Seeking Basic Financial Education

On a sunny autumn Friday, Bader Bahmad and fellow members of a financial education seminar at the Fort Washington Public Library branch were discussing rudimentary principles, such as the difference between needs and wants.

In a run-down conference room on the library’s deserted second floor, they talked about saving money. Asked to give examples of items they should save for, one woman mentioned a $7.99 blouse she saw earlier in the week and another said a pack of cigarettes. A talkative blonde said she has never saved for anything.

Cheryl Hines of Cornell University’s Cooperative Extension community program led the discussion. She provided handouts that explained the difference between short, medium and long-term savings goals; she offered tips for tracking money, like using a notebook to record expenditures.

Bahmad, 39, found the seminar a bit basic, but she liked the reminders because she and her three children are supported solely by her husband’s earnings as a taxi driver. She strictly limits spending on discretionary goods. “In every hour of the day, if I don’t need it, I’m not doing it,” Bahmad said.

Badmad’s struggle is complicated. In Washington Heights where she lives, families are lucky to have a bank account. While 12 percent of Manhattan households don’t have a standard checking account, 25 percent of African Americans and 27 percent of Hispanics in Manhattan – the majority populations uptown – live unbanked, according to a survey last year by Pew Charitable Trusts. In effect, they pay an average $1,042 annually in check cashing fees.

Bahmad has been trying to make ends meet in the U.S. for close to 15 years. An immigrant from Lebanon, she used to sew scarves and dresses for stores in Brooklyn and Manhattan. When she returned to her home country three years ago to be closer to her family, leaving her husband behind in New York, she sold her sewing machines.

But the distance strained her marriage, and Bahmad returned to New York after two years. “Here you’re missing something, over there you’re missing something,” she said.

Now back in America without a job, Bahmad is looking for financial advice. As a start, she attended the free seminar at the Public Library.

Instructor Milly DuBouchet, who teaches similar classes in Washington Heights, finds it hard to address intricate financial problems because her audience has never had the means to save money. “It’s hard for them to save 10 percent of their income monthly when they can’t necessarily pay their phone bill every month,” she said. “Financial literacy is at a bare minimum in our community.”

To help, the Bloomberg administration created the Office of Financial Empowerment, where DuBouchet also works. It offers personal finance workshops and free private counseling.

Lower-income people may lack a basic understanding of credit ratings and the principles of debt, according to DuBouchet. Many of her clients have been denied loans and “they want to see why,” she said. Moreover, “A lot of people consider credit cards quote unquote free money.” She tries to tell her seminar members and private clients how FICO scores are compiled and reminds those in debt, “If you stop paying it, they don’t forget about you.”

Workshops offering basic financial information can be found all over upper Manhattan. Friends Jenny Gil and Angela Ariza attended one specifically for women at City College. Both women, immigrants from Colombia, readily admit they know little about personal finance.

Gil, 27, is lucky to have less than $5,000 in debt, which she described as “not impossible.” She works in a restaurant office and is trying to repay what she owes so that she can start saving and investing – only she doesn’t know how.

She blames her financial illiteracy on Colombian cultural norms. She was raised with the belief that women don’t handle finances because they are too complex. “It’s the new days and now women take care of their own business,” she said.

Gil has done some reading on her own, like “Rich Dad, Poor Dad” by Robert Kiyosaki, but still has trouble grasping certain fundamental financial concepts. To remedy the problem, she thinks personal finances should become part of the high school curriculum.

Donny Lynn Burton agrees. A vice president at the Harlem office of the non-profit Operation Hope, which offers seminars in credit and money management as well as individual credit counseling, she constantly meets people in similar situations.
Her clients live very differently from the middle class. “They live paycheck to paycheck,” Burton said. “They don’t understand the benefits of having an account” in a bank. She shows them how to create budgets and has them come in regularly to stay on track.

But often they start much too late, which she blames on pride. It frustrates her that most people in foreclosure know what lies ahead but don’t take action. ‘They never try to call their bank to work something out,” Burton said. She spends a lot of time assuring her clients that they can negotiate because the bank is better off if they stay in their homes.

She, too, would like to see financial education begin in high school, before people wade into major financial decisions.

