Go forth and spend well- tips to send off with your kids

Labor Day is a bittersweet holiday, isn’t it?  The end of the summer, squeezing in the last bits of fun and adventure, all the while looking forward to the return to normal structure September brings.  I love the leisurely pace of summer but by the end of August I can’t wait to get back into a routine.  Over the past several years, August has brought some bittersweet memories as well; memories of saying goodbye to kids moving away, leaving for college, and one almost goodbye to my precious aunt Colleen who we came so close to losing to an aneurysm eight years ago this month.

Not long after Colleen’s miraculous recovery, my daughter and I drove to Harrisburg to see my son Andy off as he boarded a bus with a bunch of other recruits on his way to Texas for Air Force Basic Military Training.  My heart was full of pride watching my baby, who was now a man, take his oath, but of course it was full of tears as well.   It’s a funny thing your kids leave home.  You have all these years to teach them, but in those last moments of “childhood” there’s a panicky feeling that you must have forgotten something and try to get in all the reminders you can.   I wrote this for Andy the week he left and I hope this advice is useful for all of our children.

Congratulations!  You’re not only serving our country, but earning a nice paycheck for a young person.  With that paycheck comes a sense of freedom and independence, and you’ll see lots of ways you can spend it.  Because so many of your needs are taken care of by the military, you may find some extra burning a hole in your pocket.  Many fall into the trap of spending their earnings on toys and good times and end up in debt.  But if you choose wisely and keep that cool head of yours, you can live well, have a few toys, and build a solid financial foundation with good habits that will stay with you for life.

Save for your tomorrows, and for your future.

Emergencies happen, even to young people.  Cars break down, people have accidents.  So start an emergency fund.  Save at least 10% of your paycheck, and keep it safe in an account that’s “out of sight, out of mind”. An online savings bank like Ally or Discover are great for that purpose, and they’re both paying close to 2% interest now (check Bankrate.com; they keep tabs on the best payers). Be sure to have adequate car insurance- especially liability coverage and medical payments- and compare premium prices for different deductibles.  Keep that deductible amount in your savings account, just in case.

Start a Roth IRA.  Someday you will want to retire.  I promise you’ll be glad you started young.  You really won’t miss the money that much.

Pay attention. 

The time you put into your own finances really pays off.  We all lose money sometimes due to lack of attention- whether forgetting to return something, not sending in a rebate, or paying late fees because we lost track of time.  Automate your finances as much as you can; through your bank’s online bill paying you can mail out checks automatically.  You can also have billers directly debit your account, but online bill paying gives you more control over who can access your money and when.

Be diligent about where your money is going.  Automating your finances will only work if the money is there to pay your bills.  Otherwise you’ll end up paying a stupid tax (a la Dave Ramsey) in overdraft or late payment fees and hurting your credit.  Keep some sort of record system, whether it’s an old school check register or an app like Mint.  Don’t rely on your online bank balance.  You may have made a purchase that hasn’t come through yet, or written a check that hasn’t cashed.  I can’t say that enough- you need to keep good records.

Think strategically about your money.  A budget is nothing more than a plan for spending.  Write out your expenses and due dates, and plan which paycheck of the month each will come from.  You can do it on a spreadsheet, index cards, or a plain sheet of paper.  It doesn’t matter how you do it, as long as you do.  Avoid that stupid tax.

Apply for a credit card.  They are good to have in case of emergency, and convenient so long as you’re careful about how you use them.  Pay off the balance every month, and set up your payments so your minimum is paid automatically, in case you forget.  Become allergic to interest so it is painful when you have to pay any.  Use your card sparingly, as studies show that we spend an extra 30% when using plastic (including debit).

Before you buy anything big, think of three other things you could buy instead and decide if it’s worth it. Remember our family rule, always wait at least a day before buying it, compare prices, and look for coupon codes and sales.  Don’t fall for the “low monthly payment” trap; if you want something, save up your money ahead of time.  It’s easy to overlook how much something really costs by focusing on the payment.

But have a little fun too.

No sense being so disciplined with your money that you blow your budget out of frustration.  It’s okay to enjoy the fruits of your labor today while still being responsible.  Build fun right into your spending plan so when you do use it you don’t feel like you’re blowing a diet with a week long cheat meal.

Give.  Always.

No matter how bad you have it, there’s someone whose needs are greater.  Make that part of your spending plan and decide in advance how much you will give to any specific organizations and how much to keep aside for needs that you hear about.  There is great joy in giving, especially when you can help out someone anonymously and see the good that it does.

You’ll be helping out Uncle Sam every day; there’s no need to give him an interest free loan by way of a tax refund, at least not a big one.  Use the withholding calculator on IRS.gov to have the correct amount of tax withheld.  Save on your own, and don’t rely on a refund to do it for you.  Don’t be in a position to owe either though.  It’s a pay as you go system so not withholding enough can trigger penalties.  At tax time, when someone offers you a quick refund for a fee, run right to the IRS.gov site, file your return online, and with direct deposit you’ll get any refund pretty quickly- for free (PS I’ll still do yours for free anyway).

You’ve done a great job with your money so far, and I know you’ll continue to do well.  I’m proud of you.


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Part 2A & B of Form ADV: Firm Brochure