MasterCard’s New “inControl”

Technically this isn’t all that new, it’s been out since April. But, I hadn’t heard of it before because it’s only available for businesses to use.

I’ll start by giving you a run down on the card and then we’ll talk how that could, and should, be applied to consumers.

Here’s how it goes:

Two backstage passes to a concert with a meet & greet afterwards: $2400. An upscale, 5-course meal with the client: $600. An email from your boss at 8:15 am the next day asking what company business took you to a strip club at 2 am: priceless.

And so it goes with employees who have free rein to ‘wine and dine’ their clients. Sometimes it’s pretty pricey to build that relationship, but sometimes bosses have to wonder how much the employee is taking advantage of the privilege. By the way, I can tell you with first hand experience that - as stereotypical as this may sound - men do take their male clients to strip clubs for a night cap. I’ve had to attend one awful meeting myself and will never do it again. Not once did we get the opportunity to discuss actual business.

Anyway, with MasterCard’s new “inControl” card, bosses can set predetermined limits on the card, block out certain places - like the strip club - have the card declined after a certain hour, and even be sent real-time text messages and emails when the card is being used.

The technology is amazing and there’s a lot of potential with it. On the business side, I can see micromanagers having a field day with this and it could leave room to ruin the employee’s image with high dollar clients that expect a higher limit than $300. But, I have to wonder what kind of business deal would you have with someone that had to be ‘wined and dined’ for $3000, just to hear your pitch? Seems to me that’s money wasted and could have been better invested elsewhere.

MasterCard has established that such a card is possible with those types of capabilities, which has been an argument for years that the technology wasn’t possible and that it would cost too much. Still, they’ve made progress and though the cost for MasterCard to run this program hasn’t been disclosed, being that they rolled it out to the business class first may mean that it’s not as expensive as we were lead to believe. So, in light of the credit crisis how come this hasn’t been rolled out to consumers? I think this is definitely a product we can benefit from, don’t you?

Think about it. If we know we’re fairly susceptible to certain places and we tend to go crazy at those places, we can blacklist it on our card, or simply set a strict limit that we can spend there. Now, the argument comes up that someone could just use another card. Well sure, they could, but if they have to pull out another card, the hope is that they will really consider the purchase.

What I really like about this idea is the fact that you can set limits. If you don’t want that card with the $5000 limit because it’s tempting, then lower it to $500 or whatever number you think is reasonable, but not pushing it. Technically, you can limit yourself on your cards now, but it comes with a price - either by the company or your credit score because companies just jack up your limit without your permission; and lowering it again messes with your ratios - hopefully this won’t be much of an issue when FICO 2008 rolls out. With the “inCharge” card, the limit is set before the card is issued and cannot be raised without written approval.

I think the way that it would work is that you’d be given a specific limit that you can go up to, like $5000, and then you can set a predetermined limit within that amount. If you want to change it in the future, you can go up or down within that amount without impacting your score. Anything over the $5000 and you’d be subject to credit approval and so forth. There hasn’t been a lot of information released on that, so I’m just speculating, but that makes sense - at least, in my mind.

I think this type of card would be a great starter card for preteens and teens. Parents could get the card and set a very small limit, maybe $200 or less. They could have the card declined at places like the mall or other frivolous stores as they deem necessary. It can be used to get gas, car maintenance, school books, that sort of thing. Anything outside of those items would then be declined per the parameters. The same holds true for adults that need to relearn how to manage a credit card. With limits and restrictions in place, they can learn to curb their spending habits and reduce their financial risk by avoiding the overspending trap.

What are your thoughts on this? Do you see this card causing more harm than good, or do you think like me and see it as a benefit?

Popularity: 11% [?]

What I Think of Dave Ramsey

I get asked about Dave Ramsey a lot. Several people come into the credit union spouting the words of Dave Ramsey and then ask if we know who he is. Well, any banker worth their salt should know who he is. He’s only made our lives more difficult when it comes to educating people about the proper way to handle debt. But, recent conversations have prompted me to address the matter of Dave Ramsey and the debt snowball on this forum, so here goes:

My opinion of Dave Ramsey is that he’s horrible with math and probably not so good at psychology, either.

I’ve posted before on the fact that I don’t like the snowball method. I understand the reason for it existing, but I don’t think it makes good financial sense to teach people a method that costs them more money just because it may make them feel better.

I like the idea of taking things slow to achieve financial success, which is the basis of his 7-step plan; however, I don’t agree with some of his methodology. By the way, just in case anyone isn’t familiar with Dave Ramsey, he’s the guy that invented the debt snowball method, i.e. you pay your debt down in order from the smallest amount to the largest irregardless of interest rate. He has his own radio show and he’s also got a television show somewhere on network TV, but I’ve never seen it. His 7-step process looks like this:

1. $1000 to start an emergency fund
2. Pay off all debt (except the home) using the debt snowball
3. Build 3-6 months of expenses in savings
4. Invest 15% of household income into Roth IRAs and pre-tax retirement accounts
5. College funding for children
6. Pay off home early
7. Build wealth by investing

First and foremost, I’m a firm believer in paying yourself first and continuing to do so even when money’s a little tight. If you don’t, you’ll never find the money to save. Likewise, if you don’t have an emergency fund with 3-6 months expenses in savings, you won’t be making any payments on anything in the event something happens with your job. With that said, one and three should be combined.

I’ve already mentioned that I don’t like the debt snowball method, so for me Ramsey’s number two is ridiculous. As a financial “expert,” he should be teaching people the right way to manage their debts and offer advice on how to overcome their discouragement with regard to paying off those high interest debts. He shouldn’t be offering easy-out solutions that don’t teach people the value of working to pay down their debts. Beyond that, I’m just opposed to giving financial advice that costs people more money.

I think what people need to do is sit down and work a side by side comparison of the debt snowball and the traditional methods. Compare the time it takes to pay everything off and the amount of money spent at the end. Once they see the numbers in black and white, I think most people will fully begin to understand why so many financial experts are against the debt snowball. However, I realize that for some, this is the only method they’ll use and there’s no changing their minds. As you wish, but you’re still paying more money than you should and I imagine there’s other things you’d like to be doing with that money!

Investing into pre-tax retirement accounts and Roth IRAs is an important step for taking care of your retirement needs, so I’m good with number four. Your retirement is up to you as no one else will take care of it. I will add that this should not be neglected while you’re paying down your debts. And to finish off the list, the last three are fine with me as well.

So that makes my list a six-step process that looks like this:

1. Build a savings account with 3-6 months worth of expenses
2. Pay off all debt (except the home) using the traditional method
3. Invest 15% of household income into Roth IRAs and pre-tax retirement accounts - with the caveat that this is not neglected at any point in the overall process
4. College funding for children
5. Pay off home early
6. Build wealth by investing - be sure to diversify your portfolio

I was talking to a member today who was a huge fan of Dave Ramsey. He asked me if I knew who he was and I said yes. He went on about how his advice was great and he’s working to pay off all of his debts, etc. He was even opening an account for his emergency fund and dropped about three months worth of expenses in it. Then he asked what I thought…Something you have to understand about me is that I don’t like to sugarcoat stuff, especially when it comes to finances. I’m a bit like Suze Orman in that I tell it like it is. People need to hear the truth.

So, I told the member that I’m not a fan of Ramsey’s, but that I was glad he was opening the savings account. He asked my why I didn’t like Ramsey. I told him everything that I’ve said here and then I told him I would show him. So we sat down with his debts and worked the numbers both ways. If he did the debt snowball method it would take him 29 months to pay back his debts and it would cost him $8945 in finance charges. If he paid his debts the traditional method it would take him 27 months and only cost him $7988. That’s a difference of $957. So, to me it’s clearly obvious that the traditional method was better. I don’t think he’d ever considered it that way before because he seemed blown away. We talked about some other options to shorten the time span and save even more on the interest all of which he declined, but at least he walked away with better options. And that’s what a financial expert should do - they give you options that help save you time and money. They offer advice on areas you could improve. They DO NOT give you easy-out solutions that cost you more money in the long run!

Ok, so let’s have some friendly bipartisan debate here:

For those who side with Ramsey, why do you like the debt snowball method? For those who agree with me, what’s your biggest objection to it?

Popularity: 56% [?]

13 Ways to Slash your Gasoline Bill

There’s one thing that’s rising almost daily, and it isn’t your paycheck. It’s the price of gas. Sure, there are non-driving things we can do to save on gas: walk, ride a bike, rollerblade, or ride a unicycle (I’ve seen quite a few students use them at our local college campus.) Unfortunately, much of the time, the distance we need to travel or the amount of traffic involved makes it hard to park the car in favor of more fuel friendly options. Truth is, most of us need to drive. Therefore, we need to make the most of our gas mileage and learn how to save money at the pump.

Here are 13 tips to slash your gasoline bill:

1- Slow down. Okay, I’m a lead foot and there are times that I’m more interested in getting somewhere quick than I am saving gas. However, slowing down can significantly improve your gas mileage. Different types of cars are most efficient at different speeds (the average is about 55mph), but most cars lose gas mileage at speeds over 60mph.

2- Maintain a steady speed. When you drive at inconsistent speeds, you waste a lot of gas. Keep a steady distance from the car ahead of you. Use cruise control whenever possible.

3- Turn off the air conditioning. I know, summer is almost here and we love the comfort of riding in an air-conditioned car. Using the AC can cost an extra 10% to 20% in gasoline. But for some of us, we’re okay with that.

4- Close the windows. Having the windows open at a high speed can cause excess drag on the car. Use the air-ventilating system instead.

5- Lose the excess baggage. Heavy cars use more fuel. Lighten your car up by taking out anything that isn’t necessary, especially if it’s heavy.

6- Avoid excess idling. If you are going to be stopped for more than twenty to thirty seconds, turn the car off.

7- Make your car more aerodynamic. Take off any bike or luggage racks or any other car body accessory when you’re not using it. These can cause drag and lower your gas mileage.

8- Check the tire air pressures frequently. Check your cars owner’s manual for the recommended air pressure for your tires. Keeping your tires inflated properly can help your car achieve a higher gas mileage. Check the pressure weekly when possible.

9- Condense your trips. Try to be efficient in your errand running. Get as much done with the least amount of traveling. Plan your routes in advance to avoid wasting gas and time.

10- Avoid stops and starts. Take the freeway or expressway when possible. Slow down gradually when approaching stoplights. Use a light foot on the gas when accelerating and try to avoid stopping where possible.

11- Try mass transit. Research your city’s mass transit options. The average bus, subway, or commuter train ticket could be less expensive than using your own fuel. It also saves the wear and tear on your vehicle. Many municipalities offer discounted fares for students, seniors, and disabled persons.

12- Use the Internet. Search the web for the lowest gas prices in your area. Many local television and radio station websites provide a link of where you can go to find the cheapest prices at the pump.

13- Get your hands on a good Gas Rebate Card. Assuming you can commit to using it responsibly (in other words, paying it off on time and in full every month), a Gas Rebate credit card can potentially save you thousands of dollars every year. We like the BP Visa Rewards Card because it offers a rebate of up to 10% and doesn’t have an annual fee. Not too shabby, but remember: A Gas Rebate Card is only cost effective if you don’t carry a revolving balance!

How are you slashing your gasoline bill?

Popularity: 12% [?]

Sneaky Ways to Save Money

We all know that saving money is hard, especially given the way the economy is going. It’s always the same thing. We say we’ll save on the next raise or when the car is paid off, but we never do. Savings has become something that we do when all of our other bills are paid off and, unfortunately, that’s not working for us. The reality is that there usually isn’t anything left over after we’ve paid all of our bills so we have to change our mindsets in order to achieve any savings.

Now, I say we because I have been guilty of this in the past. I’m very good at maxing out my contributions and then some to my retirement accounts; however, I’m not always so good with my liquid savings. Ideally, you want about six months worth of expenses saved, just in case. And in an economy where the job market is so uncertain, this really becomes important.

Now then, how do we build up a savings account and not feel the crunch anymore than we already do? Here are some tricks I’ve tried that have worked for me (and, they’re working for other people too because Bankrate.com posted a similar article about sneaky practices.)

1.) Treat your savings like a bill

I personally set my savings account up as a bill in my online bill pay that is automatically drafted every pay period. I tried having my employer just take a portion from my check and deposit it to savings, but that didn’t work because in my mind I still had that money. Thinking of it as a bill changes my perspective. I don’t think of that money as mine anymore. It belongs to the savings account. Ok, so technically it’s still mine; however, since I changed my mindset I haven’t pulled from the account like I would before when it was just a transfer from my paycheck.

2.) Live at least one raise behind

When you get your next raise, don’t include the extra money in your budget. Put that money in savings. You’re already used to living on the old salary, so instead of increasing your spending put the extra money away for a rainy day. Then, on the next raise, increase to what the previous raise was and put the rest away. You live behind the raises and it will help you spend less than you make, plain and simple.

3.) Get cash back

Anytime you go shopping and you’re asked if you want cash back, say yes. I know, I know. That sounds very defeatist to what we’re trying to accomplish, right? Not really. You’re not going to spend that money. Take and make a deposit to your savings or put it in a piggy bank you can stash away in your home. Don’t just leave it in the account and think you’ll transfer it because that rarely works out. Plus, as cash back you count it as part of the original purchase and then forget about it. Pretty sneaky, huh?

4.) Fast Food Jar

This works a lot like a curse jar where you add money when you curse. Every time you eat out at a fast food restaurant, add a dollar (or whatever amount you prefer) to the jar. This works on two things at once, if you think about it. If you eat out a lot, this method is going to show you just how much. Each time you add the dollar (or whatever you chose) you’ll see that jar building up with money. It’s great for your savings, but it’s going to make you really consider eating out. It does require some discipline, though. You can’t commit to this and then cheat because you don’t want to pay the jar a dollar. If you don’t think you can do this one, I recommend choosing other methods!

5.) Start your own laundry mat

Put a jar over the washer and dryer and each time you use either, add a quarter. Like the fast food jar, you have to be committed, but it’s a great way to see your savings add up. Once the jars are full, take them to your bank or local grocery store and exchange them for larger bills TO BE PUT DIRECTLY INTO SAVINGS.

Can you think of any other sneaky ways to save?

Popularity: 36% [?]

Arm your Children with Financial Knowledge

There’s a saying that goes, “It’s not how much you make, it’s how much you keep.” My kids are pretty creative when it comes to making money – they have the entrepreneurial American spirit. However, I would like them to learn how to keep their money – or better yet – how to make the money they make grow.

In today’s world, there’s not a whole lot of teaching about how to keep money. We are surrounded by advertisements enticing us to buy the latest and greatest gizmos. Kids are often the most targeted. Think about it: Companies know that teens have jobs and they don’t yet have the financial responsibilities of an adult. They have money to spend- and if you’ve spent any time at a shopping mall, you see the results of that advertising: teens with armloads of shopping bags. Lured. Baited. Caught. Trapped.

So much stuff to buy

The “keep up with the Jones’s” attitude is usually attributed to adults, but think of what children face each day. Your son goes to baseball practice and Gerald Gymsocks shows up with a new professional series mitt. The next day, half the team has a new mitt and a few of the kids even have expensive new cleats. Your son misses a catch and claims that if he only had “that new mitt”, or “if he wasn’t wearing those crummy old cleats” he wouldn’t have missed the ball. He might even get teased – and it doesn’t end there.

There is so much stuff that kids want to buy: cell phones, iPods, gaming systems, expensive name brand clothing, and as they get older, cars. We need to teach our children the importance of being satisfied with what they have so they can save for the future. If we don’t, they will get caught up in the “keep up with the Jones’s – kid version” and will want to spend every cent they get. If our children are armed with financial knowledge, they will be better prepared to withstand peer pressure - and might even start to feel sorry for their friends who are caught up in spending all their money on “stuff.”

The power of compound interest

Teach your children about the power of compound interest to help them understand the importance of saving early. The earlier children learn how to use this powerful tool, the more it can work in their favor. For instance, if thirteen-year-old Sally Savesalot puts $5,000 into a savings plan that earns her 8% interest, in twenty-years, that $5,000 will have grown to $23,305 – without putting in another penny! If the account stays at 8%, by the time Sally is sixty-five, that $5,000 will be worth $234, 508!

On the other hand, Patty Procrastinator doesn’t contribute to a savings account until she is twenty-six-years-old. Patty earns $5,000 for winning a Spam-eating contest and puts the money into an account at 8%, and leaves it there until she is sixty-five-years-old. When she is ready to withdraw the money, it has grown to $100,576 – which is a lot of money. However, Sally had earned more than double that amount with the same initial investment! If children can learn and understand the advantages of saving early – they can have the power of compound interest on their side.

Children also need to understand the other side of compound interest. I frequently make offhand comments to my kids when I see advertisements for “buy now, pay later.” I always have to add, “Yes, you can have it now, but it will take you forever to pay it off, and you’ll end up paying at least double or triple the amount.” My kids have heard me say it plenty – and I don’t think they will ever want to buy now, pay later.

Financial knowledge early equals more financial security in the future

Sure, our kids will still want to buy those cool gizmos and gadgets every once in awhile – but they will also know that gizmos and gadgets break, go out of style, or wear out. If our children are armed with financial knowledge, they will be less tempted to buy stuff. They will be motivated to invest their money in order to secure a better financial future.

Popularity: 24% [?]

Teach your Children about Finances Part - II

Children and teens need more financial savvy as they get older.  They start earning more money and they have more expenses.   They are also ready for more depth in their financial education.  While it’s important to teach your children about finances, it’s also important to let them make a lot of their own decisions (within reason) about money.  Experience is a great teacher!  

1-  Help your child set some goals.  Discuss with your child some financial goals and write them down.  Post his goals in a place where he can refer to it often.  If your child has goals to work toward, he is less likely to squander his money away on consumables. 

2-  Help your child budget.  Get some sort of notebook or bill book to keep track of expenses.  My oldest son has a composition notebook that he uses to write things down.  Each month, he writes down all the expenses for the month.  He also writes down his earnings and he figures out where to allocate his money.  Any extra money goes into a savings account.   

You could also have your child save receipts to help track spending.  It can be a real eye opener to really see how much money went toward buying soda and potato chips!

 3-  Read and discuss good books on money.  There are lots of wonderful books about money.  Give a list of book options to your child and let him pick one to read.  Plan a date to discuss the book (you will need to read it too!)  I like to take my child out for an ice cream cone or for a walk in the park while we discuss the book.  Ask your child what he liked or didn’t like about the book.  What did he learn?  Did he agree with what the author had to say?  Try and pick a new book to read each month. 

Here are some of my family’s favorites:

•      Rich Dad, Poor Dad for Teens
•      The One Minute Millionaire   
•      Growing Money     
•      The Kids Business Book
•      If you want to be Rich and Happy, Don’t go to School 

4-    Play games together.  Games are a fun way to learn about money.  My kids especially like playing Monopoly.  Robert Kiyosaki’s Cashflow for Kids is another good one to play. 

5-  Let them pay for more of their expenses.  Kids learn best by doing.  Let your children pay for some of their expenses.  Once kids are in charge of paying for their own things, they learn how to be frugal in a hurry! 

6-  Teach your kids about investing.  Let your children do some research on different types of savings accounts.  Take them to a bank or credit union to discuss some different options with a financial advisor.  Teach your kids about the Stock Market and let them do some research on different companies. 

I recently found a simulation game online called The Stock Market Game designed to teach children to learn about investing.   Kids are grouped into teams and they “invest” play money on real stocks.  See if your child’s school would be interested in participating in the next simulation scheduled for October 2008.

 http://www.stockmarketgame.org/index.html   

As you teach your children about money, you will find that you have more financial savvy yourself. 

Popularity: 25% [?]

Six Ways your Kids can Help out with the Budget!

Is the rising price of food and gas wrecking havoc with your monthly budget? Put your kids to work – after all, you use the gas to take them to soccer practice and they eat the food that you buy for the pantry. I’m not talking about having your five-year-old flipping burgers for eight hours a day (there are laws against such things, you know.) There are things that kids can do to make a difference in the monthly budget. Heck, even if your family is rolling in dough, it doesn’t hurt to have your kids do their part to help with expenses – it’s good practice for when they’re adults.

1- Let kids start paying for their “stuff”. If you’re at the grocery store and Junior begs you to buy him a lollipop, tell him that he is now in charge of buying his treats and toys. Make sure you also do plenty of teaching about the value of money and savings, but let Junior buy some of his own things.

As Junior gets older and starts earning more money, let him pay for more of his expenses. My oldest son has a cell phone and I don’t pay one penny of his bill. Let me tell you, he is real careful not to go over on minutes and his careful not to download too many extras - well, he doesn’t anymore. One month of paying $0.45 per minute because he exceeded his airtime minutes was enough to keep him careful about such things.

Kids can help pay for their own clothing. Parents don’t need to fork out $75 for designer jeans. You can give your child a set frugal amount of money for their clothing budget. If they want to spend money on expensive name-brand clothes, let them make up the difference.

2- Teach them to cook from scratch. In our busy lives, it’s all too easy to grab dinner at the fast food drive-thru. Convenience foods fill our shopping carts because, well, they’re convenient. Not only are fast foods and meals-in-a-box expensive, they are bad for our health.

It takes time to prepare healthy meals from scratch. This is where you can put your kids to work. Take some time to teach them how to make meals. My thirteen-year-old daughter is the bread maker of the family. This has saved us a lot of money. She makes five loaves at a time and we freeze any that we aren’t going to use right away.

Have your child wash and chop enough vegetables for the week. That way, you have vegetables ready for whenever you need them. Even the youngest child can help out. My two youngest children like to wash the lettuce in our salad spinner for our dinner salads. I have a friend that assigns each of her five children a day of the week to fix dinner. They plan what they will make in advance and then do all the cooking.

3- Assign your child to be on Utilities Patrol. Teach your child the importance of conservation. Let him look at the utility bills and ask him for suggestions for ways to lower the usage for the following month. Make it a game to see how much you can lower your utility bills. Play board games or read in the evening instead of watching television to help cut back on electricity. See who can get clean while taking the shortest shower to help save on the water bill.

4- Give your child a garden to take care of. Food is expensive these days, and a lot of the time, the quality isn’t very good. Let your children help plant and take care of a garden. If you have a big garden, maybe your children can each have their own rows or sections to take care of. I like to have raised garden beds. They’re easier for me to take care of and I don’t get as many weeds. It’s a great experience for a child to have his own garden box. Let them plan what vegetables to plant and show him how to take care of them. Growing vegetables is a great way for children to help with the family budget.

5- Let them come up with ways to save on gasoline. Brainstorm with your children about ways to save on gasoline. Could you consolidate trips? What about carpooling with friends? What about (gasp) walking? I saw some pictures recently of families traveling by large bikes in India. Some bikes had large baskets or carts attached to them for hauling the entire family. I got to thinking that having one of these family bikes wouldn’t be such a bad idea!

6- Have a family council. Sit down as a family and let your kids see how a budget works. Get the bills out so they can see how much money it takes to run a household. When it comes to miscellaneous expenses, get your children’s input. As parents, you have the final say, but kids usually come up with some great ideas. Tell them you have “X” dollars for the monthly entertainment budget and get their ideas on how to make the most of it.

There are many things that kids can do to help with the family budget and they will learn valuable life skills in the process. So, go ahead – put your kids to work!

Popularity: 23% [?]

5 Ways to Teach Little Tykes About Finances

It’s important to teach children about money from the time they start earning their first pennies. Kids might learn about money from a textbook at school or they might learn with “play” money, but they also need to have experience with real money in the real world. Kids are curious about money. My six-year-old loves to collect pennies and put them in a jar to see how many he can accumulate. Children learn early that if they get a certain amount, they can start buying things.

Here are some ways to help your little tyke learn about money:

1- Teach children the value of money. Put a pile of coins on the dining room table. Start with pennies and teach your child that each penny equals one cent. Then move on to nickels. Put five pennies next to a nickel and tell your child that it takes five pennies to equal one nickel. Then do the same with other coins: five nickels equal a quarter, but so do two dimes and a nickel. I can also use twenty-five pennies.

2- Give them a place to put it. It’s nice for kids to be able to see where their money is going and to visually watch it grow. My youngest kids have a three-section savings box for their money. Each section has a specific purpose: one for savings, one for spending, and one for tithing. When my kids earn money, I help them put their coins and dollars in the right section. When they have a certain amount in their savings section, it goes into a savings account at the bank.

3- Teach kids that work equals money. Let kids find different ways to earn money. I remember being only about seven or eight-years-old and crushing up rose petals to make perfume. I think I may have even used my mom’s blender for that purpose (sorry, mom.) I went door-to-door selling my fragrant perfume to the neighbors. My business venture didn’t make me a millionaire, but I learned a little about creating a business, marketing, and how to budget all those quarters that I earned.

4- Let them pay for things. As parents, we provide the necessities: food, clothing, shelter, and educational necessities. There’s no parental contract that says that we need to bribe provide our children with the coolest toy of the week. If your kids really want something, let them buy it with their own hard-earned money. They’ll probably take better care of their toy too.

5- Allow them to make mistakes. It’s painful to watch children make mistakes - especially when it’s so easy for parents to step in and prevent pain and tears. Think of it this way: It’s much easier if a child learns from their mistakes while they’re young. If a seven-year-old decides to squander away his money on Dum Dum suckers and doesn’t have enough to go to the movie with his best friend – he’s learned that he should budget his money a little more carefully next time. If someone foolishly spends his money when he’s older and living on his own, he may have to skimp on the food budget, gas allowances, or even rent money.

Discuss money on a regular basis with your child. Help your kids make goals and learn how to save. I know of some parents who will match any dollar amount of money that their children put into savings. If we start teaching our little tykes early about money smarts, they will have a great head start on their future.

Popularity: 17% [?]

How to Balance the National Budget

Now, I’m no economist and I may be simplifying this a tad, but I would think the same basic principles of balancing a personal budget would apply. Live within your means and stick to what you said you were going to spend. If you go over in one area, cut it from another. Simple, right? Apparently not.

The problem I have with where we are as a nation is that we continue to borrow from other countries - like China. I just don’t like the idea of us being indebted to a country sitting on nuclear warheads with no intention of getting rid of them, at least not peacefully. That thought disturbs me. So, I’m extremely interested in what our three presidential candidates plan to do with the budget should they be elected.

I’m probably going to start a firestorm here, but oh well. McCain has got to be the most ridiculous excuse of a presidential candidate I’ve ever seen! First he admits that he doesn’t really know how to work a computer and then he admits he doesn’t really understand economics. When asked how he intends to balance the budget he can’t really answer the question with any specifics, other than to say that he plans to repeat what Reagan did in the 80s. I was only a toddler in the 80s, but didn’t the deficit triple under Reagan’s administration? Tax cuts and increased military spending were a large part of that, which Bush has been doing as well and we’ve seen how that’s turned out. I’m thinking Reagonomics should be left to its era and not rehashed!

When the budget question was posed to Clinton, she did a lot of Bush-bashing, which isn’t without warrant, but I tire of her personal attacks. I want to know how she intends to fix the budget. I want to know what her plans for budgeting are. She says that “it will take hard work and tough choices, but I’m confident that we can put America back on a path to balanced budgets.” Ok, what the hell does that mean? Is she going to increase taxes? Is she going to cut entitlement and defense spending? How does she plan to balance this budget? If anyone knows, please tell me because I haven’t been able to decipher it through her mud-slinging.

Obama is the only candidate to give a straightforward answer on his plan to balance the budget. He says that the first step is to “restore pay-as-you-go” spending rules so that we do not dig ourselves further into debt. He intends to pay for the ventures that he’s proposed by cutting spending in other areas or finding new revenue sources (here’s a thought: instead of politicians lining their own pockets with all that lobbying going on, why not put that money to good use somewhere else?). Unfortunately, finding revenue elsewhere usually doesn’t bode well for us in the middle. But, Obama does touch on that concern by saying that he will protect the tax-cuts for the middle class and take away the unnecessary tax-cuts for oil and gas companies and the wealthiest Americans. Furthermore, he plans to prioritize his spending as he’s aware he may not have enough funds to do everything right away. If he’s telling the truth, that may be a good start. If he doesn’t win, whoever does would do well to consider his ideas.

I’m not sure which way I’m going to go come election time, but I do know it’s not going to be McCain. But, on the issue of balancing the budget, I side with Obama. His plan of action makes perfect financial sense. Like I said, I’m not an economist, but I am a financial advisor to my clients and that’s the advice I give. If you want a balanced budget, you have to prioritize your spending and watch it. If you go over in one area, cut another to keep it balanced. It’s not hard to figure that out, but there has been a lack of control over the budget in recent administrations.

What are your thoughts?

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Don’t Judge a Book by Its Cover

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Being in the banking industry I get asked all the time whether I see archetype customers walk through my doors, i.e. the big spender or the tight wad. The answer is yes, we see these kinds of people, but what we don’t see is a stereotype. What I mean is, not all women are shop-a-holic’s and not all men wearing designer suits have matching bank accounts. What you see isn’t always what you get.

If I’ve learned anything it’s that people are surprising. I’ve had customers that have walked in dressed as a street urchin and smelling to high heaven. The natural assumption is that they are homeless and penniless - living off of welfare and our hard-earned tax dollars because they’re too lazy to get a job. But, when you look at the account it tells a whole different story completely. They’ve got money, and lots of it. Conversely, I’ve seen customers step out of million dollar cars and wearing designer suits walk in. They’ve got that swag, you know, the walk that reeks of money. But, when you pull up their account you’d find they’re usually overdrawn. How’s that for irony?

You can’t make a judgment about someone based on the clothes that they wear, the car that they drive, or the walk that they walk. You just never know!

I worked for a bank whose CEO was the kind who liked to make assumptions about people and their money. At one of our annual meetings, he flat out told everyone that if we were opening an account for someone with only $25 and someone else walked in with $1 million to deposit, we were REQUIRED to leave the customer with no money and talk to the customer with money. Color me stupid, but how is that a non-discriminatory practice? Furthermore, what does that say about the type of business that he runs and what does that say about me for working there? Needless to say, I didn’t stay long.

But, as an example of how that backfired on him, we had a situation where an employee did what he was told. There was a man who walked in with a few thousand dollars to deposit into a free checking account. The employee began opening the man’s account and as they talked, the employee made the assumption that this few thousand was all the man had. So, when another customer walked in and wanted to open an account with $100,000 - guess who the employee picked as the better customer? That’s right, the $100,000 man. As it turns out, the guy with a few thousand dollars was just giving the bank a try. He had over $3 million in total assets that he was looking to move because he was unhappy with his bank. Had the employee done his job instead of making assumptions, he would have discovered this information. But, he assumed the guy with $100,000 was a better customer and so he focused his attention there, leaving someone else to handle the man with a few thousand dollars.

Just in case you’re wondering, the guy with $100,000 turned out to be kiting money between three different banks - all of which was part of a much larger money laundering scheme. I doubt very much the employee is still in the industry. All he saw were dollar signs and incentives for him. He missed the warning signs of trouble and he snubbed someone with much more legitimate worth. I believe the CEO was also relieved of his responsibilities when his comments and this situation were brought before the stockholders.

Honestly, the biggest difference between those with money and those without are their spending habits. If you pulled an average three month statement for someone without money and looked at it, you’d typically find erratic spending behaviors - eating out is the biggest offender! If you looked at someone with money, you’d see less spending across the board and you definitely don’t see a lot of eating out.

So, let’s do the math. Let’s say you eat out three times a week, at least two meals each time (believe me, this isn’t a stretch, I’m probably underestimating). I live in Austin, so the average meal costs about $10 roughly. This takes into account sit-down meals and tip. So, on average, a meal costs an individual $10. At two meals, three times a week you’re talking $60. Multiply that by four weeks in a month and that’s $240 just to eat out. But wait! Take $240 times 12 months and you’ll see that people spend $2880 a year just eating out - this doesn’t include the additional money spent on groceries each month.

This example is one I talk about a lot, EVERY DAY! People come in and they can’t understand why their account is overdrawn, what could they possibly be spending their money on? When we pull their statements and look at them, eating out is a large chunk of where their money goes. And the thing is, it’s a tough habit to break. People reason that they have to eat and it’s no big deal - I’m guilty of that myself! But those who have money have learned frugal living - unless you’re Paris Hilton and have money handed to you, but that’s another story.

If you truly sit down and examine your budget, you can figure out a way to save money and build wealth. It may take some cut-backs and sacrifices, but it’s better than struggling month to month. I often wonder how those customers who pretend they have so much money actually live the lie. It’s got to be a lot of pressure and a lot of lying.

Bottom line: Don’t assume that you know someone’s worth just by looking at them. They may drive a beat-up Honda because they know a depreciating asset isn’t the way to build wealth. They aren’t concerned with outdoing the Joneses; they’re concerned with ensuring they have a financial future. On the flip side though, don’t assume just because someone has money that they actually know what to do with it. Take the fact that Jose Canseco just foreclosed on his mansion. He bought more than he could really afford given his financial situation and now he’s paying the price.

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