Seeking Basic Financial Education

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Don’t Blow Off These Four Year-End Money ‘Must-Dos’

by Dayana Yochim

Procrastinators, rejoice! I’m not going to bombard you with an all-inclusive list of year-end financial housekeeping chores. Instead, I’m going to present the absolute must-dos — the four top-priority tax-related tasks that even world-class foot-draggers can’t put off. Legally, at least.

Once you get rolling, you may be motivated to seek extra credit — and a little more breathing room before next April. If you’re so inclined, I’ve also included some other tax-related chores that will eventually need your attention. No pressure. Just sayin’.

1. Slash next year’s out-of-pocket health-care/dependent-care expenses
During open-benefits enrollment, you not only have the opportunity to tweak your health-care coverage but also to secure savings of 25% or more on all of those out-of-pocket medical and dependent-care expenses.

This cost-cutting technique is possible with flexible spending accounts. FSAs come in two flavors — medical and dependent-care. In a nutshell, you fund FSAs with pre-tax dollars taken out of every paycheck. When you incur expenses not covered by your health-insurance plan, or if you write a check for dependent care, then you submit a receipt and get paid back with the money you set aside. See your plan pamphlet for eligible expenses.

Your must-do: Sign up. Not enrolled in your employer’s FSA program? Dude! Do it now. If you contributed $1,200 (about the national average) to a medical or dependent-care FSA and are in the 25% tax bracket, you’ll save about $420 annually, including federal and Social Security taxes paid, or $35 a month. To nail the contribution amount, use the worksheet from your plan or fiddle with the Health Expense Calculator at planforyourhealth.com.

Blow-off-able (for now): Using up last year’s FSA dollars. If you already have an FSA but haven’t used up all your dollars, don’t rush off to buy extra pairs of bifocals just yet. Many plans have extended the allowable time frame to incur expenses by two and a half months, so you may not have to scramble to spend the cash you’ve already set aside. (Check with your HR folks to be sure.) And for help managing all those receipts, ask your vendor for a hand. If you buy your prescriptions at one place, ask for an annual rundown of what you’ve spent. Many drugstores can easily provide that information for you.

2. Minimize next April’s tax tab
Time and money are short around the holidays. But saving strategically to minimize your April tax hit is the best gift you can give yourself. Right now, see whether you’re on schedule to max out your employer-sponsored retirement plan. Contribution limits this year are $16,500; if you’re 50 or older, you may be eligible to contribute $22,000.

Your must-do: Bump up your retirement-plan contributions. Since the remaining numbers of pay periods before the deadline is dwindling, opportunities for maxing out your 401(k) or other employer-sponsored plan are limited. Find out whether your plan lets you defer a heftier chunk of your final 2009 paychecks — some allow up to 100% of your compensation. It may be painful to pass up the pay, but giving up the compounding tax-deferred income is worse. What’s more, socking away money in a traditional retirement plan reduces your taxable income. If you’re in the 25% tax bracket, you’ll shave $250 off your federal tax bill for every $1,000 you contribute to your 401(k).

Blow-off-able (for now): Fully funding your IRA. If money’s tight, allocate any extra dollars to your company’s retirement plan instead of to your IRA. You have until April 15, 2010, to fully fund your IRA; but, again, the deadline for work-retirement plan contributions is Dec. 31, 2009.

3. Prioritize your final paychecks
Once you have the year’s final pay stub in hand, don’t just gawk at the size of Uncle Sam’s take. Strategize a few last-minute tax-time maneuvers.

Your must-do: Put off collecting income, if you can. It’s hard to postpone pay, particularly during the spendy holiday stretch. But deferring some compensation — such as a bonus, or, if you’re retired, a retirement-account withdrawal — for one more month may be a better long-term financial move. Also note how your remaining paydays might affect your eligibility to make deductible IRA contributions, both this year and next.

Blow-off-able (for now): Withholding. More than 70% of Americans overpay their taxes every year. Sure, a refund is nice, but it’s even nicer to earn interest on your money instead of giving the government a free loan. Check your withholdings with the Form W-4 Assistant at paycheckcity.com. You can change your withholdings at any time of the year, so no deadline is looming. Still, you may be inspired to put this item on your “must do” list when you realize you’re letting Uncle Sam borrow money that you’d just get back anyway.

