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Avoiding Sex With Strangers and Other Poor Money Decisions

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Thursdays are when we hear from the Other Guy (OG). Sit back and enjoy:

I recently stumbled across two interesting sites on longevity. Both www.livingto100.com and gosset.wharton.upenn.edu/mortality accomplish the same task – they pose a litany of questions about your health, wealth, mental and spiritual well-being and use your inputs to predict how long you’ll live.

For the record, I’m planning on living until 135.

The questions these sites ask fall into two different categories: things you shouldn’t do to your body and things you should.

My unscientific analysis surmises that it’s generally a bad idea to:

a) smoke
b) drink
c) avoid seat belts
d) have random sex with strangers (I know you think I’m kidding – but seriously, according to these two sites, it’s not a good idea. I can’t seem to imagine why…)

All this “research” started me thinking about financial longevity – what are the 4 stupidest things you can do with money that will kill your chances of a healthy financial life, no matter how well you try and recover in other areas? Can we draw some parallels? If we’re smart enough to show you the Top 7 Financial Hacks to Avoid, we can surely pull together the four worst ways to train wreck your financial life.

 

Here’s my list:

 

1) Borrow money from your 401(k) or other retirement plan. Why? This is financially like smoking 3 packs a day. Stop doing this. “But, O.G., I’m paying myself back with interest!!” Right. You’re paying yourself back these pre-tax dollars with after-tax money. Don’t get me started on the arithmatic of how much you’ll pay.

2) Rack up credit cards and roll the balances into your mortgage. Obviously this isn’t as common as it used to be, but it’s still happening. Paying 2.99% for a J Crew sweater for the next 30 years is freaking dumb. This is like having six Jack and Cokes a day. Your liver isn’t going to quit tomorrow, but it’s not there to crank through your whiskey addiction at 6 ounces a night either.

3) Not paying attention to your lifestyle costs relative to portfolio value. This has come up in my practice a number of times recently. I don’t care how much money you have – you simply cannot withdrawal $100,000 per year from a $1,000,000 portfolio forever, even if David Copperfield is your buddy. It’s simple mathematics. It won’t last forever. Be conservative. Wear a seatbelt – and go slow.

4) Scattering money with no clear and coherent plan or direction. You guessed it – this is like putting your…well you get the idea. You’re not in college anymore. It’s time to settle down and put all your stuff in one place.

That’s my fantastic four, or fabulous four, or fashionable four, or…well you get the idea. What are yours? I’m curious: what’s the top financial mistake you’ve seen that will submarine an entire financial plan?

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5 Must-Know Privacy Lessons I Learned From 9-11

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I was late to work and sneaking up the stairwell to my office. A passing friend said, “A second plane just hit the World Trade Center.”

There’d been a first plane? The World Trade Center? It must be a little Cessna.

The entire office huddled around televisions. I wasn’t prepared for what they were watching. The heroism of everyday people that day still amazes me.

Later in the week, among the flurry of stories echoing the disaster, one personal finance problem emerged: private financial documents with personal client information littered the streets of Manhattan. Many of the firms in the World Trade Center were financial companies (in fact, one firm owned by a cousin of a client, Alger Mutual Funds, lost David Alger and 35 other staffers that day). I began helping the media complete stories about “How to Protect Your Privacy.”

Although we can’t prevent another 9-11, we can make sure that our financial documents are the last thing we worry about when far more important concerns (such as people) should dominate our thoughts. Here are five lessons I took far more seriously after that day than I had previously:

 

5 Steps To Protect Your Identity

 

shredder1) Shred unnecessary documents. A good shredder pays for itself immediately. If you’re using it for household bills, this Amazon shredder will only set you back $29.99. Businesses should invest in a more robust tool.

2) Don’t give out your social security number, telephone number, or other unnecessary information on documents. I hand over wrong numbers like a hot woman at the bar. Create a separate email address reserved for email forms and correspondence with companies.

3) Check your credit report regularly. You’ll want to keep a tight watch over predators trying to access your credit. Companies with free credit tools like Quizzle or CreditKarma are great places to monitor lender activity. On episode #2 of our Two Guys & Your Money podcast, Len Penzo reported that he turns off his credit with each credit company until he needs it. Look for other mistakes while you’re there: a recent ABC news story reported that over 90% of all credit reports have inaccurate information.

