Live Within Your Means

Do you remember being told “No, you can’t have that” when shopping with Mom or Dad? Or maybe now you’re the parent telling your children “No.” What if instead the children make the call on what to buy and what not to buy? Either that makes shopping a lot easier or a heck of a lot more expensive!

Children don’t get a lot of practice on how to live within their means. That’s because they’re not the ones making the money. But wouldn’t it be better for children to learn at an early age how to spend money wisely? That’s where teaching the skill of prioritization comes in. As adults, we prioritize things every day: at home, at work, and yes, even out shopping. We understand that there is a limit to what we can or can’t do, so we need to decide what matters most, even if it involves sacrificing for the greater good.

The best way to learn about prioritization is to practice. When it comes to money, a budget serves as a useful tool to figure out what’s important. A budget will not mean much to a toddler, so let’s tackle this skill by grade level.

Preschool – Elementary

For young kids, set a limit on shopping purchases. Either using the money that children have set aside for spending or providing them with a stipend, let them choose what item(s) they want to buy. You may want to guide their choices by providing 3 of your own recommendations. However, the only way this works is if they feel that the money belongs to them, so they should make the final decision.

Junior High – High School

Since the teenage years introduce allowance and wages, children can shoulder some of the expenses they incur, like cell phone, gas, or food. This opens up the realm for ongoing expenses and non-tangible expenses which is good practice for adulthood. A simple budget could look something like:

$65 / Month Earned (or $15 / week)

(-) $20 Cell Phone

(-) $20 Savings

(-) $25 Spending

College and Beyond

College brings heavier expenses, so this budget will require ongoing monitoring and possibly revisions along the way. A sample budget might start out:

$1,500 / Month Living Allowance

(-) $1,000 Rent

(-) $200 Food

(-) $150 Car

(-) $100 Spending

(-) $50 Cell Phone

But later get tweaked:

$1,500 / Month Living Allowance

(-) $1,000 Rent

(-) $200 Food

(-) $150 Car

(-) $50 Public Transportation

(-) $150 Spending

(-) $50 Cell Phone

(-) $50 Gym

As we can see from this example, the student prefers to have more spending money than a personal vehicle. Regardless of what was chosen, the student was able to prioritize without going over budget.

Putting Priorities To Work

Keeping expenses low is especially important during this time of financial hardship for many. That is why it is even more timely to bring children into the conversation, so they can gauge their own priorities and figure out how they can aid in the family’s finances. The next time you go shopping, try asking your children, “To buy or not to buy?”

Homework: Give these prioritization exercises a try! How did you / your child do? Were any decisions tougher than others? If you found yourself analyzing the other possibilities, you just learned about opportunity cost!

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Balancing A Checkbook

Ever wonder why the amount left on your account is called a “balance?” That’s because you should get that same number after you “balance” your checkbook.

Like budgeting, all it takes to balance a checkbook is addition and subtraction. However, budgeting and balancing serve different purposes. Budgeting is about looking ahead, whereas balancing is about looking back.

Nowadays with all the available money tracking tools, most people don’t bother to balance their checkbooks. However, I strongly encourage you to add this exercise to your monthly routine, so you can monitor how well you are doing against your budget. Are you spending what you originally planned? Do you need to make tweaks to your ongoing budget?

Let’s Begin!

Let’s use the following example to illustrate how to balance your checkbook. Feel free to substitute your own numbers.

Start with $2,000 in your bank account at the beginning of the month.

Add (+) $3,000 in earned income.

Subtract (-) $1,000 for rent.

Subtract (-) $200 for utilities.

Subtract (-) $200 for transportation.

Subtract (-) $100 for Internet / phone bills.

Subtract (-) $1,000 for purchases related to food and miscellaneous shopping.

After doing the math above, we are left with $2,500. This number should match the remaining balance on the bank account at the end of the month.

There you have it! Now you are an *ace* at balancing your checkbook!

Homework: Balance your checkbook for last month. Did your actual spending match your budget?

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Budgeting 101

A budget is just a fancy way of saying a “plan for your money.” Anyone receiving money on a regular basis, whether it be allowance or salary, should have a budget. This tells you exactly where your money goes, so that you only spend what you have. It’s easy to start a budget, but will take some discipline to stick to the plan!

Money Out = Money In

With just a bit of addition and subtraction, you can create a budget. Add all the money coming in, and then subtract every expense line-by-line. Once everything is subtracted, did you get zero? If you get a zero, that means your money is perfectly balanced between what you spend and what you make. If you get more than zero, you can afford to spend more or add more to savings. If you end up with a negative number, you either need to earn more money or lower some expenses.

Share and Save First. Then Spend.

A budget works best when you account for the 3 S’s in the following order: Share, Save, Spend. Treat money you share and money you save as expenses that get subtracted … first. This will get you in the habit of recognizing what you can afford to spend.

Should Credit Card Spending Be Its Own Expense?

The quick answer is NO. Credit cards should not be considered its own expense category on a budget. Since purchases placed on credit cards reflect specific expense categories, the purchases belong in their rightful categories. Say you used a credit card to buy clothes for $20. That $20 gets categorized as “Clothing” or “Shopping.” The exception to this rule is if you are paying off existing credit card debt, you should include an expense line for “Debt Payoff.” We’ll talk more about credit cards in the future.

Monthly vs. Annually

A budget, or plan, works best when you can follow it. Most salaries and bills come on a monthly basis, so I recommend creating a monthly budget, in order to follow along more easily. Just remember to divide any income or expenses that happen once a year into a monthly amount. For example, car registration tabs get renewed annually, so divide the expense by 12 to account for them each month. You may also consider taking the sum of your electric bill over 12 months and listing an average amount each month because costs vary during the winter vs. summer months.

You Did It!

You just created a budget! Stay within your limits when spending in each category. Update the budget with any new changes, and monitor your progress at least once a year. Remember, a budget is only as good as you make it, so be honest with yourself!

Homework: Get started on your own budget! Parents can involve children by working on the family budget together. Did everything balance out to zero at the end?

Now that you are an ace at budgeting, are you ready to balance a checkbook? Tune in next week to learn more! Or subscribe below to automatically receive weekly lessons in your inbox!

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