4. Pretty up your portfolio
Yeah, it’s been a lousy year on Wall Street, but the IRS kindly offers a little salve for those who have taken a hit. You can reduce the capital gains taxes you owe on any investments held and sold for a profit in regular, taxable accounts by offsetting the tab with capital losses from stocks that have declined in value. So if you’ve seen big losses, getting a tax break is at least a little bit of good news.

Your must-do: Sell your losers. Get rid of floundering investments and either put the money in another (but not identical) investment or wait 31 days and buy the investment back (to avoid breaking the IRS’s “wash sale” rules).Tax-loss selling must be completed by Dec. 31. But don’t do it willy-nilly: If you bought a stock at multiple cost bases, sell the most expensive shares first. If you don’t have capital gains in your taxable accounts to offset the losses but you still have investments worth less than what you paid for them, you can use capital losses to reduce your ordinary income by up to $3,000 a year. If you’re in the 25% tax bracket, doing so will reduce your taxes by $750.

Blow-off-able (for now): Dumping every loser from your portfolio. Got more stinker stocks than you can shake a stick at? The IRS allows you to carry over your losses for use in future years. You also may want to live with your losers a while longer, since getting caught up in a logjam of investors who are also selling off their shares may drive prices down even more.

Here is the original post:
Don’t Blow Off These Four Year-End Money ‘Must-Dos’

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Fear of Success

Many people don’t realize that they have a fear of success. For the longest, I thought to myself:

“Why would I fear success when success is my most desirable goal? What kind of crazy person has a fear of success?”

There are plenty of people who have a fear of success. I didn’t realize that I had issues with this until I noticed that there were certain things that I wouldn’t do and I couldn’t figure out why. What was/is holding me back? Sometimes people fear success because they don’t know if they can live up to their achievements. Self-sabotaging behavior will usually occur when we have this problem. It can be defined as procrastination, a lack of motivation, etc.

How do you know you have a fear of success or self-sabotage issues?

Sometimes we will look at someone as being lazy when they have a problem with a fear of success. They will talk about the many things that they want to do with their life. They may have planned everything out and started on their journey, but instead of doing something about it they waste time surfing the net, watching TV or whatever else they can find to waste time. Being “all talk-no action” is a major problem that must be resolved.

Not trying and focusing on the negative is self-sabotaging behavior. This also leads to a fear of failure which is a major topic for another article.

Procrastinating and wasting time on activities that don’t help you achieve your goals is also a sign of self-sabotage. It’s very easy to stay busy with “life”, but if you don’t recognize this issue, “life” will pass you by.

All means of self-sabotage provides an excuse for you if you don’t live up to your own expectations. Instead of facing the fear that we may not be good enough, smart enough, etc.we can blame it on something minor like a lack of time. In order to correct an issue, we need to recognize that the issue exists.

How do we overcome a fear of success?

• Figure out why you have a fear of success – Take a look at your past experiences and how they affected your outlook on life or confidence in your own ability to succeed.
• Failure is your friend – Don’t be afraid to try something new. If you fail, learn from the experience and don’t repeat the same mistakes. How many times did we fall down as a toddler before we were able to walk?
• Self-competition – Don’t beat yourself up if you haven’t achieved the “success” of your peers. Many times what we see is not reality. You may be better off than the person looking like they have it all, but are so deep in debt it’s crazy. Make an effort to push yourself to the next level. If you are a competitive person by nature it’s crucial not to beat yourself up over defeat. Use the “defeat” to push yourself harder.
• Think Positive – This is a reoccurring theme here. Positive thought will outweigh all negative circumstances you may experience.

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Fear of Success

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The Conspiracy of The Rich

I’ve just finished reading the soft cover version of Robert Kiyosaki’s latest book – authored interactively on the web – Conspiracy of the Rich. I had also read a number of earlier chapters as they were being written online here.

I’ve read a number of Kiyosaki’s books – including Rich Dad, Poor Dad and The Cashflow Quadrant – and he does an excellent job of making finance and investing matters understandable. In fact, perhaps like many people, after reading Rich Dad, Poor Dad I was shocked to discover my own house was not an asset!

