Tuesday, October 25, 2016

Retirement planning part 1

I don't care who you are, how old you are, or how little  money you have. You NEED to get a ROTH IRA going if you have a job. And the younger you start the better it is for you. . If you have a job (16 year olds with a summer job need to do this), you can put money in. It comes out after taxes so it doesn't have to be payroll deduction. You can open one just about anywhere--banks have them; investment firms have them.

Why is a Roth so cool?  Well, all the interest you earn is completely tax free. That means if you invest $1000 at 16, and if you never put any more in, if it averages a 7% yield (not likely right now, but we can dream). Anyway, based on that 7%  return, in just over 10 years, your investment has doubled into $2000. In 10 more years, it's turned to $4000. At 66, that $1000 investment at 16 has tuened into $32,000. And what's even cooler?  There's no tax on that money. None. That original $1000 was already taxed and the entire $31,000 of profit is tax free.

Isn't a pretax IRA better? Well, let's consider the same $1000 of investment. Sure it came out pretax, so at 16, with a summer job, you only paid $980 of post tax dollars. At 66, that $1000 investment is also worth $32,000. But now when you start to withdraw it, you are taxed at your tax rate at that point, which even at a very conservative 25% rate, your 32,000 in your IRA only nets you $24,000. The missing $8,000 is taxes. Sorry.

Ok, so which Roth is right for me? The real secret is looking at fees and commissions. Some are made for the larger investor and others for the smaller investor. Ask questions. Research. Find out what risks are involved in the investment. Find a place you feel comfortable. If you feel they rest you as irrelevant Bacardi  you don't have a huge investment sum, keep looking. You need a place to take your investments who will help you grow from nothing to a tidy nest egg.

Also take note of the other perks of Roth: First time home purchase and educational expenses can be withdrawn without penalty. Otherwise you are 59 1/2 before you are eligible to withdraw.

And that's part one of retirement thoughts. Many more installments will follow. I don't want to overwhelm you yet.

Monday, October 24, 2016

Kids and savings

Like many parents, I opened savings accounts for my kids. My credit union requires a five dollar minimum balance and so I donated $5 to each child. Accounts opened. We then took their stash of cash they had from Christmas and birthdays and selected some for savings. They each kept about $20 in cash and decided to deposit the rest.

Because their balances are so small and interest is so low, none is currently accruing. I decided to help them out a tiny bit and I have one dollar a month transferred to each account. It's a whopping $3 a month from my account to theirs. If I go broke from that, I do have financial woes.

Here's how I've chosen to handle their accounts. Yes, they are for saving money. But why are they saving it? In reality, adults  save for the next purchase or event. And so, my theory is they can get money out when they want it. When we head to the beach, they can pull some of it out and take it with them. If they don't spend it, we can put it back. If they go to their MeMe and PawPaw's house, they can take some. Not that they NEED money there, but they have some.

My kids are 7. I try for them to have no more than $20 in cash at home. We don't have an allowance yet. Nor do I pay the kids for chores. We use the bell system.  They get cash from grandparents for minor holidays and other things. They occasionally get a random dollar from me that they can keep or use for ice cream at school. And their biggest money maker right now is the tooth fairy and her $1 gold coins.

Usually they are good at saving their money, but they have permission to spend it at will. D2 went through $20 buying ice cream every day at school for a month. She was upset it was all gone, but it was her choice. I didn't know until it was done. And even with her tears, I didn't replace it. Now she thinks twice before she spends.

When we went to Daytona last summer, we went to the flea market.  I allocated each of the $15 of my money to spend as they wanted. Anything else they wanted had to be their money. D1 spent all mine and 12 of hers. When she saw something she liked, she HAD to have it.  I thought some of her purchases were wasteful, but sadly kids have to learn about quality on their own. D2 spent mine plus $2. She didn't buy anything until the end when she had seen everything and then asked to go back to the purse booth and get a purse and a wallet (I'm a bit jealous of the wallet-it's really nice). And then there was my son. He wanted "boy toys."  He was very price conscious. He chose pretty well as we went. He skipped one big purchase but then went back for it at the end. I think he spent mine plus $1.

It's hard to watch them make mistakes with money, but I think it's important for them to know they can control their money. As things tru bought at the flea market tore up, we discussed the purchase choice. D1 who bought everything in sight has been more cautious since then and asks me if I think it's a good purchase.  I don't always give an opinion as I think it's important for her to make up her own mind, but I will talk about how it is made and ask her how she plans to use it.

And so, kids save. And spend. It's about both. Their savings accounts have more in them today than when they opened them a year ago, but that's thanks to my dollar a month. Even so, they know they have money there and it's theirs. That's important. Kids need to learn to manage their own money and control it.