4) Review every credit card statement. Ever wonder why Mr. Monopoly looks shocked when you draw the “Bank Error in Your Favor….Collect $40” card in the popular board game? It’s because errors happen all the time and they’re rarely in your favor. More importantly, you may see early signs of thieves trying to gain access to your credit.

5) Back up your documents – I’ve recently begun transferring my paper documents into digital form. Keep these in two places in case you lose access to the first or thieves steal the data.

Foremost in my mind today is the tragic and unnecessary loss of life on 9-11. I learned far greater lessons than the five I pointed out above. However, I also learned a little about taking care of my financial life so that if tragedy strikes, the threat to my identity is minimized.

 

What steps do you still need to take to better protect your financial privacy?

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So You Want to Manage Your Own Money?

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A friend texted me this morning.

“We should talk soon. Julie is coming around to the idea of us managing our own money.”

It seems easy, right? My initial reaction to my friend was, “That’s awesome!” because it is. There are few things more satisfying than achieving your financial dreams and knowing that you climbed the money management mountain yourself.

No “money-god” came down and did it for you.

You didn’t need the Powerball numbers.

You actually plotted a financial course and landed safely at your destination.

For my friend, and for you if you’re about to embark on this journey, there’s good news and bad news: the good news is that it isn’t difficult to manage your own money.

The bad news is that to effectively manage your own money you’ll need to be ready to face some fairly difficult tasks.

 

Two Types of People

 

When I was a professional advisor, I’d meet some smart people who wanted to jump into their own money management and wanted an expert with an opinion to look over their shoulder, hold them accountable, and make sure they didn’t miss any “I” dotting or “T” crossing.

…and then there were other, often equally-smart people who wanted to hand it over to me and have someone else take care of it for them.

Believe it or not, most advisors I knew preferred the latter type of client and loathed the first one. Someone questioning their motives? Someone asking “why are we doing it this way?” all the time? That’s preposterous!

But if you’re going to ever learn how to manage your own money, you’ll need to be the first type, not the latter.

The steps aren’t difficult:

 

The Steps to Managing Your Own Money

 

My kids are reading myths in school. In the story of Hercules, he faces a series of challenges to achieve is goal.

I look remarkably like the guy on top, but I’m a little paler and not quite as naked. And I have less hair.

You’ll have a series of gauntlets in your way too, if you want to manage your own money.

1) Write out your goals. I’m not talking about writing:

Retirement

College

New Boat

Fall Deeper in Love

Real goal writing has a specific time, dollar amount and vision attached.

I want to be able to live on $65,000 per year (in today’s dollars) by age 65 without having to work every day. With this money I’d like to: (here you write your bucket list, which should include visiting every NASCAR track in the country).

That’s a goal you can shoot for and be excited about (except for visiting the track at Pocono, which I thought was pretty overrated).

2) Next, you write out all the hurdles in your way.

– I have $25,000 in credit card debt (separate by interest rate, term, amount)

– I have to put two children through college

– I know nothing about money management

3) Then, you find one of the nearly bazillion financial calculators online (you can use our powerful little PlanWise calculator here on the site!) and figure out how much you need to save to reach your goal.

– I need to save $250 per month to reach my dream if I achieve an 8% return.

Armed with your money management return information, now you figure out how to come up with $250 per month.

– Tweak your budget

– Pay down debt

– Take on more work

4) Before investing, though, you have a big problem. You have to insure yourself against some of the huge “what if’s” out there for you and your family:

What if you die?

What if you are disabled?

What if you have a car accident?

You’ll need to create a will and evaluate insurances.

5) Finally, you begin the heavy task of research to find investments that have historically achieved 8%.

 

No Step is Difficult, You Just Shouldn’t Miss One

 

As you can see, when you take on the hard task and decide to manage your own money, getting it right will be difficult. Each area demands time and energy:

– Planning, milestones and tracking

– Budget, income advancement and debt reduction

– Insurance need projection and comparison analysis

– Estate planning

– Investment allocation, picking and monitoring

These are five basic money management steps, but each packs a punch!

 

I Don’t Mean To Imply You Can’t Do It

 

As soon as I finish this piece I’m calling my buddy and talking him through these points. Before he takes on the task, he should know how long the financial security road really is. Going in with your eyes wide open is half the battle if you plan to win the “manage your own money” game.

