Experiential Learning for Parents

Parenting is an art as much as a science.  What nurtures creativity and responsibility in one child may breed wanton disregard in another.  What is a great instructional tool one day is seen as useless and starts an argument the next.  And while there are many helpful and well documented methodologies for parenting, the best informed parent will make some mistakes – and learn from them.  As someone who has literally written the book on teaching kids about money (The Ultimate Parenting Map for Money Smart Kids – $10 including free shipping at www.brightleitz.com), I continue to learn from mistakes when I put theory into practice. 

One of the hard learned lessons for me as a parent is that every stage of life for kids brings new lessons for the children and for their parents.  The child who saved all her allowance as a grade schooler may have spent all her pay check within three days of every pay day as a teenager.  What can be learned from this is that phases in kids’ lives are temporary.  The outlook of the grade schooler isn’t lost, it’s just on vacation.  And the teenager will learn to pace her spending if her parents resist the temptation to either lecture her about budgeting or give her extra money.

Another lesson is that most operating procedures work best when well defined. Here’s an example.  This summer my family had multiple teenage drivers as well as my husband and me sharing cars.  In the past we pretty much had a one-driver-per-car ratio, so the rule had been that each teen driver paid for their own gas.  As we started playing musical chairs with car usage, I decided to generously allow the kids to use our gas card.  We had them pay for a few more things we generally pay for.  Feeling particularly kind, I’d often encourage the kids to get a soda at the gas station store. Hey, it’s summer!  Live it up! 

Then the gas card bill came in.  OMG!  The bill for the first month of summer was literally over four times the size of our average bill for that card.  None of the kids was around when I opened the bill, so no shouting or bloodshed ensued.  But the system changed immediately.  Of course, it wasn’t entirely their fault.  My card, my decision.  So defining things up front – and thinking through potential outcomes – can make for less painful learning for everyone.

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Dancing in the Rain

About the time that clients were receiving their monthly statements on their investment accounts, my business partner and I noticed an influx of calls and e-mails.  The general question being asked was “Am I okay?”  We work to position our clients in all aspects of their financial lives to make it through difficult financial times.  In our minds, that’s as important as taking advantage of financial opportunities – for some people it’s actually more important.  Our clients know that and generally talk-the-talk and walk-the-walk of diversifying investments, staying calm during difficult times, and making decisions based on factors other than fear or greed. 

 

But these are pretty unnerving times and even some of the most fearless individuals are beginning to have little beads of sweat popping onto their foreheads.  A friend forwarded this anonymous quote to my business partner: “Life isn’t about waiting for the storm to pass.  It’s about learning to dance in the rain.”

 

So let’s look at a few “dance moves” for current times:

         Eliminate frivolous items from your spending.  Unless you’re spending more than you make or you’ve lost a major source of income, don’t go overboard.  Everyone needs some rewards built in to their budget. 

         Have funds available.  Make sure you have 10% of your annual pre-tax income where you could get to it pretty quickly and another 20% or so when you could get to it over time or with some tax consequences. 

         Don’t put the rest of your money all into the stock market.  Beyond your highly liquid money, also have some that’s in pretty boring stuff life certificates of deposit and government bonds.

         Stick with quality.  This is a great time to get bargains on quality.  But don’t be speculative.  High quality diversified mutual funds are often better for the average consumer than individual stocks or mutual funds that concentrate on only one industry.  Professional advice on your situation is warranted.

         Don’t be penny wise and pound foolish.  Don’t be afraid to get professional advice.  Have a pro do your taxes, consult on your investments, and advise you on your overall financial situation. 

         Don’t scrimp on things you’ll later regret.  If you can afford some niceties that are timely, get them.  Buy holiday gifts, get professional portraits of your high school senior, take the vacation you had planned.  Don’t miss meals to do these things, but when times are good again, you don’t want to be sorry for once in a lifetime things you missed. 

         Be patient.  It may seem that the economy fell apart over night.  It didn’t.  The poor decisions and waste that impacted the financial markets and several of our industries have been going on for awhile.  The solutions will take time to be completely formed and implemented and the results will take awhile to be fully realized. 

 

Mistakes should be learning opportunities, so we should all take note and become wiser.     

Tax Refunds

You may think that income taxes are something people think about between January 1 and April 15 of every year.  Or maybe you think if people are really good planners, they think about taxes during December before “tax season” starts.  But this is one of the best times of years to think about your income taxes. 

 

First, realize that it’s generally not good to get a big refund.  The IRS doesn’t pay interest on money it’s been holding on to for you, so when you get a big refund check, that money wasn’t earning anything for you while it was waiting for you to claim it.  Most of us would rather have a better return on our investment than that. 

 

Second, there are times when having a big tax bill can be ok.  If you pay into the IRS what you owed last year (or slightly more if you’re in the higher income brackets) you can generally pay what you owe by April 15 and not be out any interest or penalties.  So even if you’re keeping the money in a savings account, you’ll probably come out ahead.

 

A real key is realizing that what you owe doesn’t have to be a surprise!  A good tax professional can look at what your taxes looked like last year, what you’ve got on your financial plate this year, and then give you some idea of what your tax return might like for the year.  They can even generate a W-4 to adjust your paycheck withholdings up or down, or give you some estimated tax calculations and forms to send in.  What they charge you could save you in penalties or give you some extra cash flow now to invest. 

 

This is the perfect time of year to plan for your taxes.  You’ve still got time to do something about it and avoid a surprise next year.  And, your tax preparers would love to see you.  They get lonely this time of year. 

A Budget You Can Live With

Different people have different ways of managing their money.  Some people like working through what they spend in dollars and cents.  That’s workable and viable.  “If I spend less on dinner tonight I can have a more expensive lunch tomorrow.”  For these folks, each dime saved is rewarding. 

Other folks work better with general parameters.  I’ve seen this in my own family.  I know what we spend on an average dinner out with the whole family.  So instead of watching every dollar spent when we’re eating out, we keep track of how many times we eat out each month and everyone knows the basic rules of what we get.  For instance, we can share a few appetizers or all get dessert, but not both.  That’s comfortable for the kids (rather than having to ask what entrees on the menu they can get and what they can’t) and keeps the budget in line. 

Dining out is a specific example of part of the budget that can be tackled through different perspectives.  It can work with just about every aspect of spending.  Instead of buying every book you read, buy ones that you’ve read through the library and want to keep. Or have a Book Co-op.  Form a group where each member buys one book a month.  Everyone gets a week with each book, then pass it on.

Approach spending management in a way that makes sense for you and the others that share your income. 

Looking at Next Year

Now that you’ve looked at where you’ve been financially in the past year and you’ve seen how you did on some financial basics, it’s time to look toward a financially responsible future. 

 

On the areas where you spent more than you believe you should have, make a spending plan for those items for the coming year.  Sometimes, it doesn’t need to be in a dollar budget.  For instance, instead of saying that you’re going to spend $100 a month dining out, maybe you say you’re going to eat out twice a month. 

 

On the items where you’re cutting back, decide what you’ll replace them with.  One fellow financial planner, Bert Whitehead, told of some of his clients who decided to take some cooking classes to replace their many dinners out.  They’d invite friends over for nice dinners and experienced the unexpected bonus that many of their friends invited them to dinner out as a thank you.

 

Make a monthly spending plan that takes into account saving for items that don’t happen every month – maybe a quarterly life insurance payment, holiday gifts, vacation. 

 

Put in place some rewards for yourself when you stay on track.  They might be financial rewards – like a weekend trip – or less tangible rewards – like taking a bubble bath. 

 

During the next year, we’ll look on monitoring your financial progress as well as going in depth on the financial basics.