Jason’s Ranting & Raving

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Parenting: Budgeting for the Young and Old

Posted by jaystile on September 2, 2009

This is a follow-up post to my parenting post about children and money.

Everyone needs to budget based on their income! (I’m looking at you House of Representatives, Senate, and White House) I would guess that most people don’t budget because they simply do not know how. And if they try and learn most of the online tools require you fill out approximately fifty thousand items to come up with your budget. This can be a little overwhelming for someone who doesn’t want to make a budget in the first place. I like the 60% Solution!

If you’re too lazy to read the link here is the short version.
The 60% Solution for Adults

  1. 60 percent: Monthly expenses — such as housing, food, utilities, insurance, Internet, transportation. This is the part most commonly thought of as a budget.
  2. 10 percent: Retirement — and if you’re doing it right, this is being automatically deducted from your paycheck for a 401(k) investment.
  3. 10 percent: Long-term savings or debt reduction. It’s best to invest this in something such as stocks or an index fund, and this can serve as your emergency fund. But if you are in debt (not including a home mortgage), I would advise that you use this portion of the budget to pay off your debts, and even draw some from the other categories such as retirement to increase this to about 20 percent for now. Once your debts are paid off, you can switch this to long-term savings. You still need to have an emergency fund, but while you’re in debt-reduction mode you can either create a small, temporary emergency fund out of the money from this category or the next.
  4. 10 percent: Short-term savings — this is for periodic expenses, such as auto maintenance or repairs, medical expenses (not including insurance premiums), appliances, home maintenance, birthday and Christmas gifts. For this savings account, be sure to spend the money when you need it — that’s what it’s for. When these expenses come up, you will have the money for them, instead of trying to pull them from other budget categories.
  5. 10 percent: Fun money — you can spend this on eating out, movies, comic books — whatever you want. Guilt free.

The 60% Solution for Children

  1. 60% – Long term savings. Car, College, or Wedding. There is a high probability that your child will want to have one of these in the future. The most important lesson for a child to learn is to save for the things that they want.
  2. 10% – Charity and gifts. Children will need to buy gifts for parents, siblings, and others. This will be a large part of their income and they will feel good when they can spend their own money on the people they love. If they are so inclined I like the charity of Heifer International for my charitable giving.
  3. 10% – Short term savings. Teach your children about planning ahead. So they can have a little extra money when back to school shopping to buy those clothes that you will not buy for them because they are dumb looking.
  4. 20% – Fun! Go ahead and spend on whatever you want after all they are kids still! (And you are making them save 60 cents of every dollar for college.

Do it! For my budget I’ve set up multiple savings accounts with online banks (like etrade.com; emigrantdirect.com; ingdirect.com). The money gets automatically transferred to individual accounts based on my budget categories when my paycheck arrives. For children you could use the envelopes method or setup online accounts for them. I’m more inclined to recommend the online accounts because they pay interest and it’s harder to get the money for an impulse shopping spree.

Envelopes This is an old-fashioned system that works. Have an envelope for groceries, gas and fun money. When going grocery shopping, bring the groceries envelope. You know how much is left in the envelope before you go grocery shopping. Spend the cash for groceries, and then you can easily see how much is left now. Simple, and no tracking necessary. When the money is gone, you’ve spent your budgeted amount. If necessary, you could transfer cash from one envelope to another, and there’s no need to adjust your budget.

Conclusion I personally subscribe to a more complex budget, but I’ve been using a budget tracked in a spreadsheet for at least the past seven years. What’s that you say? You cannot afford Microsoft Excel? Try the Free Open Source alternative OpenOffice. As you start keeping a budget it becomes more specific as you start planning for vacations, college funds, ‘soft retirement’. Budgeting is important to make sure you don’t get caught with you pants down when it’s time to buy new tires or rebuild the transmission, pay the max deductible for your health insurance because some a-hole ran you off the road on your bicycle and you had to go to the emergency room. Also, to make sure you know if you can afford a reoccurring monthly expense of hundreds of dollars for satellite tv, cable internet, and cellular phone service. If you’re not able to save you have not lived within your means. Time to get a roommate or move to the not so nice side of town.

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One Response to “Parenting: Budgeting for the Young and Old”

  1. Elbert said

    Excellent article. I loved to read your piece of writing. You must be putting bundle of time into your website

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