Question of the week, #6

Rohan Rajiiv asked me this question on my blog the other day.  I promised him I would answer it this week.  If you have 10 minutes, you can watch a years worth of real leader interviews that he has done over the course of the year on his blog.

What money management advice would you have for Jessica, Emily and Josh once they graduate and start earning their own cash? (Philosophy on investing, saving etc etc)

This is a great question.  I am going to start with the word budget.  I love a budget.  Budgets should be realistic.  Once you had committed to a budget the key is living with it. 

Our kids have been on budgets since high school.  Starting in 9th grade they each got ( Josh still is on this program ) a certain amount deposited into their account for them to use over a course of a month.  That is basically money for entertainment, transportation, food etc.  You can save it or you can spend it but if you find yourself short before the month ends, tough luck. 

Once you turn 18 the budget changes.  it is like being on a salary.  I figured out how much money we had spent on clothes and life in general over the last few years to come up with the right number.  A certain amount goes into their account in cash and a certain amount is allotted for charges.  They have access to the statements to keep on top of their spending.  I go through it once a month to make sure they have stuck to the budget.  You can carry money over to the next month but you can't come up short.  This money goes towards food, entertainment, clothing and life in general.  We pay for travel and extras.  Both Jessica and Emily have had jobs that paid them this summer so that is an added bonus.  It was important to both of them to make their own cash.

Living on these budgets has taught them (particularly Jessica and Emily because they are basically on salary) how to live within their means.  They are forced to make decisions about what they purchase and how they use the cash. 

Once they graduate, they should use the same model.  The question is how much are you bringing in, what is your rent, how much do you need a week for food/entertainment, how much do you want to set aside for other purchases like clothes.  Each need a budget so that you have fixed costs.  Taking money out every week and hoping there is enough left at the end of the month for rent doesn't work.  Knowing the limits to your expenditures based on your income is the key to living.  It also helps you be aware of every single penny.  You can actually stretch your cash farther when you know where all of it is going.

I still have a monthly budget when it comes to expenditures and I stick to it.  I also take out so much a week in cash that I stick to.  Even when it comes to construction projects, we stick to a budget and work from that.  The budgets have gone up and down over the years but having those fixed costs works for me.  I like to know where I stand.