I also recall vividly how I wished I’d known this sort of information at a much younger age.

Now Robert Kiyosaki has done it again – an easy-to-read book that I believe is essential reading for anyone seeking to get ahead financially in these difficult times. The book is subtitled “The 8 New Rules of Money” – and elaborating on those rules is what gives the book its structure.

However, this book also breaks new ground by discussing the nature of money, its origins – and much to my surprise and pleasure, also covers the essential facts as to how this current recession developed and why it is not likely to go away in a hurry.

You’ll also read about the origin of Federal Reserve, the nature of fiat money, fractional reserve banking and a host of other fundamental economics and money issues that Kiyosaki obviously has a good grip on.

He states his mission in life is to bring sound financial education to the world, and finishes the book of with a list of things he would teach children at school – if he was running the school system. And just to give you a taste as to what this book is about, here are the topic headings of his suggested 15 Financial Lessons – which he believes to be essential to accelerating a person’s financial intelligence:

1. The History of Money
2. Understanding Your Financial Statement
3. The Difference Between an Asset and a Liability
4. The Difference Between Capital Gains and Cash Flow
5. The Difference Between Fundamental And Technical Investing
6. Measuring an Asset’s Strength
7. Know How to Choose Good People
8. Know What Asset is Best For You
9. Know When to Focus and When to Diversify
10. Minimise Risk
11. Know How to Minimise Taxes
12. The Difference Between Debt And Credibility
13. Know How to Use Derivatives
14. Know How Your Wealth is Stolen
15. Know How to Make Mistakes

Hands up. Who learnt the above at school?

As is typical of Kiyosaki’s books, this is a fascinating and easy read. It speaks in plain language, and repeats things often enough to ensure the essential points get into your head. And I believe that if every child were to be exposed to his writings (not to mention late-starting adults!), then the world would indeed be a much different place.

Read more from the original source:
The Conspiracy of The Rich

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6 Financial Moves That Sound Good — but Aren’t

For most people, each and every day involves some type of financial decision. So how do you feel about your financial decision-making skills?

If you think you are making sound choices, ask yourself this: Have you weighed the consequences of your choices against their apparent benefits?

In many cases, the answer is no.

Let’s take a look at six common financial choices that sound like smart moves, but could leave you scratching your head wondering where you went wrong.

1.  Applying for a Line of Credit

Advantages: Starting a line of credit will diversify your credit sources, which is good news for your credit score. It also allows you to access funds you may need for large purchases, like buying a car, without having to scramble to arrange the funds when you decide to buy.

Consequences: A line of credit is too often treated like free money. In many cases, such easy access to funds leads borrowers to rack up consumer debt for things they don’t really need. And there’s nothing free about this cash injection: borrowers have to make minimum payments on the line’s outstanding balance. In addition, a balance will limit borrowing power on other loans, such as a mortgage.

2.  Withdrawing From Your 401(k) or Retirement Savings to Pay Down Debt

Advantages: If you have a big debt to pay off, you may choose to either put off contributing to a retirement or savings fund, or to withdraw money from an existing fund. The upside to this is that paying down debt is a good thing, and the sooner it is paid off, the greater the savings in interest expenses for the borrower.

Consequences: By withdrawing funds set aside for retirement, you are robbing yourself of the benefits of compounding. Also, pulling the money out of your savings could leave you in a very bad position should something unexpected, like a job loss, happen.

The earlier you start saving, the more money you will be able to accumulate for retirement. If properly invested, money saved now is almost always better than more money saved later.

3.  Choosing Only the Safest Investing Vehicles

Advantages: If you invest in risk-free or nearly risk-free vehicles, the risk of losing your hard-earned cash is extremely low. This can be a viable option, especially if you are nearing retirement.

Downside: However, you are again missing out on the opportunity to have your money work for you. Take into consideration your age and stage of life when deciding your risk level.

Although everyone’s risk tolerance is different, generally speaking, the younger you are, the riskier you can afford to be. This is because you have the time to make up any losses, and also because the higher risk may be warranted because it helps combat the effects of inflation on your portfolio’s gains.

 The closer you are to retirement (or to whatever goal you are saving for) the more conservative you should be in order to protect your investment.