Thursday, October 20, 2016

Saving Money on Dressing Kids

Kids can suck the money right out of you, so I've learned you have to save where you can.  Their clothes is a big thing.  First, young children have zero care about brand.  Nikes for a 3 year old?  Really?  If you are totally out of debt and have plenty of savings, go for it, but otherwise, no!

I discovered the wonders of Kmart for shoes when my kids were 4.  Sadly, many Kmarts have closed, but the shoes can be ordered online.  Athletec brand shoes are awesome.  They are routinely on sale as buy one get one half price which puts them about $12-15 each.  I found a pair in August and one in December kept them in their size and in good shoes.  The shoes are usually light weight and durable.  Plus they are cool looking.  At 7, every pair of athletic shoes my kids have are from Kmart.  None of them have complained or asked for anything else.

For clothes, The Children's Place is my go to for casual wear.  You can't beat their $5.99 jeans sale.  I bulk buy this size and a couple of the next in case of growth spurts.  Their 50% off online sale is great.  I'm not crazy about all their dress up clothes now, but when my kids were little, I loved them.  My kids tend to live in their t-shirts (best deal is the $3.99 sale 1-2 times a year, but often $4.99).

For dresses, I don't have a special place.  I always keep an eye out.  Don't forget Sam's Club and BJ's.  (I don't have a Costco near me but assume they would have similar things.) I grab things when I see them.  Just last night I grabbed dressy outfits for Christmas presents for my girls because they were at BJ's and a decent price.

Kohl's can be a source when your work their deals.  Getting the Kohl's cash and redeeming it can help.  I shop in-store with my phone and order most things, as the percent off is often higher online.

I buy clothes I know they will need while they are on sale.  I always get 1-2 things in the next size up, knowing that if I don't, a growth spurt is guaranteed.

Discover Card used to offer The Children's Place gift cards using your cashback bonus with a $25 card costing $20.  Sadly they have discontinued that gift card.  They still offer Marshall's/TJMaxx and several others.

And generally, the real secret is keep an eye out.  Buy only what they need and what you know they will use.  When they were tiny, I could buy a year ahead off the clearance rack.  Now buying ahead isn't as easy.  Fortunately their growth is slowing down and some things can be worn for two seasons in a row.

Monday, October 17, 2016

Teaching kids behavior and money management

A token economy

Sometimes with kids, traditional behavior modification techniques just don't work. And believe me, with my triplet 7 year olds, I've tried just about everything. After talking with a psychologist, we decided to start a token economy. It serves multiple purposes, including but not limited to rewarding the positive, failing to reward for the negative, and saving to purchase the things you want. 
In searching for something cheap and yet sturdy to use for the tokens, I came across small jingle bells at the Dollar Tree. Fifty for a dollar. You can't really beat that. So I bought 300 ($6) and 3 plastic jars. Each child's name was placed on theirs and they are prominently displayed on the mantel. I've since bought another 150 bells and am looking for more.
We had a family meeting at dinner and decided how they could earn bells and how they could lose the privilege of earning. The psychologist said it was important that we never take bells away. They need to keep the bells they have earned so the good things aren't undone. 
And so, we came up with the following plan:
To earn a bell:
  • Do something as soon as told (go to bed, put away your laundry, etc.)
  • Put your dishes in the sink without being told
  • Do a chore as soon as told
  • No bad behavior at my school when they come over after school. 
  • Bonus bells can be earned for anything they do really well or out of the ordinary. 
Spending bells:
  • 3 bells-control the remote for the evening
  • 3 bells-toy or kindle back if taken (must be at least 24 hours later)
  • 5 bells-sit in recliner for the day
  • 10 bells-choose the restaurant if we are going out.
  • 20 bells-ice cream at school
  • 30 bells-trip to dollar store
  • 50 bells-Their aunt eats lunch at school
  • 75 bells-private dinner out with their aunt
  • 100 bells-private dinner out with mommy
  • 150 bells-a colored steak of hair with the 6 week temporary hair dye. 
Misbehavior results in losing the privilege of earning bells for a day:
  • hitting/kicking/shoving
  • standing/climbing on furniture
  • "no" or talking back
  • extreme name calling
We came up with this list through a family meeting. I prompted a lot, but they agreed. I targeted 1-2 bad behaviors per child in how they lose the right to earn bells. I targeted several things each needs to work on doing on how to earn bells. And for spending, I tried to come up with things they either fight about or want to do but we don't do often.  
All this information is hanging on the side of our refrigerator so they can see it any time. The idea is that as certain behaviors become innate, they are removed from the list and new things are targeted.  
On a perfect day, each child can earn 5-6 bells. That only happens a few times a week between the 3 of them.
Bell tallies are in the 60s and 70s. No one will redeem bells. Everyone is holding on for something big. I know my 3rd wants the blue streak of hair. The others I don't know. I thought my son wanted the dollar store trip. It he hasn't redeemed yet. 
But it has improved behavior a ton. I'm doing less screaming and more gentle reminder that they don't want to lose the right to a bell. That usually straightened them out quickly. 
I was very skeptical at first, but it's working. And that is the goal. :)

