Wednesday, April 16, 2008

The Empowerment of a Budget!

These last few days have been a flurry of flying papers and calculators beeping. (Our calculator's make beeps every time a number or function is pressed.)

We just completed a high school "Math" course by Dave Ramsey, called Financial Peace for the Next Generation He is a very humorous and demonstrative speaker who absolutely captured my boys attention.

The course consists of about 7 DVDs and some accompanying materials and a workbook. They looked forward every day to seeing his animated antics and his straight shooting style. They are motivated. Out come the calculators and they devise a written financial plan, otherwise known as a budget.

One of the best real world math exercises is to have your children set up a written on paper budget. Many have a budget in their minds but unless it is written down you WILL end up spending the same dollar twice, or three times or more!

We set up the following categories, each with their own account page that is stored in a small three ring binder. Each separate account is a goal or priority for their income disbursement. A paycheck dispersement form (we made up) is used to determing what goes where on each payday when we go the bank.

Wealth Account- I require that they save (keep) 10% of their income for the rest of their lives in what we call their wealth account. (See book recommendation below)

Giving- I also have suggested they have a planned giving amount, perhaps 10 % or more.

Car-Next is the major savings areas of their lives and since my oldest son at home is now 17 his first priority in savings is to pay cash for a car, in due season, perhaps not for 3 or more years but it is a plan for him to have a car around that time. This next category takes the majority of his income since it will be the first large amount due.

Home-Next is his house account. Yes, I do believe it is possible for children to save for a house first. It would be a great goal to save the entire purchase amount but more likely if they can save a sizable amount as a down payment they will be much further ahead with a short term mortgage plan.

Family Gifts- They calculated a certain amount to be deposited into this account monthly for Christmas and other family gifts

Fun- No budget is complete without some plain old fun money. This is actually a Biblical principle when God told the old Testament patriarchs to budget 10% for celebrations and feasts.

Both boys are set up now with checking accounts and debit cards and are required to keep them up to date in their accounting books.

After their budget is set up we discussed a plan for their savings. I love seeing how their eyes light up when they envision the possibilities of compound interest. We then went down to our local bank and opened a Certificate of Deposit (CD) for their lifetime savings and short term savings, all the money that they have collected so far. Now, I know that a term deposit is not really a good investment at all but it is better than sitting in a savings account earning .5 of a percent. Instead they will receive a whopping 3 percent per year for the term of four months. During the term of the CD we will be researching other more productive options that they can invest in that are still somewhat liquid but that will allow for a much better return. We are trying to determine the possibility of a Roth IRA. The deposit rules are slightly difficult for us as non citizens and under age children as well but as soon as we can determine if we are going to be able to fall within the boundaries we will be pursuing this possibility.

Another really inspiring book that has informed and motivated my children is The Richest Man in Babylon by George Clason written in the 1920's. Apparently the book was originally written to be issued as promotional pamphlets distributed to prospective bank clients with the intent of teaching them to save- therefore ultimately benefiting the bank.

Clason's time tested classic has sold over 1.5 million copies and is a must read for anyone interested in achieving financial success. The principles embodied in the book are, in the author's words, "a cure for a lean purse."

The book is a collection of short stories that all revolve around five basic concepts:

Money comes to those who save.
Money multiples for those who invest it.
Money stays with the person who entrusts it to wise people.
Money is lost when invested in things with which you are not familiar.
Money is lost at a fast rate by pursuing get-rich-quick schemes.

I think I will make this required reading or listening the audio of The Richest Man in Babylon - The Success Secrets of the Ancients" each year for the next few years until these habits are firmly achieved.

Look for a future post on a list of books and resources for financial planning that are must reads for any child before he reaches his adult years.

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