4.  Avoiding Debt Altogether

Advantages: “Debt free”. It sounds good, doesn’t it? And it can be. Living debt-free is a wonderful goal and is more achievable than you might think.

Downside: However, debt can also be a tool. If, in your quest to remain debt free, you are turning down “good debt”, that is, debt that allows you to leverage your investments, you are doing yourself a disservice. Examples of good debt include taking out a mortgage to buy a house.

This is because houses and property tend to appreciate over time, and owning your home can lower your living expenses compared to renting. Another example would be taking out a student loan for post-secondary education. While student debt can be a huge responsibility, it is also an investment in yourself that boosts your potential earning power.

5.  Cutting Your Variable Spending

Advantages: If you are looking to cut your spending, this suggests that you have a budget to modify. That’s great! Often variable expenses (expenses that are not fixed, such as entertainment, dining out and personal spending) are out of line with the amount we earn. An honest appraisal of where your money is going is a great step to getting your budget in fighting shape.

 Downside: This seemingly great idea is only great if you include the second part of it: sticking to your new budget. Unrealistic expectations, or treating your budget goals as “guidelines” rather than rules, could leave you spending more than ever.

6.  Paying Off a Major Loan in One Payment

Advantages: You’ve been working hard and saving – smart! Before your loans start accumulating interest, or even if they have, you decide to pay them off in one payment. That’s a wonderful accomplishment that will save you months’, or years’ worth of interest.

 Downside: If you choose this route, make sure you take a look at your interest rate. Some loans have such a low interest rate that you’d be better off putting your money in a savings account that earns you a higher return and paying off your debt monthly.

Keep in mind this is only a good idea if 1) your savings interest rate is higher than your debt interest rate and 2) you are disciplined enough to pay the debt off on time, every month, and not to spend your hard-earned cash on luxuries instead.

The bonus? Responsibly paying off monthly debt helps you to establish a good credit history. This is especially helpful if you don’t have a credit history (or you are trying to rebuild a bad one).

There’s nothing worse than making a choice you thought was conscientious only to find out it had hidden consequences. Make sure you do your homework and your financial situation will be the best it can be.

Go here to see the original:
6 Financial Moves That Sound Good — but Aren’t

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Investment In Property Can Help You Retire

A lot of Americans aren’t going to have enough money to retire on. That is just a un happy reality of these times. Instead of bemoaning that reality (and the unfairness of it all) the best thing someone who hopes to have a healthy retirement can do is simply make sure they aren’t the typical American. We must take actions to assure they will have enough income to enjoy their life and pay their bills, as well as those increasing medical bills.

The best way to avoid becoming one of these Americans who end up working at some remedial job through their so-called Golden Years, according to Robert Kiyosoki, author of the “Rich Dad Poor Dad” book series, is to buy investment property.

Investing in real estate is a wonderful way for people to prepare for retirement because it supplies a great benefit called “passive income”. After someone has laid the ground work, passive income keeps coming in without a lot of effort. A laborer gets compensated only for the hours he puts in. A real estate investor, after setting up his system, gets paid for keeping it running. And keeping it running, if he been wise about it, will involve paying his team to do the job of inspecting them every now and then.

A great thing about passive income (such as from investments) is, the more time the real estate investor holds them, the more ROI they should make for her, with less and less work on the investor’s part. It’s the closest thing to the “Holy Grail” of the world of money.

It sounds attractive, but we shouldn’t just take the plunge. And even though it is completely learnable, there’s quite a bit to learn when one is thinking about buying investment property – things like comprehending P&L statements and real estate law. The biggest concept to learn, however, is one’s own limitations. The individual who understands where to find the knowledge he wants is far better off than the individual who remembers tons of facts and formulas around in her memory.

In the book “Cash Flow Quadrant,” Robert Kiyosaki advises potential investors to increase their cashflow in addition to their knowledge. He writes of developing a business system that can be set up and left alone, freeing the investor to move to the next step instead of investing all her time working in her business. The next step involves continuing the real estate education and start to look around for specialists to employ and investment properties to buy.

Robert Kiyosaki also talks about this change as transitioning from one part of the cash-flow-quadrant to the next. He emphasizes that, the 1st step someone needs to take toward transforming her life is altering the thinking process. If someone adjusts the way he/she processes the thought of money, then he/she will wind up in a better position to change his relationship with it.