He can do it, and so can you!

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Why Getting Out of Debt Isn’t a Goal

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If you’re working on climbing your own debt mountain, I’ll bet you’ve said more than once, “I wish I was out of debt” or maybe “I’d love to have no debt.” I understand those thoughts. Yesterday’s expenses are a pretty heavy weight to shoulder as you climb toward some big goals. Improving your debt ratio will give you more cash flow and flexibility. Just don’t call getting out of debt a goal. It isn’t.

Back in “the day” when I was an advisor, at the beginning of the first meeting with a potential client, I used to tell them we’d do two things: find out what their goals were and then talk about how they’re managing their money. These two parts of a financial plan should work together, but in most cases aren’t.

In many of these meetings, when I’d ask for a list of goals, a client would lean forward and say, “I want to be out of debt.”

I’d answer, “What do you want to do once you’re done getting out of debt?”

Most of the time people were so stuck on their debt problem that they’d never stopped to think: what if it wasn’t there? What should I do then?

Debt Is a Gigantic, Ugly Hurdle With Pimples

 

Did you watch the hurdles at the Olympics? Getting out of debt is a hurdle, but the world’s ugliest one. Each athlete has a series of problems in their way to find the finish line. Athletes don’t say, “Man, I’d like to get over that ugly-ass hurdle.” They say “I want to win the race.”

“Retirement” “new house” and “education” are some of the finish lines. Your debt ratio is keeping you from that goal.

 

Why It Matters

 

When you reach the summit and actually get out of debt, you shouldn’t be surprised when you bellow out a gigantic “WHAT NOW?” You have more money, more freedom and more flexibility. What do you do with it all these new resources?

Doughnuts? A sports car? Create a life-like statue of a car on a mailbox?

While those are excellent possibilities, I know what you’d do: use it to reach some goals.

You’re more likely to win if you focus on your goals. Here’s what I mean:

Anyone who listens to our Two Guys and Your Money podcast may not be surprised to learn that I’m a stutterer. They called me “The Jackhammer” in first grade. People would say over and over “stop stuttering” as my face contorted into an ugly grimace and all I could muster was “Th-Th-Th-Th-Th-Th-“. The phrase “stop stuttering” did nothing to help. In fact, if I thought about NOT STUTTERING, all I thought about WAS STUTTERING. Ironic, isn’t it?

Instead, I had to quietly think about the point of my sentence. I needed to look at the finish line. After two years of speech therapy at Western Michigan University, it’s barely apparent that I stutter. Some brilliant teachers taught me skills to make sure that you rarely know when I’m struggling to get the right words out. Mostly, this is because I was taught to focus on the end game, not on the hurdle.

It’s the same when someone says “I want to lose weight,” isn’t it? You could even substitute “I should stop eating ice cream” or “You shouldn’t pick your nose.” In itself, these only point out the negative that you SHOULDN’T focus on.

 

Why Debt Returns

 

Every once in awhile, we see a person keep the laser focus it takes when getting out of debt without real goals. Once they reached the top of debt mountain, though, they often don’t have anything to push on toward, so what happens then?

They jump right back into debt.

In short, their debt ratio sunk because they didn’t have a real goal for their newfound wealth. There was nothing the get-out-of-debt wagon was really driving toward.

It’s the same for what we’d call “shallow goals” in our office. People who wanted to “leave work” struggle during retirement. They cope with the fact that they’re getting older and there isn’t any reason to wake up anymore.

Those people didn’t have a goal to “retire.” They just wanted out of THAT job!

 

How to Stay Clear of the Ugly Debt Monster

 

It’s been written so often that you need to write down your goals that it seems trite to repeat here, but it’s true. When you focus on buying a new house, you’ll have to eliminate the debt hurdle to get there. Instead of being flustered by your debt ratio, you’ll watch it melt away because you can’t get the new house without the debt being gone.

By following a clear set of positive goals that you’re steering toward, it’s easy to focus on paying down debt. There’s something tangible now behind it. You can pick out curtains, look at furniture, imagine landscaping. It’s real. Tangible.

