My Love Is Unconditional, My Money Is Not!

As parents raising children, we are called to love our children, equip them for life, and lead them in the way they should go to lead happy and productive lives. A large part of being a parent is to introduce our children to unconditional love. A love that transcends behavior and choices and focuses on loving them for who they are. A parent’s love truly is unconditional…

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…but that doesn’t mean they can be irresponsible or entitled with money! In fact, one of the first lessons parents need to teach their children about money is that money, and the making and spending of it,  is very conditional. Here are some basic tenets about money that should be impressed upon our kids:

  1. We are paid money for producing results. For the most part, we get paid in our work based on the value we provide. Provide lots of value, get paid lots of money. But the opposite is also true: provide little value, get paid little.
  2.  There’s a BIG difference between being financially free and making lots of money.
  3. Wants and needs are VERY different things.

Taking these very basic money rules into account, here are four parent teaching moments in the lives of our children when it comes to money and the path to financial independence:

Money Does NOT Grow On Trees

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It does not take very long for a child to learn that if they want something, they say: “Mommy, I want this?” To which, sometimes, the mommy pulls money out of her purse to pay for the desired item. Mommy gives the clerk some money and then the child gets to keep the desired object. Wow, that’s easy. It seems, at least to the child, that it is even easier when mommy “pays” for the item using that little piece of plastic called a credit card: Pull out card, swipe and voila! Easy and fast. The realization that money, especially when using a credit card,  can be rapidly exchanged for desired things is quickly followed, usually, by the fact that the child can find many wants. “Mommy, I want this, and this, and this….well, you get the picture. Which brings us to the first set of Money Lessons and Conditions (Yes, I said set of lessons):

  1. Money is in limited supply, it does not grow on trees (or magically within a credit card)
  2. As a child, mommy or daddy get to determine the best use of the family money
  3. Big finish: The child MAY get to use some of the money, but they are NOT entitled to it! Especially not whenever they want it.

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Wants And Needs Are Two Different Things

As stated earlier, a child learns very quickly to express the desire for many things. The request for stuff can be endless as most kids have seemingly endless energy to express those wants…until a parent teaches their child the difference between wants and needs, as well as the difference between yes and no! A need is something the child requires to grow (like nutritious food), wear (like proper school clothes) or develop (maybe athletic shoes, glasses or some pencils). But a want is strictly discretionary. My favorite line with my kids, when they were old enough to understand it, when they started expressing all their wants, was to say “Well, I want a Ferrari, but we don’t always get what we want.”

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Which leads us to the second set of Money Lessons and Conditions:

  1. Wants are completely different than needs. Your needs will be provided for. Your wants will be taken under consideration.
  2. Your (the child’s) desire for a want will be noted, and when a parent decides either to purchase, or not to purchase an item, that parent’s yes means yes, and a no means no. Period.

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Fair Is A Place To Take Rides And Eat Bad Food

“That’s not fair!” A parent may hear this often. “It’s not fair that a classmate got a new bike, or new video game or new app”…so the child exclaims. The list of unfairness can go on and on. It is important for parents to explain that fairness has little to do with anything, and frankly, that life is not fair and you better get used to it. Fairness stems from comparison. And comparison can lead to envy and discontentment. We compare ourselves to friends, neighbors or what we see on TV. It is important for parents to remember and teach that what our neighbors do should have no bearing on what is best for our family.

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Which leads us to the third set of Money Lessons and Conditions:

  1. Wants are completely different than needs. Your needs will be provided for. Your wants will be taken under consideration.
  2. Just because a neighbor or friend gets something doesn’t mean you automatically get it. (Don’t covet)
  3. Funding family goals and dreams are a priority over instant gratification

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You Do Your Part, I’ll Do Mine

This one is my favorite. We must, as parents, teach our kids that work, and good behavior, gets rewarded AND that the opposite is also true: You don’t do your work, or you have a bad attitude, and you will not be rewarded (or paid). You get paid your allowance when you do all your chores. Don’t do your chores, don’t get paid. In my family, a school aged kid has one priority: learn in school to the best of their ability. Essentially, school is their job. Don’t do your best in school? You lose privileges. If you don’t study for a test, then get a bad grade, you don’t get sleepovers and shopping trips to the mall. Essentially: You do your part and I’ll do mine.

