First of all, yes – you are at the right blog. I know all the posts thus far have dealt with topics no where NEAR finances, but same place, different topic.
Let’s talk about financial intelligence! I’m in my 50’s and honestly it blows my mind sometimes to hear people talk about their financial obligations. It occurred to me that any financial intelligence I have wasn’t really learned in school, but from my parents. Then it occurred to me that we (meaning the hubs and I) have done a shit job at teaching our two kids anything about personal finance. The oldest will finish college a year from May and the youngest is a junior in high school. Clearly the oldest is the priority, as he’s closer to adulthood. One approach is to teach them both at the same time, but I’m no dummy – my style of parenting is test it out on one and if it worked, use it on the others. If it didn’t work, better find a new way!
So, I tell the oldest that it’s time for him to learn about budgeting and personal finance. This seems like a pretty easy discussion and so we set up a time that he’s going to come over and I’ll have a budget set up for him in Excel. Let me just say, I LOVE me a good Excel spreadsheet. I get busy and create a masterpiece of a spreadsheet. It’s a simple budget, and all he has to do is enter his expenses like a check register and all the budgeting stuff is done for him.
He and I sat down and I had started with some base figures, knowing we could adjust. I also had some expenses but knew as we went along the expense list would need to be changed. Here’s the hardest thing about budgeting – to really do it right, you have to track EVERY PENNY YOU SPEND. Yes, I know that sucks, but if you don’t know where your money is going, you cannot budget.
Step One – open online banking and transfer your “monthly income” from your savings into your checking. We are supporting him while he’s in school, so we provide a monthly allowance. Nobody wants to budget their “allowance” so we’re calling it income. Enter this amount to your checking balance and make sure the Excel check register matches what your online banking balance shows. Now, since he had already spent some money in January, we went ahead and entered those debits into the “check register”. Rent is auto-drafted, so instead of a check number, we use EFT (electronic funds transfer) and record that “debit”. We record the rest of the items that he had already happen in January and his ending balance in the register matched the ending balance of his online banking. Off to a good start!
As the debits are entered, the expense (or income) category is a drop-down menu. When the expense category is entered (seen above), the budget worksheet automatically updates, as seen below. This is a sample budget and figures to give you an idea of what I’m talking about. Each person will have different income and expense categories.
Saving is part of budgeting, so the next thing I had him do was enter three transactions, each of them with him as the “vendor”, the amount, and the “expense category” of Savings: Emergency Fund, Savings: Investment Fund, and Savings: Oh Shit Fund. He recorded those three transactions and then I had him go back into his online banking and transfer the total for those three from checking back to savings. Then we discussed what those funds are. Emergency Fund is exactly that – for emergencies, so in the future, if his car breaks down, he gets laid off from a job, he gets sick, his water heater dies, etc – he will have money available in an Emergency Fund. His Investment Fund is for him to bank up and then add to an investment account that was started for him. He can choose to continue to buy stock or perhaps choose another investment. Either way, it’s important to save for “down the road”. The Oh Shit Fund is the one I explained to him as a “cushion”. He won’t need to put money in the Oh Shit Fund forever, but for now, it’s a good idea to put money in the Oh Shit Fund so that if he’s at the end of the month and forgot to record an expense or two in the register, he has a cushion so that he doesn’t overdraw his account.
After we were all done, and he could see how the amounts from his register automatically went into his actual budget, I was feeling pretty good about my parenting skills. However, I know that a budget is only helpful if you USE it FAITHFULLY. So, we agreed that he is responsible for setting up a time once per week to meet with me and go over his financial spreadsheet.
The next week he called and we met. He had entered his debits in and we talked about how to classify some things. Then he asked if there was a way to budget in saving for something in the future. In his case, he is wanting to attend a music festival, so he wants to start socking money back NOW so that when the times comes, he will have the funds. Ah, be still my heart. He might really be getting this!!!
We set up another savings goal and he had to make some adjustments in expenses in order to be able to fund the new savings goal. Once we did that, he had very little money left over for the month, and it was only the 12th or so. I explained that when this happens, you have two choices – increase your income or decrease your expenses. Financial intelligence is all about making choices. You choose what you spend your money on. You choose what comes IN and what goes OUT. Right now is a great time for him to learn this, as he’s in college, has a pretty chill lifestyle, and has supportive parents. He’s able to get $$ out of us if needed, but now, with his budget, he’s being held accountable for what he’s choosing to spend his money on. I think this is making him a more careful spender, which is good.
If anyone is interested in a copy of the file, let me know. I used a few YouTube videos to help me create the spreadsheet and I think it’s easy for people to understand. The youngest doesn’t know it yet, but her turn is coming soon. As I work out the kinks with her brother’s personal finance education, I’m planning her turn. Think of it as a necessary life skill – something we should all teach our children, and something we all should know ourselves. If you have debt, set a goal for 2023 to pay extra on your debt each month. Take whatever your payment is and round it up to the nearest $100; so if you pay $358 for something, start making your payment $400. You will be amazed at how much faster that debt is paid off. Turn it into a personal challenge and find an expense you can cut. Put the money you would’ve spent on that into an envelope and every two or three months, put that money toward your debt.
When you manage your money your money can work FOR you instead of you working FOR it. Simple changes can make HUGE impacts on your financial situation, so take those first steps NOW and start getting your finances in better shape!
The Neverending Lori 