You might be thinking that finance guru Dave Ramsey has helped people clear the debt hurdle by celebrating it. He sure has. He’s turned “getting out of debt” into a celebration, where people want to be able to cheer about that finish line themselves. They want to holler on the radio. Maybe this is an easier way to fight the “debt as goal” problem that America has. If people want to be able to say “I’m debt free” enough, they’ll stay motivated to reach the finish line. While it works (you turn the celebration into the finish line), I believe for most of us the easiest path to a lower debt ratio is to focus on what you really want in your life, and the debt will melt away. You’ll be cheering, too.

Photo: Alan Cleaver

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Hi Ho, Hi Ho, it’s off to class you go….3 Smart Money Tips for Back to School

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…and we go from watching Snow White to living that famous song.

Just like a little member of the Seven Dwarfs, my oldest son will be marching off in only a couple weeks. For him it’s the first time. For me, because I work with families who go through this every year, it’s old hat. Well, not exactly old hat (it’s always different when it’s your own child heading off…where does the time go?).




Let’s talk about the financial aspects of preparing a youngster for school. As a matter of fact, my wife just emailed me this long note about the various types of backpacks. Ugh.

As a parent of a young child headed to school for the first time, I’m concerned about going overboard on all the expenses – there’s a difference between necessity and would be nice if… so let’s break down Back to School costs into a few categories.

1) Expenses associated with classwork – Markers, paper towels, pens and pencils. These are necessary and thankfully, pretty inexpensive. For my son’s schools, they’ve prepared for us a list of the five to ten things he needs to bring. The key is to not overspend or overbuy. If the teacher says “an 8 pack of crayons” you don’t need to, nor does the teacher want you to, buy the wiz-bang 64 pack with the automatic crayon sharpener. Save the money. Look for tax holidays to buy.

Many states participate in these by making back to school costs tax free. Check this Bankrate post: Sales Tax Holiday to see if your state has a tax holiday.

2) Costs to clothe your child. I recently saw an ad for Walmart regarding their back to school clothing prices and how affordable they are. I remember when I was a kid-I would never be caught dead in non-name branded clothes, and I successfully broke my parents budget every year complaining until I got what I wanted! Don’t fall for this trick! Children, especially younger ones, need quantity, not quality. Spend money on good shoes, but don’t go crazy buying up too-cute name-brand clothing. Consider Costco, Walmart, Sam’s club etc, or thrift stores, discounters or hand-me-downs. Ignore Banana Republic, Neiman Marcus, or Saks. Of the big box discount retailers, I like Costco – it has superior customer service and a terrific return policy.

Even if you don’t subscribe to the newspaper, you may save a ton of back to school money looking for coupons in the Sunday paper advertisements over the next couple of weeks. Consider the cost of the paper a good investment!

3) Finally, there are the “at school costs” like lunches, after school costs, and field trips. These things you need to start budgeting for today. Our school has a hot lunch program that we can pre-pay for substantial discount. The problem is that the food is less than nutritious, so we’ll be skipping that. But for the last 5 years, our son has been getting lunches at his daycare and we have to provide those now. The other “unknown” is the cost of the occasional field trip or afte school activity. Prepare for them now and you won’t be surprised when they show up later!

Ask older parents how much money they spent the prior year on these activities for ideas on exactly how much you should be prepared to spend.

Back to school shopping and planning can be a fun and exciting time for both parents and kids. The key is to not go overboard in your excitement!

Photo: School Bus: Cole 24_

Those are my three favorites. What are your favorite back to school tips?

How to Split an IRA or 401(k) in a Divorce

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Divorce is ugly.  Except under the most limited circumstances, no one wins in the divorce game.  Then, you add the complexity of money into the equation and it gets downright hideous.  In that emotional time, it’s easy to understand why so many people divide IRAs, 401(k)s, and other retirement accounts sub-optimally.

You can’t just “take the money out and give it to my spouse”  That would be a big mistake.  Let me count the ways:

Let’s assume you own a $250,000 401(k) balance.  The judge rules that you’re required to split that 50/50 with your spouse, so you decide it would be easiest to make a phone call and take the money out.  Ouch.  If you do that, you’ll be hit with a 10 percent early withdrawal penalty (yes you, not your spouse, and only if you’re under 59 1/2) and then the amount you removed is added to your taxable income for the year.  Now, for many reading this blog, you’ve just lost 35-45%.

