My dear mother-in-law bought my oldest son (6 1/2), a bank that has three sections:
- Tithing (10%)
- Savings (45%)
- Fun Money (45%)
It’s a budget 🙂
My 4 1/2-year-old doesn’t have a bank yet (anyone have any recommendations on a good one that’s sturdy? And preferably makes only Fun Money and Tithing accessible?). He’s following the same 3-Category approach though — using the bottom drawer of his dresser. Front-left corner, tithing. Front-right corner, fun money. Back-right corner, savings.
Smart of him to make the savings least-accessible.
The kids don’t earn a lot of money. Some jobs they just have to do. Other jobs earn them popsicle sticks. Each popsicle stick is worth a nickel and on Sundays they cash them in. We did popsicle sticks instead of money for efficiency’s sake. And it helps me give them change that will be evenly split 10/45/45.
My 6 1/2-year-old has starting to really get into this whole money thing though. The other day he asked me why we don’t just create money (we’d go to prison), who creates it (the government), who they give it to (banks), how we get it (earn it) and, specifically, how I get it by playing on the computer all day (what?!).
My 4 1/2-year-old still just sees it as a way to acquire chewing gum.
Though the Power of Finite Resources has even begun to have its effect on him.
Example I: No Concept of Finite Resources: Shopping anywhere with him is exhausting. He’s constantly telling me he wants this, and that, and that…that…oh and this is so cool! He wants everything. This only happens when he’s under the impression that I’m buying with the money I earned playing on the computer.
Example II: An Instant Understanding of Finite Resources: My 4 1/2-year-old wanted to spend his fun money. Previously, we’d just stuck all of their money in the bank but they had no concept of it, and couldn’t really be motivated to earn any more of it, because they never got to feel it (at least not for long). So we went to the bank and withdrew half of his money (the other half was savings) totaling $13.64.
I requested to the teller that she give us all that dough in singles.
I also made sure my son had to hold it, so he could feel that fat wad bulging out of his 4T front jean pocket. The wad barely fit — not due to the size of the wad, but the size of the jean pocket.
The Power of a Wad of Cash
We headed to Target and the hunt began.
And frankly, after 35 minutes and six loops through the toy aisles, I wasn’t certain it would ever end.
My son was experiencing the power of finite resources.
(He finally settled on some Star Wars Legos that cost just under his total cash on hand. He was thrilled he got some change back. Much to my chagrin, he exhibited no emotional response when handing the cash over to the cashier. The distance from the back to the front of the store was great enough that he had likely already been playing with his toy for hours in his mind’s eye.)
You should force yourself to experience the power of finite resources frequently. (I wanted to coin the phrase ‘finitism’ for this principle, but, lo and behold a bunch of math geniuses already defined it as something that — upon reading — made my brain explode.)
Rule One is to Give Every Dollar a Job. And it’s ‘rule one’ because it’s the foundation for increased awareness, which leads to better money management decisions, which leads to alignment between your money and your goals, which leads to you reaching your goals…which leads to financial peace.
The You Need A Budget software interface is purposefully built to constantly tell you that you’re dealing with finite resources. Budget $60 for entertainment and you just saw $60 deducted from what you had Available to Budget at the top. Scroll down. The Available to Budget number doesn’t scroll out of sigh. Collapse the header. It’s still the only number visible in the collapsed header. It’s always there.
A short jaunt down a food industry side-lane
Think about the huge problem that the food industry has on its hands. It needs to figure out how to increase profits year after year. The only way it can increase profits is by making food cheaper by:
- Implementing more efficient (alarms may be going off here already) processes,
- Using less expensive ingredients (other alarms…), perhaps lower-quality ingredients, or
- Getting us to eat more.
I think they’ve been pretty successful!
Now consider the financial industry — specifically the people who hawk the plastic (both credit and debit cards). In order to increase profits (under what appears to be ever-increasing regulatory pressure), they need to perhaps:
- Implement more efficient processes. Picture robots instead of people…that sort of thing. [In robot voice: YOU. ARE. LATE. ON. YOUR. PAYMENT. PAY. NOW. OR. SUFFER. THE. CONSEQUENCES.] (You should not have pictured Wall-E. More like I, Robot.
- Use less expensive… plastic? Okay, my exact parallel broke down. But, hang with me here…
- Get us to spend more.
They’ve nailed us on the last one.
And so we fight back with Rule One.
We fight back by giving every dollar a job. We fight back by being proactive and deciding well beforehand what we want our money to do. Then we do it. (Notice I didn’t say we decide to restrict ourselves to the equivalent of a grapefruit and alfalfa sprout financial diet. We choose what we want to do with our money. I want to play golf. I budget for it.)
The moment you sit down and begin budgeting for your obligations, you’ll feel two conflicting (but helpful) emotions. You’ll feel stress (Oh my gosh! All we HAVE are obligations! We can’t EAT! Are we obligated to eat?) that will drive some behavior change. You’ll also feel, perhaps deep underneath the stress, an inkling of clarity.
You’ve been reacting to money situations, which has led to some poor money decisions, and perhaps a fairly dire (or at least not desirable) money situation.
Now you’re going stop reacting. You’ll start planning. With clarity.
“Honey, here’s what we have available to budget. We need to… and we want to… which would mean we can’t… but if we set aside…for…then we’ll…hrm…this should actually work.”
And it begins.
Rule Two will come along and increase Rule One’s effectiveness ten-fold, but we’ll talk about that later.