020, The 2018 Christmas Gift

I wanted to take some time to wish everyone a Merry Christmas! I hope that everyone, their families, and friends have a wonderful and blessed Christmas. The picture above is my little granddaughter and her dad. What a precious picture of her first Christmas. I’m always thinking about the kids best interest which inspired a new Christmas plan for the kids.

Last year for Christmas 2017, my wife and I wanted to get our young, adult kids something beyond the typical “stuff”. We knew we wanted the “Gift” to somehow be related to personal finance and the discipline that is required. After much thought and discussion, we decided to start with the very basic, first step of FI. That’s Financial Independence to the “newbies”. Our gift to them would be conveying the need and proper use of an emergency fund.

So, last year for Christmas, this is what we did: We started each kid a savings account at our bank – a joint account for convenience. Their Christmas gift was a seed of $500 on Christmas morning. The start to an emergency fund.

However, our goal was not just to give, but to teach. To sweeten the lesson of needing an emergency fund, we threw in a way for them to double their gift. On Christmas morning, we told them that we’d match up to $500 if they added another $500 to their savings account by Christmas of 2018! We wanted them to have some skin in the game too.

Now, although we’ve pounded this necessary step of an emergency fund into the minds of our children multiple times, some are better at actually saving, budgeting and delaying instant gratification. There are also differing levels and understanding of an emergency fund. As it is with a lot people, something always seems to come along that puts the emergency fund on the back burner. Throughout the past year, the level in each of our kids savings accounts varied wildly. And as frequently happens, an emergency occurs when the account balance is down.

So, our “gift” sounded simple enough, right? Not so much.

You see, my wife and I have six kids between us. They are at various ages and stages with differing personalities, strengths and, yes, weaknesses. But we were offering to give them a 100% return on their own investment. We give you $500. You add $500 and get an additional $500.

As I write this (December 24th), the amounts in the emergency funds varied from $0.06 to over $4,200. Also, some of the deposits came as late as December 24th as to not miss the matching. FYI: Sliding to the finish line in just a nick of time is no way to run an emergency fund! As you can see, there was quite a range of how much seriousness the kids approached this worthy endeavor. However, we understand that FI is a process. Sometimes a painful process.

Now, here’s the initial intent as it was in my mind, including the numbers. We would deposit the initial $500. That money could only be used for emergencies and should be replaced if the balance fell below $500…as soon as possible. Then, sometime through the year, they would put away a little bit or lump sum until they added $500 to the account. The initial $500 plus their $500 they deposited in the account would equal $1,000. Then we would match their $500 contribution on or before Christmas of 2018. That $500 match would take their account up to $1,500.

Obviously I wasn’t clear to all the kids. Yes, they were even all in the same room and got to ask questions. I’ve also discussed the concept multiple times throughout the year with several. After talking to one of the kids a couple of weeks ago about his understanding of the Christmas gift, I committed to writing it down in order to ensure clarity. Since that conversation, I’ve also decided, for this year, to make it more complicated and add a bonus program. I like to try to encourage sound practices and discipline. So, here comes the 2018 Christmas deal:

1) For Christmas 2018, each kid will be gifted a deposit of $500 on Christmas Day. That’s their Christmas gift. Simple.

2) Bonus #1, The Match. Each kid should deposit $500 above and beyond the Christmas gift ($500) by December 24, 2019. This money must remain in the account on December 24, 2019 to qualify. If this is met, we’ll match the $500 with a deposit on December 24, 2019.

2) Bonus #2, Monthly Deposits. Each kid that does a direct deposit of $42 per month or a manual deposit of $42 per month will receive a $100 bonus on Christmas Day 2019. You must deposit $42 or more each month to qualify for the bonus. This is to reinforce paying yourself first & making small consistent deposits. The twelve $42 monthly deposits will amount to the $500 needed for the 100% match.

3) Bonus #3, The Intent Bonus. To meet our intent, each child that has $2,500 in their savings account on December 24, 2019 will get a $100 Bonus on Christmas Day 2019.

Here’s how I came up with the amount in Bonus #3, the intent amount of $2,500.