So how do you give $125,000 to someone?  Oh that’s easy – you gift that to them.  But in your haste, you didn’t do this correctly either. To gift it, you either need to reduce your lifetime exemption by filing a form 706 with your income taxes next April, or pay a gift tax of 50%.

Long story short: “taking it out” could be a massive financial mistake.

Instead, consider asking for a QDRO, or Qualified Domestic Relations Order (pronounced quad-row).  A QDRO put together by a competent attorney and signed off on by the judge makes this transfer a ton easier.

First, it directs your retirement plan company to establish another qualified plan in the name of your spouse.  Then, it directs a tax-free transfer to that newly established account.  No taxes, no penalties.  Easy as pie.

Once you’ve begun working on that, you’ll want to make sure the QDRO says that your soon-to-be ex-spouse can’t make any loans or transfers from the account until it’s been split; or you could just pick a date to make the transfer effective on (retroactive) and put a fixed dollar amount based on that date’s plan balance.  This would protect the new beneficiary from being bamboozled by his or her ex.

Finally, don’t forget about pension plans.  A lot of those can be “QDROed” too.  For example, let’s assume your spouse earned a pension at his job of $4,000 during the 30 years he worked.  He was married to you for 20 of those 30 years – making you the owner of 2/3 of his $4,000 per month.  By putting the QDRO in place before he retires, she can have her own pension plan – quite the deal!

At the end of the day, divorce planning with money is just as important as married couple planning.  If you don’t do it, you’ll regret it.  Take the time to review everything – hire a professional and don’t try to cut corners.  The costs are too severe.


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5 Summer Activities to Create Money Savvy Kids: High School

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Ah, we made it! It’s most rewarding yet the most challenging to work with high school students on money management.

While these activities are the most fun for parents, high school students are more difficult to engage than younger children.

If you don’t have high school age children yet, you may not know this, but your brains will disappear for about four or five years.

Looking for tips for younger children? Try:

5 Educational Summer Activities For Kids – Early Elementary

or

5 Summer Activities to Create Money Savvy Kids: Upper Elementary to Middle School

 

5 Great High School Activities

 

1) Family book club. Right now, my 17 year old kids and I are reading I Will Teach You To Be Rich by Ramit Sethi. If you haven’t read this book yet, by all means, start now. It contains powerful advice wrapped in easy-to-understand language.

Every day the kids read a chapter. Then, at dinner, we discuss that day’s reading. Sometimes these conversations devolve (“why does a stock go up or down?” “what’s a good Roth IRA investment?”), but I love it. Who doesn’t want to have relaxed conversations about money with a curious 17 year old?

Why I like it: I get to ensure my kids get to college with some clue about money before they arrive. Because I made sure the book was fun and easy to read, and because I don’t preach, we’re able to have great talks about money.

2) Engage kids in the Family Meeting. If you’ve read this blog before, you’ll know that I love the idea of a family meeting. Budgets within a family are more about good communication than about counting pennies. If everyone is on the same page spending each day will be more careful, and life is made up of these little crisp 24 hour periods.

Some people have a violent reaction to this advice. “Show my kid my bills and my savings? That’s none of their business.” You are correct, but lets challenge your assumptions: why is it taboo to talk about your financial situation with others, especially those as close as your teenager.

Boundaries must be drawn. You’ll have to explain what happens when the whole street learns about your finances. But in the bigger picture, if they help you pay the bills, evaluate savings and plan large purchases, you’ll hand them a lifetime of knowledge that they’ll appreciate down the road.

Why I like it: When we began talking frankly with our children about bills and savings, they began to see how tight every month is for the average family. Next year we were planning on going to France for their graduation. The reality of two children in college at once has set in and we’re downgrading the vacation plan to a rental house on Lake Michigan for seven days. No groans from the kids because they understand the math behind the decision.

 

3) Find a job. I’m not talking about grabbing the local Dairy Queen gig (if I had that summer job I’d weigh about 750 pounds!). I’m talkin’ about helping junior through the process of fighting for a summer internship at a resume-building position. If they’re interested in engineering, try to find opportunities with a large local company. If law or medicine, apply at  the hospital, a law firm, or the local doctor’s office.