The way someone thinks determines the actions they take throughout the day, and those actions determine their success. The primary benefit of reading books like Robert Kiyosaki’s “Rich Dad, Poor Dad” series – brings you closer to new ways of thinking about stuff. When investors see how easy it is to develop new skills and acquire better knowledge, they are virtually unstoppable.

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Investment In Property Can Help You Retire

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What to know if your bank fails

Dozens of banks have failed this year. What do you need to know if yours is next?

The number of bank failures has reached 115 since January — more than four times the total for 2008 and the most since the savings and loan crisis in 1992. And most experts expect problems caused by unpaid loans to force many more closures in the coming years, mostly among small, community-based banks.

Banks are typically shut down late Friday afternoon. That gives the Federal Deposit Insurance Corp. time over the weekend to handle the shutdown, which most often involves transferring deposits to another bank that is taking over the failed institution. The first sign of failure consumers see may be a closure notice on the bank’s door.

The impact of the bank failures on consumers has been minimal, but rumors about what can happen are rampant. The FDIC has also warned of dozens of scams that try to take advantage of consumers who don’t understand the process.

So what do bank customers need to know, in case their bank goes under?

Here are some questions and answers.

Q: Why would a bank be closed by regulators?

A: State or federal regulators can decide to close a bank if it is in danger of being unable to meet its obligations to depositors and others — basically, if it looks like it’s going to run out of money.

Most of the banks closed in the past year have suffered because the housing crisis and the recession have led consumers and businesses to stop paying off mortgages, credit cards and other loans. Banks must set aside money to cover such losses, and they become unstable if these reserves fall.

Q: How does a customer know if a bank is covered by FDIC insurance?

A: Banks usually have a sign on the door with the FDIC logo, and also frequently use the logo on account statements and other correspondence.

The FDIC has a tool called “Bank Find” on its Web site, http://www.fdic.gov, where a customer can enter a bank name and address to make sure it is insured. Internet-based banks are eligible for FDIC insurance, and are listed on the Web site as well.

Q: What exactly does the FDIC insure?

A: The FDIC covers money deposited in savings accounts, checking accounts and certificates of deposit up to $250,000. But that limit can apply to the same person in several different ownership categories, like single, joint, held-in-trust and retirement accounts.

So, for example, if a woman has two savings accounts totaling $200,000 in her own name, plus two joint accounts that each have $100,000, plus two accounts with $75,000 held in trust for her children, and a $90,000 IRA, all of these deposits would be covered because no one ownership category tops the limit.

Q: What doesn’t the FDIC insure?

A: Money in mutual funds, annuities, stocks, bonds or other investment products is not covered, even if those investments were bought through an insured bank.

The contents of a safe deposit box are also not FDIC insured, but may be covered through a homeowner’s or renter’s insurance policy.

When a bank fails, in most cases, the bank that takes over will keep branches operating and allow access to safe deposit boxes. If no other bank acquires the failed bank, the FDIC will send a letter to boxholders with instructions for removing their property.

Q: How long does it take for the FDIC to pay people back?

A: In most cases, another bank takes over the closed bank’s deposits, and ATM cards, debit cards and checks continue to work until the new bank transitions customers to its systems.

If the FDIC can’t find another bank to take over, the agency uses its insurance fund to make payouts to the failed bank’s customers. The law requires that deposits be paid out “as soon as possible” after an insured bank fails. That has typically been just a few days after the bank closes. In most of these cases, the FDIC will provide new accounts at another insured bank, but it will issue a check to each depositor if new accounts can’t be arranged.

Q: Will the FDIC contact customers of a failed bank?

A: The FDIC notifies each depositor in writing when a bank fails, using the depositor’s address on record with the bank. This notification is mailed immediately after the bank closes. The FDIC never sends e-mails directly to consumers, and has warned about numerous scams sending fraudulent e-mails that appear to be sent by the agency. The FDIC also sets up a toll-free number and a Web site for customers to access.

When the failed bank is acquired by another bank, depositors get a notice in the mail from the new bank as well, usually with the first bank statement after the takeover.

Q: What if someone “banks” at a credit union?