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Which leads us to the fourth, and final set of Money Lessons and Conditions:

  1. There are rewards and/or consequences to our actions. If you do your part, I’ll do mine. But if you don’t, then I won’t either.
  2. Responsibility brings value (and is rewarded). Irresponsibility, not so much
  3. I don’t care how much you want something if you’re not willing to do your part of the agreement (Earned vs. entitlement)

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Final Note – Unconditional Love Means Money Conditions

It’s our responsibility as parents to train our kids in the way they should go…in their actions, behaviors and decision making. Especially when it comes to money because neither our school systems or our culture will or can give them the solid foundation they need when it comes to money and the pursuit of financial independence. The first time I heard a parent use the phrase “my love is unconditional but my money isn’t” seemed a little harsh. But the more I processed the concept, the more I realized it was both responsible parenting and very loving. Teaching our kids that money, rewards and promotions are very conditional helps our kids develop the work ethic and fiscal responsibility they need to take care of themselves and form a proper relationship with money.

My love is unconditional but my money isn’t!

Money, Motley Fool and the Cost of Christmas

Silly title, I know. But the financial advisory firm, Motley Fool, reported that the average American household spent about $929 on Christmas presents last year. Here. There’s no reason to believe we won’t spend even more this year given the economy and the American people’s confidence in it. Then I got to thinking…
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We are just about one quarter of a year, 13 weeks, away from Christmas. It made me think about smart ways to steward our money so that we can fulfill your Christmas shopping desires without going into debt or breaking the bank.
Then I thought that it has been a while since we discussed together God’s plan for each of us to live in financial freedom so that we are able, and free, to worship Him!
Galatians 5:1 “It is for freedom that Christ has set us free. Stand firm, then, and do not let yourselves be burdened again by a yoke of slavery.”
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Here are some simple ways to experience financial freedom, including saving money for Christmas presents, if you haven’t already started:
1. Put aside $72/week, starting with tomorrow’s paycheck, to pay for Christmas
2. While your saving anyway, increase your savings to $120/week and put aside $30/week towards your emergency fund and $20/wk towards your 401K plan, why?
a. your Christmas presents will be paid for by the time Christmas arrives
b. you want to have a readily available emergency fund for life’s little bumps…sometimes expensive bumps (this is called “sleep well at night money”)
c. most companies have a matching 401K plan where you get free money just for participating in the plan…who doesn’t want/need free money?
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3. Another way to save money for Christmas is to cut back expenses. Now is a great time to see if you are getting the value for your money on:
a. subscriptions (software, magazines, wine of the month club, etc)
b. gym memberships
c. phone apps and reoccurring monthly phone expenses
d. everything Amazon
e. cable and internet…are you taking advantage of all the features (and costs)?
Maybe you can save some money by cutting out things you are not getting the value from.
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Make every effort not to go into debt to afford a merry Christmas. God said, through King Solomon: The rich rule over the poor, and the borrower is slave to the lender.
Don’t become a slave to debt. Live financially free to love and serve the Lord!
 
Psalm 119:45 “I will walk about in freedom, for I have sought out your precepts.
Financial freedom (and a debt free Christmas) is not easy…but worth it!

The Working Backward Series: How Much Home Can I Afford?

Unknown-1The Working Backwards Series?

The Working Backwards Series takes a look at budgeting in each spending category from the standpoint of “how much can I afford given our income, lifestyle and choices?” In this case,  we are talking about a family of four living in Austin, Texas and making $74,000 a year (the average household income in Austin).

What are we trying to accomplish? We want to show what a balanced, sustainable budget looks like, and one way to do that is to “back into” the dollar amount for each budget category given life choices: Raising two children in a two income home. While we understand we can spend more in categories that mean a lot to us, and each family is different, we want to set expectations that the discipline of a balanced budget, (spending and saving less than we make), requires conscious decisions, sacrifices and tradeoffs to meet our long term goals and desires that include financial freedom.

To see more from the Working Backwards Series, read last month’s post:  Working Backwards Series: Autos 

Topic For This Post: HOME & HOME EXPENSES

Our homes or apartments are normally the largest expenses in our budget, so “right sizing” our housing costs is essential to living in financial freedom with a balanced budget.  How much home can we afford in our balanced budget? It is a tricky and emotional question. Americans are passionate about their homes. The question has many variables too: If we own our homes outright, then our home expenses are just operating costs like utilities, taxes,maintenance, etc. But if we have a home loan(s) or rent, we have monthly mortgage/rent payments that must be factored in as well. For the purposes of this exercise, we will look at the budget with and without home loans/rent.