There’s a ton that junior learns while creating a resume, dressing appropriately and speaking well. The training involved in competing for these positions is a good primer in adult life skills.

Why I like it: By working in a professional environment, high school kids get a first hand look at how business works. Studies have shown that people who work in “real jobs” before college are more likely to do well in the classroom because they know how their learning might apply in the real world.

4) Scholarship hunt. Finding money for college is a full time job. The internet is brimming with opportunities for money, but you have to know who to ask and what scholarships to pursue. Most high schoolers only scratch the surface when it comes to searching for scholarships.

Instead of one-offing each opportunity, we found quickly that many of the scholarship opportunities were similar. My kids could write a couple of basic essays and then modify them to fit each particular offer. Most needed references from teachers and community members. We didn’t just learn about scholarship, we learned about creating systems to efficiently attack more quickly.

Why I like it: By formulating essays and asking for letters of reference, kids learn about the importance of written and verbal communication. They also realize that “going it alone” isn’t usually a good idea. It makes sense to find some powerful friends to help you….AND my kids were surprised that most powerful people want to help.

5) Board games. I’m back with more board games to teach the family about money. This time the games are downright fun for adults. Games such as Acquire can teach simple mergers and acquisitions. Power Grid is a modern-day version of monopoly involving power companies. And, in this year when the politics of the nation are up for grabs, 1960: The Making of a President is a good primer on the campaign process while also serving as a fun way to learn some history.

Why I like it: Board games are a great way to spend time with your kids. Instead of arguing or fighting about curfews and money, you’ll enjoying each other’s company over a communal activity.

How do you teach high school kids about money? Let’s have some more ideas in the comments below!

 

Photo Credit: Reading: NannySnowflake; Internship: ChesCrowell

How Much Wood Could a Woodchuck Chuck?

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Anyone know the answer to that?  As we all know, that all depends, right?  No, it doesn’t depend on whether or not the woodchuck could chuck wood, but rather whether he was healthy enough to do so.  So my question to you, dear reader is this: If, God forbid, you weren’t able to get up and go to work tomorrow because you were too sick or hurt…how much chucking would you get done?

We’ve all seen the quacking Aflac commercials, I know I’ve laughed at most of them.  But when was the last time you actually thought about the implications of what that magical duck was saying?  Here’s a little exercise I go through with all my clients – you can play along at home.  Assume the following:

  • You’re an average white-collar worker making $60,000 per year and you get a $10,000 per year bonus
  • You have a nice ‘n comfy group disability policy that pays 60% of your base salary if you’re too sick or hurt to work
  • You’d really like to retire – and your family is counting on you being able to work so that you can save to reach that (or any other) goal

Here’s how I go through this little exercise – it kinda drives the point home:

Mr. Client.  Play along with me a second.  Let’s assume you head into work in the morning and your boss says, “Jim, you’re a wonderful employee, but we have to let you go.  Pack up your desk.”  Just like that you’re unemployed.  Since it’s only 11:30 A.M., you decide to head out to get something to eat before heading home to break the news to your lovely wife.  What’s your favorite fast-food restaurant?

McDonalds.

Excellent.  So, you’re at McDonalds and you see they’re hiring.  A nice little help-wanted sign stares you right in the face.  So, since you’re now jobless, you ask the manager for an interview.  After a short period of time he says, “Jim, you’re super awesome and we’d love you on the team.  We can’t pay a whole lot, but we’d be happy to pay you $60,000 per year.”

Figuring you’re in some kind of third dimension you run across the street to your 2nd favorite restaurant…which is…

Wendy’s.

Right, Wendy’s.  A quick chat with the manager and he wants you there too!  This is your lucky day!  He says, “Jim, we’d love you on our team, too.  We can’t pay a lot, but we can pay $58,000.”

Which job do you take?

McDonald’s right?  (all other things being equal)

So, before you sign your professional McDonald’s contract you ask the sixty-four thousand dollar question:

“What happens if I get sick or hurt and unable to work for an extended period of time?”

“Great question Jim.  We can’t pay you a lot of money – but we can pay you $30,000.”

Armed with this info, you dash over to Wendy’s.  You ask the same question.  The Wendy’s manager says, “Great question Jim.  We can’t pay a lot, but we can pay you $48,000.”

Now what?

If you’re like most clients, looking at this issue in the big picture helps solidify it.  It generally makes a lot of sense to forfeit a small amount of income today in exchange for guaranteed income forever.  There are hundreds of bells-and-whistles that make disability insurances different between companies, but suffice it to say, your group coverage isn’t good enough.  Generally speaking, group policies:

  1. Are considered taxable income when you receive the benefits
  2. Are canceled as soon as you leave employment
  3. Only cover base salary
  4. Require you to visit “company” doctors

I’m not saying group policies are bad – they’re not.  What they are, however, are incomplete.  Consider adding an individual disability policy to supplement your group disability policy.  When you own an individually purchased contract:

  1. The benefits are tax free
  2. Are guaranteed renewable through age 65 (or 67 depending on the company)
  3. Can cover all your income – including bonuses and retirement plan matching
  4. You can use your own doctor for reviews

Disability insurance policies are like car and home owner’s policies.  The premiums suck until you need to collect.  And trust me, you’re not going to be on your death bed saying “What the heck.  I paid $800 per year for 65 years and never had a house fire.”  Instead, you’ll say, “Boy was I lucky.”  Disability is the same way.  Go check out a couple companies and get some quotes.  My bet is you’re talking about less than $100 per month.  Not chump change, I know.  But the price is so much less than the risk.  Go get it done.

It’s all about chucking that wood.

5 Summer Activities to Create Money Savvy Kids: Upper Elementary to Middle School

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Looking for educational activities for younger kids? Check last week’s installment: 5 Educational Summer Activities for Kids – Early Elementary.

I mentioned before that I have a love/hate relationship with summer.

To keep my twins from just attacking the XBox every day, I designed a bunch of fun summer activities, many that taught important life lessons. Let’s tackle those games I used when they were from third grade till about 6th or 7th grade.

 

Steal These Ideas!

If you have kids between the ages of 9 and 14, and wonder how you’ll keep the family entertained all summer, here’s a well-used list of activities that I can personally endorse…because we did them all.

Next week we’ll move into the High School years.

 

Grocery List

 

1) Grocery Store – Good news parents: if you plan correctly, the grocery store game only gets better as kids get older. At this age we had a couple of games. First we planned the trip to the store. Not only did they help me find valuable coupons, but they also searched online for deals on items we knew we’d need. This wasn’t just educational, it actually saved me time and money. At the store, each child had a personal list of items to find. After a few weeks we knew the store like the back of our hand and could get in and out in no time. The best news? They were so excited about the cash register and whether we made the budget or not that the “can I have one of these?” moments went out the window.

Why I Like It: At 17 I feel like my kids are already becoming savvy shoppers. They hunt for deals and are willing to compare costs before making a purchase.

 

2) Open a Savings Account – I’ll admit that we were late to the game here. We should have started this at 10 years old but didn’t get there until much later. My mistake. By taking kids into the bank and getting them acquainted with how it works, my kids already enjoy the banking experience. We compared different savings account options (even though they only had money at the time for the basic savings).

We talked about the difference between savings and checking, and decided together to forego the ATM card. The bank was great about this. I think so few kids are interested that they really enjoyed the fact that my kids seemed interested. We took a bank tour and they spent time answering all of my twin’s questions.

Why I Like It: I would have liked it better if I’d done this task at 10 years old with them (earlier ages, in my opinion, have limited “educational” returns). My kids both realize now how valuable a bank account is and how dangerous an ATM card can be. I think they’re getting close to ready for college and accounts on their own. At the very least, they’ll feel comfortable with the bank when they go to open their own account.

Lemonade

3) Start a Business – Lemonade stand. Carnival. EBay products. Dog sitting. Baby sitting. Heck, even blogging. Opening a business can be a rewarding experience, but not if you just hand junior a bunch of stuff and tell her to go sell it. If she keeps all of the proceeds, I think you’ve done her a disservice. Instead, create an overall plan for the business. Talk about an advertising campaign. Look at the cost of goods. Help them buy the product (via a loan from you) and then talk about their mark up. When they make money, they have to return the money they borrowed from you before making money. We had many little businesses along the way, and ran them this way each time.

Why I Like It: You’re teaching so many skills with this activity I can’t even begin here. Marketing (persuasive writing), technology, math, economics, are only a few of the skills kids will pick up while trying to learn to sell a product.

