A New Year Means a New Budget

Hi Parents!

Did you make any New Year's resolutions regarding money? Like save more, pay down your debt, or start investing on a regular basis?

If so, you're not alone. New Year's resolutions regarding money is right up there with losing weight!

In order for you to achieve your financial goals, you need to have a "road map" to get there - and that means a budget. Now don't panic! Budgeting is not impossible and can actually be simple.

Here's 3 Steps to Get Started:

1) Keep a daily journal of every penny you spend for one month - with cash, check, debit card, and credit card. This will give you a good idea "where your money goes".

2) Based on your journal, set up income and spending categories. For example, groceries, eating out, gas, rent/mortgage, cell phone, internet, clothing, coffee, etc.

3) Add up your expenses for the month - do they add up to your monthly income? If not, readjust your spending limits to equal your income.

Now you have the beginnings of a simple budget. Tomorrow we'll take it 3 steps further...

Isn't this easy?!

Sonja

American Savings Rates WORST in the World

Did you know that the national savings rates of average Americans is Negative?

The savings rates are worse now than they were during the depression.

Scary, isn't it?

According to a 2006 report by the Center for American Progress, a liberal think tank in Washington, D.C., only about 18% of middle-class families said they had three months' expenses saved.

And worse is that nearly 60% of people 44 and under didn't even have $500 set aside for an emergency, according to the Federal Reserve Board's 2004 Survey of Consumer Finances.

No wonder credit card debt is at all time highs! People are forced to use plastic for any little set-back.

Help your kids avoid these same pitfalls by getting them in the habit of saving money - especially an emergency fund.

Sonja

False Warning!

Hi everyone,

I couldn't believe what I was reading in the financial section of the newspaper.

An expert was warning a parent NOT to open up a ROTH IRA for a 16 year old because it might make her not qualify for financial aid for college.

Talk about STUPID!! First of all, for public universities, where the majority of students attend, a ROTH IRA isn't even considered.

And for a private university, yes, the ROTH is considered an asset and may limit the financial aid in the short term.

Do you really want to give up compounding, tax free growth that could provide a million dollar retirement for a few lousy thousand dollars for college? I would hope not.

Saving and investing for your future should be done EARLY - rather than LATER.

So if you or your teen start a ROTH IRA, which is one of the smartest things you can do, don't worry about losing a little bit of financial aid. That is, IF you go to a private college.

The long term payoffs are way more worth it.

Sonja

Teach Your Kids to Sock Away Summer Job Earnings

Can you imagine a summer in which your teenager rises before noon, carries a brown-bag lunch to work and dutifully deposits a big chunk of each paycheck into savings?

Wouldn’t it be great if your employed teenager dipped into his own cash for movies, gas and dinner rather than using your dime?

I’m a funny woman, right?

But the reality is usually that high school and college students spend their hard-earned summer job money on $4 lattes, fast-food meals galore, and paychecks that get blown on iPods and cell phones. Not much thought about banking any of the money.

It drives me crazy to see teens spending money like water and having little or nothing to show in their bank account after working all summer long.

Never mind that a $4 caramel mocha ice coffee is HALF of an hour’s pay!

If you have teenagers heading for the work force this summer, like my 16 year old daughter Rachel, do them a big favor before they burn through their paychecks by covering the financial bases, especially in these three areas:

1) Pay yourself first

This is the easiest savings habit of all.

If your child’s employer offers an automatic payroll savings plan that deducts money from paychecks directly, take advantage of it. It’s an easy way to save because you never see the money in the first place. On the other hand, if you wait to pay yourself last, you may never see it.

So how much should be socked away?

This is the time to talk about goals. Is your son or daughter working to save money for college? A car?

My husband and I expect our kids to save HALF of any money they earn, but at a minimum, they should be able to sock away 10% of their take-home pay. After all, your kids have NO bills, right?

Rather than depositing paychecks into a basic savings account that will earn pennies each month, why not get open a cash-management account at a financial institution where money gets swept into a higher-yielding money market fund?

Check out www.millionaire-kids.com/moneymarketaccounts.html for the best rates…

Some young workers may even qualify for benefits such as shares in the company’s stock or participation in its 401(k) retirement, especially if the job extends beyond the summer.

This is a great opportunity for them to learn about investments and the stock market.

With my own kids, I have them stash their cash in a money market account until it reaches $250 dollars, and then we move it into a mutual fund for long term investing.