Thursday, October 13, 2016

The New Car

Yes, we all love a new car. But is new worth it?  Most of the time, no. I found my van on a dealer lot with 8,000 miles on it. It still smelled new. And it was the current model year. But I saved $10,000 over a brand new one. That was 2009, and I am still driving the same van. It's been paid off for 2 years. I've been making the car payment to myself in the hopes of having cash to pay for the next car with no need for interest.

And let's talk interest.  Car dealers will loan almost everyone money for a car.  Be careful.  Shop your loan.  Check with your bank and credit union.  You may even want to shop for interest rates online.  Just remember, paying interest is that much money you don't have to save.  If you could eliminate interest, you would be able to save every cent you are no longer paying in interest.

It's truly about discipline. A friend once told me that to reach any goal you have to want your goal more than you want the immediate gratification of something else.
And so, if you want financial stability, you have to want it more than you want to buy ____.
I choose not to drive a new car.  Who cares anyway (well, besides my own kids who want me to have a sports car, regardless of the fact they can't fit in it)?  My identity is not defined by my car.

Savings 101

Does it make sense to save money if you are in debt?  Yes and no.

If your debt is being paid on time and more than the minimum (even mortgages and car loans should be over paid), then yes, you can save money. I didn't ask if you can afford to save. I said you can save.

If you get paid monthly, try to save $50 a month. If you get paid bi-weekly or twice a month, put in $25 a pay check.  It doesn't sound like much, but the secret is to save it and don't touch it. Put it in savings first. If your employer will send it straight to your savings account, send it. Then don't touch it.

If you save $50 a month in cash savings, that's $600 a year. If you start in January, that's your Christmas money. We will talk about gifts and buying later.

What does $50 a month cost you?  It's 2 trips to fast food for a family of 4. It's one trip to a sit down restaurant. Let's face it: a debt free life versus cooking at home once or twice?  I choose debt free.

Right now, before you do another thing, transfer $50 to your savings account. You will be able to survive. I promise.  Once you make a small change, it's so much easier to stick with it.

In all seriousness, you can do this.  Starting small will make such a difference for you.

Wednesday, October 12, 2016

Building credit with credit cards

Let's talk credit. Credit is your most valuable tool. You must have credit.
But what if you don't? There are two groups of no credit:  the young just starting out and the "I had it and screwed it up."

Let's talk to the young just starting out:  my advice to you is remember credit is your best friend trough life. It will make everything more affordable. Take care of it and it will take care of you. So how do you get credit?  I suggest starting with one credit card. If you are in college, it should be fairly easy to obtain a credit card. Look for one with no annual fee. Interest rates don't matter because you aren't going to pay any. Every month, use your credit card for something you would buy anyway--a tank of gas or groceries. My advice is to never go over 1/3 of your credit limit. The key to successfully using your credit cards is to pay them off IN FULL every month. Forget the minimum payment. Pay the full balance EVERY TIME. Never charge more than you can pay off. I had one friend who pause her credit card every day that she charges something. That way she never got more than 1/3 her balance and she always made sure she could pay it off. Until you know you can manage credit cards DO NOT fall for 0% offers. They usually wind up screwing the user because the deals are set up for the credit card company's benefit, not yours.

For those of you who are trying to fix your bad money management, I suggest talking to your bank or credit union. They usually have someone who can counsel you based on your individual situation. Once you get to where you can get a credit card, use it as above. Never use more than 1/3 of the credit available and ALWAYS pay it in full. Never carry a balance.

Many people will telll you that credit bureaus want you to make payments over time, and that is true. But a credit card isn't the best way to do that because the interest is so high. I suggest using the credit card method above to start building your credit. Then see if you can buy something over time. A major appliance, a car, or something else that you don't want to wipe out savings to get. All this will be discussed in future entries.

So follow along and let's see what we can do to get you in financial shape. Please feel free to ask questions and/or suggest future entries.

Starting Somewhere

I'm like you. I don't make a fortune. I'm a single mom to 7 year old triplets. I feel broke. But I'm actually pretty well off financially. It's thanks to my own wisdom. I've never taken any financial classes. I've just learned through reading and doing.

I make zero promises that you will have financial success. I just wish to share what I've learned in my journey.

So how do you get to where you are surviving financially?  How do you get from barely making ends meet to comfort?  That's what I hope this will show. So, follow me and let's do this.