What percentage of our budget is allocated to housing? In our balanced budget, the total operating costs of the home total  30% of your net spendable budget (NSB, after taxes and charitable donations). That includes any mortgage or rent, all utilities, taxes, insurance and upkeep.

What Does That Look Like – The Math

A $74,000/year household income equates to roughly $54,750/year after taxes and charitable donations, or $4,563/month. At 30% of our budget going to housing, that’s roughly $1,369/month for housing costs. Total. I know, that is not very much when you figure the operating costs of utilities, taxes and insurance eat up a large part of that budget. Let’s take a look by “backing into the loan amount that let’s us meet our 30% NSB objective:

Monthly home insurance:                            $125

Property taxes:                                            $350 (Big assumptions here but very conservative)

Monthly utilities:                                          $250 (Gas and electric – averaged out over 12 months)

Monthly water & sewer:                              $125 (It’s hot in Austin!)

Repairs/Misc                                                $ 50 (Optimistic)

Sub-total – Operating costs:                       $900 (Wow! that’s 65% of our total housing budget!!!)

What’s left in the budget for a mortgage:   $469

What does this say? It says that utilities are expensive in Austin and we only have $469 to service home loans or leases. Obviously this analysis is geared toward owning a single family home. A rental situation is different but for now let’s keep going with the analysis. Have you heard of a home loan as low as $469/month in Austin? Not me. That would be a home valued at roughly $124,000 with many conservative assumptions. Not many of those in Austin. In fact, I think, none. It was 20 years ago that you could buy a home for a family of four, in a reasonable neighborhood, for that amount of money. And this doesn’t even include things such as home owner’s association fees. Ouch!

Can we afford this single family home if we own the house outright? Absolutely, look: Total housing operating costs are $900, that’s only 20% of our NSB of $4,563. So, yes, we could afford that easily in our balanced budget.

What about renting? Well, doing some fast math, our monthly operating costs for a rental is roughly only about $300 because there are no taxes and utilities are usually much lower since apartments are usually smaller than single family homes. That leaves us up to $1,069 each month to service the monthly rent, ($1,369 allocated to housing minus the $300 of operating costs). Can we find apartments in Austin for $1,069? Yes, we can, but they won’t be fancy.  It will be a small two bedroom apartment in an OK part of town. No pool, no covered parking and no special common areas and probably a very long commute to work.

So What Is All The Fuss?

The point is that a balanced budget for an Austin, Texas family of four on an average household income and with many essential budget categories like housing, auto, food, children’s needs, etc, does not have much room for housing loans or leases. Plain and simple. While the vast amount of housing in Austin have some form of loan or lease associated with them, most of us can’t afford them. Ouch. But true. We certainly can’t afford most of the high priced single family homes on a loan or lease. Yet most of us are trying to do just that. And I believe that is one of the major reasons we have more than 75% of households in America living paycheck to paycheck with no savings for emergencies, retirement, college (for the kids) or any money for dreams like vacations or special events (think weddings or cars).

What’s The Solution

There are really only three or four viable options to keep within our budget for housing: 1) Rent. But that limits us in size and location because Austin rent is expensive. And we have no ownership, therefore limited opportunity to personalize or change to fit our needs.. 2) We could rent/lease/buy a home and rent out rooms or have roommates to help with housing costs but how practical is that with a growing family of four? 3) Buy a small condo or multi-family home. But that requires a substantial downpayment to keep our monthly mortgage low, and we eventually may have space issues with a growing family. 4) Buying a single family home in Austin with a small or traditional downpayment, unfortunately, is not an option if we want to keep within our budget.

The reality here is that housing in Austin is expensive and to own anything here will require equity; money for a large downpayment to keep our monthly housing expenses within our $1,369/month goal. Let’s face it, borrowing money is expensive. What is the best plan if you want to own a home? Do everything possible to save your money in order to have a huge downpayment to purchase a home or maybe even enough money to buy the home outright.

Final Word

Home expenses are the largest expense in your budget and in many cases, the biggest budget buster (with autos and entertainment, too) that can force us into an un-sustainable budget or worse, consumer debt.  And that’s even before we get into housing operating expenses. The best way to control your housing expenses is to own your home and not have outstanding home loans. Or rent. If you must finance your homes, and most of us do, be careful not to “break the bank” on financing that prevents you from maintaining a balanced budget and living in financial freedom!

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The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness