Archive | banking RSS feed for this section

#890 Think About Your Money Like A Kid

21 May

baby playing

Mom and Dad couldn’t resist this toddler’s request for money.

She said it clearly with an expectant look on her face – “Money.” She had never said the word before. I thought maybe I had misheard. But she repeated it – “money” – with the same expectant look on her face.

Yikes! The kid’s not yet two, and she’s asking me for money. Clearly this toddler expected to receive some money. While I was scraping my jaw off the floor in shock after my child’s first request for money, my husband was dancing around with her. He was ecstatic at her growing vocabulary, impressed with her demand and handing her $1 from his wallet.

“Money, money, money,” my daughter repeated, clutching her dollar bill.

“We’ll have to save it, and you can buy something with your money when you go shopping with Mommy,” I said.

She and Daddy found an acceptable stash spot for safekeeping until the weekend. Come Saturday, which is shopping day, she requested her dollar and retrieved it from her piggy bank.

Now that she was requesting money and receiving some. I’d have to show her how to use her money responsibly.

one dollar bill

What can you get for $1?

“You have one dollar,” I told her. “Whatever you can find for your dollar, you can buy. Something you want. But it has to be a dollar because that’s all you have.”

I dreaded trying to find something for $1 (what about tax?). So we made a stop at Goodwill. I knew they had lots of $0.99 kid items. With my 10% discount card, it would take care of the tax question.

My daughter found a pack of Crayola washable markers and immediately said, “uh huh, uh huh, uh huh,” and clutched the package tightly to indicate that this was it. No need to look further. And it was the on sale color of the week, meaning it was 50% off of the marked $0.99 price. This girl could already spot a deal. I was proud. With my discount card, the markers were $0.47.

I had her get her dollar from her pocket and hand it to the cashier. She parted with the money in exchange for the markers with no protest, much to my relief. I told her the change was hers to keep.

As we progressed through grocery shopping, I had promised to get her a dog coloring book to go with her markers. “Wouldn’t it be nice if she could get it on her own instead,” I thought. We shuffled through the whole coloring book display to find the coloring book with only dogs. The last one left had a box cutter slash through the cover from when the stock clerk had opened the box. It was $1. I saw how this could work.

“Here’s the coloring book. Mommy will bargain so you can buy it with your money,” I told her.

At the register, I used my usual friendly and casual mention (with a hint of concern) to point out the box cut cover.

“I’ll mark it down to $0.50,” said the cashier.

Score! At $0.53 for the coloring book and $0.47 for the markers, it was exactly $1 for my daughter’s first purchase. No extra money from Mommy, just a little bargaining help to compensate for her limited vocabulary. I’ll never be so lucky again. But the whole process got me to thinking about how I thought about money when I was a kid, and how I want to teach my daughter responsible money habits.

Here are kid thoughts on money that would help anyone:

  •  The money you have is it. There is a $1 in your hand. There are lots of items out there that you want but only the items that are $1 are available to you to buy. No credit, no extra indulgences. Pick an item that matches up with the money in your pocket, and you’re done. This is perfect for daily purchases and everyday necessities.
  • Put the money away for safekeeping. You don’t spend your money right away. You put it in a safe place and retrieve it when you’re ready to buy what you want. You wait patiently. Occasionally you can take a peek at the money to make sure it’s still there. But no touching it until it’s time to spend it.
  • You can spend or save. You have money. You can choose to spend it, or save it. If you spend it, you don’t have any money left. If you save it, you can get something bigger once your money accumulates. Or you can keep saving like a squirrel storing nuts, planning for the long winter.
  • You have to earn your own. Even if parents give you money, it has to be earned. For chores, for working a “real” job or, when you’re not quite two, for impressing your parents with your vocabulary.

I can see a whole thesis being born based on this philosophy. All I needed to know about money, I learned in preschool…

#948 Calculate Six Months To Adjust to New Financial Circumstances

4 Jan

Cutting expenses takes a bit of habit adjustment in practice. All photo via flickr by Images_of_Money.

Cutting expenses takes a bit of habit adjustment in practice. All photo via flickr by Images_of_Money.

Forget three months of emergency savings…you need six months. Not only does it give you a bigger cushion, but I’ve found it takes about six months to adjust to a new financial reality. You might know your finances have changed. You might have reconfigured your budget. You might of spent hours with your sweaty fingers clutched to a calculator. But even then, what you know and what your brain and body want to do are two different things. Your behavior doesn’t usually do an about face overnight. Ingrained habits and the myriad of daily tasks that you do almost unconsciously don’t adjust as quickly as the cash flow stopped. Whether it was planned or unplanned.

Don’t you hate it when you switch the silverware drawer, and you spend the next few weeks opening the old drawer expecting to find spoons when instead you find dishtowels? Even months later, you may occasionally open that drawer expecting to find the pie server. It’s the same thing with spending and money habits. At first you still expect to do the same things, when things aren’t the same anymore. And slowly, you adjust. Month by month, your financial habits and brain become reconfigured to the new way of doing things. That’s of course, if your conscious of what a new financial reality means. If you’re in denial and never change, then you’re one of those people written up in the news who used to have six-figure salaries and still have a maid, a nanny and a lawn guy even though they’ve been unemployed for a year. So don’t be those people.

Put money in the bank for six months of living expenses.

Put money in the bank for six months of living expenses.

