Mastering Money

Allowances as a Teaching Tool

There was an interesting article in the Weekend Journal (the Saturday, Sunday edition of The Wall Street Journal) about all the decisions that go into setting up an allowance and for what items it should be used.

Many agree its best to pay an allowance as soon as the child understands that money is the vehicle that buys things, say around the age of three or four.  In many workshops I've conducted, the general rule-of-thumb is to give $1 per week for every year of age, so if the child is five, they receive $5 per week.

Now, one must decide what the child has to give up for the allowance?  Is it time?  How much time should that be?  Is the allowance for chores around the house?  Is the allowance for doing homework?

The next issue is just exactly what is the allowance for?  Should the child learn to give to charity?  If so, how much should that be as a percentage of the allowance?  Should the child save?  What about clothes?

Personally, I like the idea of $1 per week for each year of age.  I guess I've heard it often enough that it makes sense.  In a few years, we may have to worry about inflation; that $5 for the five-year-old may not be enough.  I also feel that the child needs to do some sacrificing in order to receive the allowance.  It shouldn't be given gratis.  However, it should NOT be for doing homework, as that is expected.  The allowance has to be earned in the sense the child has to sacrifice their time in order to receive it; that way they equate what they're giving up in terms of time in exchange for the dollars.

As the child gets older, their responsibilities grow, and so should their allowance.  Perhaps when they reach the age of seven and are invited to birthday parties, they can pay for the gift out of their allowance.  When they get to be teenagers they can start receiving an additional clothing allowance from which they can buy their own clothes, and learn to make decisions on those purchases.

I'd love to hear your thoughts and comments on allowances for children.  What worked in your household???

Look Through The Windshield

When Wayne Gretzky retired, commentators asked him what made him a great hockey player.  He stated that he does not skate to the puck, but rather, he skates to where the puck is going.  Interesting perspective.  I use this analogy in my workshops about money and how to spend it wisely.  Information in my workshops is something that is neither taught in school , nor taught in the home.

With that in mind, I'm excited that after five years and three months, the US Patent Office responded to my patent application for my spending management tool.  Although there are some modifications I must make, I'm thrilled they didn't decline my application.  For years I've taught this tool to participants in my workshops and they've asked, "What is the difference between Intuit's Quicken or Microsoft's Money, and The Financial Fuel Gauge TM [my product].  I tell them  that Quicken or Money only allow you to look through the rear view mirror of your car, while my product allows you to look through the windshield, and see where you're going.  I then add Wayne Gretzky's quote about skating to where the puck is going, so they can see that my tool does the same thing by allowing the user to look through the windshield and see where they are going.

In Sarah Kerner's article in the August 7th Dallas Morning News entitled "Real-World Frugality", she states several interesting and helpful observations on saving money.  The article is outlined so that she states the concept (the strategy), then talks about the reality, and concludes with a better way to perform the strategy, all of which I agree.  Kudos to Ms. Kerner.  When she wrote the better way to use Personal-financial software, Sarah quoted CFP Frannie Gardner, who stated the software doesn't do any good unless we step back and analyze the information we've input.  While I totally agree with that, I would like to add my thoughts.

Having worked with numerous clients (and their offspring) about how money works and the best way to use it, so it works best, I believe it's too late to look back and see where we've spent our money.  When we do that, aren't we really looking in the rear view mirror?  I believe what works best when we're driving the vehicle is to look through the windshield.  (Some Dallas drivers aren't fully aware of this concept.)  Thus, we can see if we're getting ready to make a mistake; in the case of my software, that mistake would be overspending.  It does no one any good to have a budget of $600 for groceries for the month, only to end the month and find out we've spent $743.  Well, I guess it does the grocer some good.

Let me ask you.  If you bought an airline ticket to let's say, Maui, got on the plane, watched it pull away from the gate, anticipated your arrival throughout the flight, and got really excited as the plane touched down, only to hear the pilot get on the PA system and say he'd made a mistake, that the plane had really just landed in Boise, Idaho, wouldn't you be more than mildly upset?

Folks, this is what we do each and every day.  We spend, spend, spend, and don't really know where we end up until it's too late and the plane has landed.  This means if we land at the end of each month in a place we didn't intend, we'll land at the end of our careers in a place nowhere near where we intended.

It's important that your personal-financial software allows you to see where you're going and make adjustments along the way, just as the airline pilot.  The only way to invest in your future is to first get out of debt.  The only way to get out of debt is to save money.  And, the only way to save money is to keep track of what you spend, as you are spending it.

How Do I Save Money?

So many people ask me, "Max, how do I save money?"  As a coach, I look at where my clients spend their money and some of the things I see absolutely amaze me.  I realize habits are difficult to break, and luxuries and conveniences are hard to curtail when we are used to having them, but we need to ask ourselves if the purchase is worth sacrificing our retirement.

In Kim Snider's blog entitled You Can't Invest What You Don't Save under her Saving Money category, Kim states she believes financial success includes "prodigious saving" and she further believes that $5 here and there really add up.  I agree.

In my business I see many people spending money right and left and have nothing to show for it, even just a few hours later.  It's called food, and it doesn't stop there.  Now, I'm not one for NOT eating out; I think eating out is great.  As a matter of fact, I love to tell a relevant story about my grandfather who was a philanthropist.  His favorite charity was an orphanage here in Dallas.  He gave to this orphanage throughout the year; however, at the holiday season, when he made his donation he stipulated that it had to go to a party.  The money was not to be used for shoes.  Why?  Everyone needs some luxury in their lives.

That being said, I see clients eating out all the time.  What makes that so special?  Absolutely nothing!!!  If it is a matter of everyday living, then there is nothing special about it at all.  Going to the grocery store can save about 80%.  Yes, that's 80%!  Take chicken.  Okay, I know some of you don't like it, but this is an example.  If you ordered chicken at your favorite "casual" restaurant, the dish would be about $5.99 plus tax and tip.  Oh yes, there'll be some steamed veggies on the side...yuck...(I prefer Oreo's), but by the time you're done, that's about $9 - $10 with tax and tip.  For about $7 you can buy enough chicken breasts for four meals, or about $1.75 per meal.  I know, you gotta clean up afterwards, but also consider the fact you don't have to deal with a wait person who may not be all that pleasant.  Think of the time you'll save as well, not having to wait to be seated, not having to wait on the meal to come, not having to wait on the check to come.  Not to mention the gas you'll save driving to and from the restaurant.  Furthermore, I find eating breakfast out is the worst value.  You can buy a dozen eggs at the grocery store for $1.29; however, the restaurant wants around $7 for that omelet.

Now let's take the electricity bill.  I know many people who are flabbergasted at their bill each month, yet in the summer they insist on keeping the thermostat at 72 degrees.  Try 80...okay, so you may have to drink more water,but that's healthy for you anyway.  In the winter months, try turning the thermostat to a lower temperature and wear a sweater.  You'll survive.  I wouldn't suggest doing this dramatically.  If you keep the temperature at 72 in the summer, try raising it a degree or two for a few days.  Once you've acclimated, then raise it again.  My clients have thanked me profusely for showing them the way to a lower electricity bill.  Sometimes we must adjust in order to make the difference.

Ever try washing your car yourself?  I HATE spending $15 to get my car washed.  Also, believe it or not, I find washing it myself a little therapeutic.  There's a sense of accomplishment, and it is done correctly, because it is done my way.  Although I don't own an SUV, I realize this may be an enormous undertaking.  Perhaps that's another area where you can save money...gasoline.  Do you really need to haul around all that extra cargo space? 

I look forward to your comments.