to your money, try learning to let go. When you have a giving spirit, you will be blessed tenfold.
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