There are 3 criteria I use when choosing a mutual fund:

!) The fund has to be a value fund (these are really good companies at bargain prices)

2) The 10 or 15 year average annual yield of the fund has to be 12% or better (the 50 year average of the stock market is 13.3%)

3) It has to be a no-load fund or fees of no more than 1.5%

Remember, developing a savings habit while young is SO important to be able to take advantage of the power of compounding — where your money grows as the interest earns interest.

2) Rein in spending

Building up the bank account does not necessarily depend on how much you make, but how much money you’re able to “hang on” to.

That’s the message to repeat over and over to your 15-year-old earning just above the minimum wage at the swimming pool snack-bar counter.

Talk to your son or daughter about setting spending limits. This does not mean turning them into a total tightwad, but go over the implications of spending money daily on lattes instead of pouring a cup of coffee at home, or going out to lunch instead of brown-bagging it.

It may not seem like much, but all those $2 and $3 dollar items add up fast — money that could be better spent on college textbooks or funding a Roth IRA.

Finally, don’t carry around loads of cash. The more you have, the more you spend — or lose, which brings me to my third topic.

3) Control your ID

Getting a summer job means it’s time to open up a checking account and possibly getting a debit card as well.

Make sure that your child’s personal identification is protected, that checkbooks, for example, aren’t left on a front seat in the car or even the glove box. That’s a tempting target.

As for debit cards, keep control of personal identification numbers. Don’t carry the PIN in a purse or wallet, either.

Even if your child’s brain cells have been tested to the max in calculus class during the school year, committing four numbers to memory should be easy.

Teenagers are lean, money-making machines…so help them get into the habit of saving some of that cash this summer!

And if you want to know how a high school senior from Eagan made enough money to buy himself a spanking new pick-up with a summer job – then sign up for my FREE ezine at www.millionaire-kids.com/ezine.html!

Sonja

An allowance or not?

Do your kids get an allowance every week? How much?

There's a lot of debate about allowance - some experts say you should give allowance based on age and what chores are expected. Others say you should give allowance to teach kids about money.

Personally, I give allowance to my kids once a month, what better way to teach them automatically to budget their money?! But I don't base their allowance on specific chores.

They get an allowance as a perk to being in our family and to learn how to manage money. Be careful about giving an allowance based on chores - otherwise your kids will be asking you how much you'll pay them for every little chore they do around the house!

According to a Nickelodean study, the average allowance for kids is $6 a week for 12 year olds and under and $14 dollars a week for teens 13-17 years old. My kids get much less - but I also have an "Optional" list of chores on the refrigerator if they want to make some extra money around the house.

That way they can be ambitious if they want to and I can get a much deserved break!

Sonja

Love dogs? This is a great home business for your kids...

My 10 year old daughter loooves dogs...so she is starting her very own doggie daycare business this summer. She was inspired by her sister who started a business taking care of horses while the owners are on vacation.

But she doesn't have her drivers license so she came up with the idea of doggie daycare where the dogs will be brought to her.

There is HUGE opportunities in starting pet home businesses. Baby boomers are treating their pets like children - and they spend billions doing it. There are even pet-friendly hotels and restaurants!

Who knows, maybe your kids could be a doggie birthday planner! So have some fun and blog about your own pet home business ideas or experiences...

Sonja

How Old Should Kids Be to Get a Credit Card?

I couldn't believe my eyes...my 9 year old daughter got a credit card application in the mail!

How is that possible? I know that teens as young as 17 years old regularly get credit card applications stuffing their mailboxes...but a 9 year old?!

Just for the fun of it, we tried an experiment. I had my daughter fill out the application listing her $24 monthly allowance as income and sent it in. Luckily whe was denied - but the letter encouraged her to "reapply in 1 year"!

Something I didn't think about at the time - will this rejection be on her credit report...does she have a credit rating? I'll let you know when I find out.

So how old should your kids be to get a credit card? It really depends. Here are 3 "rules of engagement" I judge my own 2 teenagers:

1) Are they responsible with their money on saving, spending, and investing for the long haul?

2) Do they have a reliable job or source of income?

3) Do they understand the importance of only buying things on credit that they are able to pay for at the end of the month?

If you answer yes to all three of these questions...then your teen is ready to "test" out having a credit card. Expect mistakes though - and having to cut up their card into a million pieces!

You can give them another chance later.

What are your thoughts on credit cards for kids?

Sonja