If something in your life happens that affects your income like losing your job, moving to a single income from a double income or long-term illness, be prepared with six months reserve cash to cover your expenses while you recover. Six months will give you time to find another job or launch a new career. You’ll barely get a job interview in three months. Six months will allow you to embrace your new financial outlook. Three months will leave you in a panic that you didn’t cancel the cable bill as soon as you lost your job.

Six months will allow you to enjoy your switch to being a stay-at-home mom or dad while learning what one income instead of two really means in practice. Three months will barely have your kid sleeping through the night while you’re up anyways worried about money.

Six months will allow you to get answers about your illness and a treatment plan so you can return to work or make other plans. Three months will leave you stressed, which is not good for healing.

Bottom line: six months reserve cash for life events that affect your income. And six months for your brain to reconfigure habits to fit into the new financial circumstances. By the end of six months, you’ll have gotten so good at the new financial model, that even if you do go back to work or get a new job, you can save more money and use your cash more wisely because you’ve gotten used to the adjustments. You probably won’t even notice them anymore, but your bank account will.

Having a planned income change is easier to plan for ahead of time. Start earlier than you need to.

Having a planned income change is easier to plan for ahead of time. Start earlier than you need to.

If the new financial reality is planned, like staying at home after the birth of your child or launching a business, then you can plan even more precisely and practice the money saving measures ahead of time. Why wait for your baby to be born or for your business to be launched to reconfigure your budget? Start living like you’re on one income once you’ve passed the 12-week mark of pregnancy. Start living like you are all-in on your business (a.k.a. a poor entrepreneur) six months to a year before you quit your 9-5 job. That way when the baby comes or the paychecks stop being regular, your confident instead of in a panic.

Saving for six-months of expenses is a big chunk of money. You should have a line item in your budget for it. Take the bare minimum of what you will have to pay: rent or mortgage, utility bills, outstanding debt (pay at least the interest), food, transportation, insurance and childcare (if needed). This will provide you with the basic needs of food and shelter and the ability to continue working or to find work. It will cut out all “superfluous” expenses, which would greatly increase how much you need to save. Add it up and save for that amount while working on alternatives to save money so that you may even spend less than your six months of savings in six months.

Calculate expenses to cover basic needs like food and shelter.

Calculate expenses to cover basic needs like food and shelter.

Six month estimate for a couple with a child living in a house (changes based on geographic location):
Rent/mortgage: $1,300
Utility bills: $350 (electric, gas, phone, heat)
Outstanding debt: $100
Food: $400
Transportation: $200 (gas, maintenance, bus/subway passes)
Insurance: $100
Childcare: $800
Total per month: $3,250
Total for six months: $19,500
Save $500 per month ($250 per working adult): 39 months of savings for six months of emergency cash or just over three years.

Not bad…better than going $19,500 into debt if you are caught unawares. You should keep the money in an account that earns some interest to keep up with inflation and is low risk, while still having it available at a moment’s notice. Your local credit union would probably have some good options or speak to a financial adviser.


#968 Credit Unions

5 Dec

Want lower fees, higher interest rates on savings and lower interest rates on loans? Bank with a credit union instead of a corporate banking behemoth. Credit unions are non-profits that are owned collectively by the customers, so they are much more apt to be customer and wallet friendly. While traditionally credit unions have been for certain groups (teachers, police officers, government workers), it’s easy to join one near you. If you go through the effort to find a credit union, you should be able to join one no problem.

When I first bought a car, I was just out of college and had no credit history. The car people called me a “credit ghost” and the only loan they could get me without a co-signer was with Capital One at 12%. Ouch! The car people advised I just refinance after a couple months. Obviously they really wanted to sell me the car. In a few months, I took a look at refinancing. I wanted a lower rate immediately. Because I worked at a school, I could join a teacher’s credit union by opening a savings account with $5 that would accrue interest. Then I could apply for a loan for the car, which I got in no time at 4.25%. No other loan could I find that was that low or willing to refinance for me. I’ve been sold on credit unions from then on. Currently credit union rates for cars can be as low as 2.89% and for mortgages can be as low as 2.75%.

Basically I learned that if I’m going to buy something big like a car or house, I’ll get pre-approved at a low rate from a credit union first and then be confident when shopping around that my loan will be both approved and at a low rate.

It’s also thought that credit unions aren’t technologically savvy or you won’t be close to an ATM for cash withdrawals. All credit unions now should offer online banking. And I haven’t gone to an ATM in years. I get cash back at the grocery store on my debit card and can combine two things at once, getting groceries and cash, and I never pay ATM fees for using an out-of-network ATM. In fact with online banking, direct deposits and debit cards, there’s hardly a need to go to your bank, much less use cash. I barely use checks anymore either.

Credit unions earn high customer satisfaction rates, something I’m sure Bank of America only dreams of (actually probably not, they just don’t care). And as everyone is an owner, the customers interests are served first and foremost. Imagine that!

Credit unions offer the full suite of financial services including credit cards, holiday savings accounts, checking and savings as well as financial advice, education and counseling. They are also fully insured like banks, although possibly less likely to go under as they don’t take the same financial risks that ended up collapsing many banks a few years ago. The only reason more people don’t use them or know about them is that their marketing and advertising is limited as they don’t have the resources to spend money on glossy ads or feel-good commercials. Not only will you be saving money or earning more money on your savings by using a credit union, you’ll also be supporting a local bank and the local economy.