A: The National Credit Union Administration, a U.S. government agency, provides members of these nonprofit institutions insurance up to $250,000 through the National Credit Union Share Insurance Fund, much the way the FDIC covers bank deposits. So far this year, 19 credit unions have failed.

Like the FDIC, the NCUA will assume control over a federal credit union that is unable to continue operating on its own, if it cannot find another credit union to serve the failed institution’s members. There are a handful of state-chartered credit unions that are not covered by NCUSIF, but have their own insurance.

See original here:
What to know if your bank fails

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Can We Afford It?

This may be a simple question for you to answer but it’s one that’s plagued me ever since I got married 22 years ago.

The real difficulty answering this question came to light when my daughter and I bought tickets to see the Dodgers who will beat the Marlins this coming Saturday .  We aren’t big baseball fans….we don’t really care who wins…..but we have  fun when we go out to a game.  Usually, that’s only once a year at most.

This ticket purchase expedition confirmed that either my memory is fading or ticket prices have skyrocketed.  I was shocked at how high the prices were for decent seats.

In any event, when my daughter and I were looking for seats and she saw how high the prices were, she asked me if we could afford it.

I must tell you that I was very happy that she even thought of asking this question. I was relieved knowing that I had raised, in effect, a ‘frugal Frankle”!  A “Mini Me” if you will…..

But I digress…..

Truth be told, when my little darlin’ asked me this question, I really didn’t know how to anwer her.

I explained that we had enough money to buy tickets to the game even though they were expensive – $65 each.  I explained that we had money to send her to college and we had the money for my wife and youngest daughter  to visit family overseas.

But I went on to say that just because we had the money to do it, didn’t mean we could afford it.

It was at this point that my daughter started rolling her eyes – wishing she were back home watching re-runs of “Law and Order”.

Right or wrong, I saw this as a teachable moment so I forged ahead.

I told her the amount of money we need to save in order for my wife and I to retire someday.  I told her how far along the path we were and what we needed to save each year in order to reach those goals. Given the recent drop in the market and how that’s impacted everyone’s income and savings…..my wife and I will both be working for quite a few years to come.

So when she asked “can we afford those tickets” the answer seemed complicated to me.

We had the cash to buy the tickets – we wouldn’t go in debt in order to see the Dodgers trounce their Floridian foes.

But could we afford to spend $130 (plus parking and refreshments) for one night on entertainment?  Is it the best use of that money?  Wouldn’t it be better to use that money towards our bigger goals?

It’s a tough question to answer.  I’ve always focused on security – for my family and my clients.  I refuse to ignore the future and just “live for today” financially.  But I am trying hard not to be a slave to the future at the expense of  not being present and failing to enjoy life right now.

At that point, I think my daughter wanted to change the subject.  She told me she needed to go shopping for clothes.  I ignored the hint, tagged along and continued our discussion.

I asked her how she decides if she can afford something or not. She told me how simple that question was to answer.

If she had the money in her pocket – she could afford it. If not, she couldn’t.

I was starting to squirm a little at that point but fortunately, she redeemed herself by continuing.  She told me that if she has $30, she has to decide which was more important; two lunches out with friends or a nice outfit.  (A born economist. Milton Freedman would be proud.)

I explained that her process was approriate for her but not for me or her mother.  We have to think about the best use of the money and hope we make the right decision.

And that is the rub.  That is the juncture where the emotions fly.  The guilt.  The fear.  The shame.
When someone asks me if we can afford something……they might think the question is ” do we have money “.  The answer could be yes.  But I might be thinking the real question is ”do we have a budget for this”.  Unless we agree on our terms, we’re in trouble.
If I say, “no, we can’t afford this because we don’t have a budget for it” and my family sees that we have the money,dad comes out looking like a tight wad.  Then, dad defends himself, emotions start flying and it’s down hill from there.

The solution is to explain the difference between having the cash to do something and having the budget to do it. I never would have even thought about this subtle difference unless my daughter explained what she meant by being able to afford something.

I guess I should go shopping with her more often.

See more here:
Can We Afford It?

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Financial Planning The Right Way

Write down your goals, don’t get emotional, and stay on course.

Source:
Financial Planning The Right Way

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