1) $500 2018 Christmas gift

2) $500 Kid’s contribution for 2018

3) $500 2018 Match

4) $500 2019 Christmas gift

5) $500 Kid’s contribution for 2019

If you add all the value of the above items 1-5, it adds up $2,500. Of the $2,500 they would have $1000 of their money in the account, the rest would be gifts. So, the incentive to follow the plan is pretty good by most standards.

And finally, here’s our thoughts on the emergency fund and our intent in general for this gifted lesson: An emergency fund is money on hand to cover emergencies. When an emergency arises and you spend from your emergency fund, you should return that money to your emergency fund as soon as possible. Having a $1,000 unplanned issue like a car problem should cause only an inconvenience , not a crisis. Also, this emergency fund’s value should increase every year until there is 3-6 months of expenses saved. (Expenses are everything that you need to pay each month to live like food, housing, bills, gas for the car to get to work, etc).

So, that was our gift to our kids for 2018. What do you think? Please leave comments as to your thoughts. I’d love to hear any ideas or improvements on this idea of mine.

Again, Merry Christmas to all!

019, Can’t Win Big Without a Strong Offense

Offense or Defense? How do you budget? Are you even watching your money? No matter what goals are trying to be achieved, it’s not likely to happen if no one is watching the money. An awareness of what’s going on with your finances is essential. What’s coming, what’s getting paid, and what’s going on with any remaining money. If money isn’t told where to go, it can’t be maximized towards your goals. It will slip through your fingers.

Having a great offense:

Playing offense would be knowing the money coming in for the month and designating each dollar where to go. Send it to pay for a bill, an expense, maybe pay down a debt, or put into savings or investments according to a plan. Yes, a plan is important too. Without a plan, spending is just random and not targeted towards a specific goal. Just like in football, there’s always a plan for both offense and defense. Time is put in to study how to play the game and maximize chances of success and winning. Finances are no different. Plan and have a great offense. Then execute as close as possible to that plan.

Goals (SMART goals) are key. SMART goals can be it’s own blog post. But the essence is Specific, Measurable Achievable, Relevant, and Time based. If goals are created using the SMART structure, they tend to be met more frequently. There’s a saying “If you aim at nothing, you’ll hit nothing every time”. So set SMART goals, plan to achieve them, and track them. That’s a great offense. Have short, medium, and long term goals. Just as mountains can’t be climbed in one giant step, goals can’t be met in one giant step either. Daily decisions move towards weekly, weekly move towards monthly, monthly towards yearly and on an on. Some will be met, some will be missed, and some will be excepted. But in general, you’ll be closer to where you wanted to be than if you just wandered through life.

Take an active role in keeping expenses down to a minimum. Often it’s difficult to make more money at a typical job quickly. Generally workers have to wait for an annual raise or an even less frequent promotion. That should be part of the plan too. But cutting expenses can yield immediate results. Decisions to buy one item over another could be the difference between spending a little money or a lot of money. Each of these decisions move you closer or farther away from your financial goals. Lots of small good decisions lead to big wins. Lots of small bad decisions lead to big losses and mistakes. To make a Smoking good decision, you have to be prudent, intentional, and consistent. Prudent, intentional and consistent purchasing is a great offense for personal finance.

A defensive budgeting perspective is much different. Some find themselves trying to make their dollars last to the end of the month. They may not be tracking all their expenses throughout the month. They may be struggling to come up with rent money. Maybe it’s emptying the change jar to keep the lights on. Whatever the situation, budgeting (or simply paying your bills on time) seems to be a struggle.

These struggles are real. These struggles stem from a lack of planning and poor execution. Not paying attention to the details and being on offense for your personal finance will surely lead to you playing from a defensive position. Defensive budgets are plagued with creeping expenses that go unnoticed until it’s time to pay the light bills. It’s trying to just get through just one more day, week, or month. It’s living paycheck-to-paycheck. That’s a defensive position.

There’s balance to this game. Sometimes there will be unexpected expenses that force you to go on the defensive posture. But if it is happening every month, you’re losing the game. Stop playing defense and make choices that get you back on the offensive drive.

Personal finances are not a game to be taken lightly. Families depend on security. It’s the most basic need. By playing offense with your budgets and directing your money, you’ll win a lot more frequently financially. Paying attention to your incoming bills and expenses and outgoing money will show you the play book for the month. Make choices that support moving into a better position today and in the future.