 

4) Board Games – Last week I mentioned what a game geek I am. Board games can teach kids so many money skills. An older game, Payday, is one of my favorites for financial lessons. You get paid once a month, pay bills and try to take advantage of opportunities (deals) when they arise. Buy insurance to guard against health and auto issues. On that note, another bad game but great teacher of financial lessons is Life. Have children, go to school (or not), buy insurance (or not), move up the career ladder. Sure, the game is very luck dependent, but it’s fun to move around the board and see just how many kids you can fit in that car (until you have to feed them….).

By age 12 kids will be able to grasp games that are better simulations, such as Agricola, Power Grid and Puerto Rico.They may not teach a child a ton about money today, but they do give kids a leg up on analytical skills and grabbing opportunities.

Why I Like It: Playing board games is a great way to teach lessons while playing as a family. I ‘m glad my kids like to play games. We generally aren’t competitive and have a few laughs together that I think we’ll all remember forever. (IF you want to purchase games listed AND help support the blog, you can use the Amazon links above to make your purchase. Thanks!)

 

5) Hold a Stock Tracking Competition – Step one of owning stocks is gaining a basic understanding about how the stock market works. Don’t think you know how it works well and worried you won’t be able to teach them? Learn together! Make a list of companies you admire. Research whether they’re public or not (and have stock that you can track). Give yourself an imaginary sum of money and invest!

We’d have a summer-long competition. The winner’s prize? They picked what we were having for dinner one night and we bought ice cream to celebrate.

Why I Like It: To effectively teach anything you have to brush up on skills yourself. I found that because I was teaching my kids, I paid better attention to my own portfolio.

 

What are your favorite activities with older children? Did you start any businesses at that age? Share in the comments!

 

Photo: Grocery List: MStewartPhotography; Lemonade Stand: EvinDC

Graduation Gifts: What Should You Do With Your Money?

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‘Tis the Season!

Well, not that season, but another highly anticipated one: graduation season.  Hundreds of thousands of college and high school graduates are donning caps and gowns,  shaking hands, having parties, and most likely cashing checks.  The real question is what to do with all of this money?

Let’s break our discussion into two categories: high school graduates and college graduates.

High School Graduates

We’ve talked about it periodically: most kids aren’t taught anything about how to handle money and for some, graduation gifts can be their first experience with large amounts of cash. If there’s not an exact plan, it can blow away faster than the autumn leaves.  This is job number one for parents: sit down with your kids and discuss what the plan is with the graduation money.  Here are the top 3 things high school graduates can and should do before cashing a single check.

English: PJPII graduates entering local church...

High school graduates entering local church for graduation mass, May 2009 (Photo credit: Wikipedia)

 

  1. Establish the maximum dollar amount of your graduation gifts that you’ll allow yourself (or your kid) to spend on fun.  I don’t have any problem with high school graduates blowing a certain amount.  I mean, it is a joyous occasion and high school graduations should have a certain amount of indulgence.  But, just like anything finance related, you have to go in with the end in mind.  Failing to plan is planning to fail.
  2. Decide what’s going to be set aside to be spent during the first semester of college.  Assuming you’re heading to college in the fall, no matter what you think you’ll need from graduation gifts, you’ll want more.  Accept and embrace the reality: college will cost more than you think.  If you can set aside a couple hundred dollars today for those rainy October weekends far from home, you’ll feel a lot less guilty about skipping the meal plan and ordering a pizza for your roommates.
  3. Take at least 1/3 and either invest it or give it away.  Those two options sound like opposites, but they require similar mental acuity.  We only give things away when we have an abundance mentality – we only invest if we have a strong faith in the future.  Take one or two hours and pick a solid blue chip company, set up an online brokerage account, buy some stock and don’t touch it for 30 years.  You’ll thank me later.  Oh, and don’t forget to reinvest all your dividends from your graduation gifts! You’ll want those growing, too!

Don’t let this great opportunity for teaching kids about money slip by.  There are only a few “found money” times throughout one’s life.  Use graduation gifts wisely.  Any high school graduate should be able to take this money and use it to get ahead in life.

Next week we’ll talk about what college graduates should do with their “found” money…stay tuned!

 

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