Wednesday, October 5, 2011

Things my mom taught me about money

Moneyball. My piggy bank, of course.

In most social situations, financial talk, especially of the personal variety, is strictly verboten. But on a blog that hinges on working (earning) and wearing (spending), I'd be remiss if I didn't talk about financial stability and responsibility. It's taken me a long time to work out how to address this sensitive topic, and as I do in many a situation, I've turned to my mother.

My mother is an accountant. She's worked with money nearly daily for decades. And she's given me a lot of advice. Some of it I've taken to heart, some of it I haven't. She lives what she preaches, and she and my dad raised my brother and I in a household where we always had plenty of food on the table and clothes on our backs, but we were told "no" regularly, not to take away the joy in life but to take the importance off of material goods. Like most of what my mother taught me, I didn't appreciate it then, but I certainly appreciate it now.

It is worth saying that this advice may not be right for you and your situation, and this post is not intended to pass judgment on anyone's financial decisions or situations. My hope is that this post opens up a discussion and that readers will share the lessons they've learned in the comments so that we can all benefit from the knowledge.

Here are some of the most valuable financial lessons I've learned from my mom.

The only things worth going into debt for are a house and an education. In my opinion, there are definitely some exceptions: a car if you don't have one that works, food for your family, health insurance and care, etc. I'm sure my mom would agree in those situations. Her point was that very few things are necessary to live a good life, and if you can't afford a newer car or nicer clothes, it's better to make do with what you have than go into debt for short-term satisfaction. Debt is not only difficult to get out of, but often has lasting consequences.

Along those same lines, interest is a waste of money. Unless you have no other way around it, why pay up to 20% or more on top of the value of what you're buying? For a bargain hunter like my mom, letting a charge sit on her credit card was undoing all the effort she'd put into finding a good deal.

Don't pay full price for clothes, shoes or accessories. Even as a child, we got new clothes only if they were on sale. I often wore hand-me-downs from my older cousins. It wasn't because we couldn't afford full-priced clothes, but because my mom didn't think it was worth it. Most things go on sale eventually if you're patient, and if they don't, you'll probably forget about them soon enough. I have definitely found this to be true.

Half of your paycheck should go into savings. Some context on this: my mom gave me this advice during my allowance-earning teenage days, before rent and before independence. In theory this would be great, but in practice it is nearly impossible to do if you have a regular job, pay rent or a mortgage, and still want to eat.  Experts generally recommend that 10%-20% of your income go straight to your savings account, but you should figure out what works for you based on your income and expenses (for K and I, it varies by month but we aim for at least 15%).

Instead of raising your monthly debt payment to pay down debt faster, pay the minimum and put what extra you would have contributed into a savings account with an interest rate higher than that of your loan. My mom's reasoning was that a high-interest savings account (usually found online) will help your money go further, and when that savings account balance equals or exceeds your loan pay-off balance, then pay off the rest of it at once. I could never bring myself to pay just the minimum on my loans, but I did get a high-interest savings account. Based on my mom's advice and armed with a full-time job, I repaid over $20,000 in student loans in about three years.

Credit cards are not evil. They've gotten a bad rap over the years, but really, a piece of plastic is harmless. It's the abuse of the privileges that come with the plastic that can get you into trouble. My parents did not help their children sign up for a credit card, but encouraged us to make a habit of smart spending by keeping only a debit card first. I had a debit card only for five years before I finally signed up for a student credit card (as a 22-year-old grad student), and I use it basically the same way: spend money I have, pay off balance every month. I guess I could have lived without a credit card if I wanted to, but I was concerned about building credit and being able to get a home loan in the future. I actually got rejected for my first credit card application because I had no credit history.

Give freely and regularly. For all my parents' emphasis on saving, they are extremely generous. They give regularly to their church and other charities, have helped support their elderly parents for decades, and often help out friends and family in need without any expectation of repayment. To them, the ability to help others is one of the rewards of their frugal lifestyle. Personally, this is one of the most important parts of my own financial philosophy and gives me good perspective and incentive to stay financially healthy.

What is the best financial advice that you've been given (or that you've learned)? I'm always looking for more knowledge in this area.

10 comments:

  1. Great post, Angeline. My parents taught me a ton about money as well!

    Re: credit cards, I thought they were evil for the longest time as well. I saw the light when my credit app for furniture was rejected due to lack of credit history. I also only use my credit card with money I currently have, and pay it off each month.

    My husband and I have found some great blogs with money-saving tips and investing tips: http://www.mrmoneymustache.com/ and http://earlyretirementextreme.com/

    Last, I think my husband and I are also realizing that there's no "magic trick" for beating the stock market or turning a profit on investments. We have a rental property, and we earn every cent on that by cleaning it, showing it, and maintaining it ourselves. High-risk high-reward is true, but generally the risk comes in the form of hard work (researching, if nothing else!)

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  2. i love this post! my mom was a financial adviser for ING. the best advise she gave me was, "pay yourself first." it goes hand in hand with what you say about opening a high interest savings account. i struggled with the decision to quadruple my student loan payments or save it all... ultimately i decided to save and then pay off in a lump sum later. it just makes more sense that way when i'm talking about a loan with 2% interest. plus, you've got the money in savings in case of an emergency instead of putting it ALL into repaying something so minimal.

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  3. This is such good advice. My favorite ideas are paying off your credit card every month and giving regularly. There is no reason to be paying interest. I also find that when I give to others, I leave room for other good things to come into my life.

    I'm so impressed that you paid off $20,000 in 3 years! That's amazing.

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  4. Your mom's a smart lady !
    In my case, I got my "knowledge" from my grandmother.
    She always SAVED and taught me to.
    It started with opening an account for me at the bank when I was a kid followed by the typical piggy bank. Since I could not go to the bank and deposit all the pennies and quarters I would throw it in the piggy bank and whenever I got to the bank I would then deposit.
    I still do this today and so does she.
    Any EXTRA money from other jobs that she made she would put into a savings account.
    Any extra money earned (bonuses from work) went into an account.
    There is a motto she always says that translates to something like : Champagne taste but money for beer.
    My mom on the other hand was super disorganized.
    I was able to compare and having people call me because i owe them was not an option for me.
    At this point in life I buy my car from my own savings (make a loan and use my savings as guarantee, that way the interest is lower).
    I have paid off my MBA, purchased a lot of land (all paid for), purchased a tiny apartment (all paid for) and have a mortgage on 2 homes (one will be paid off in 2 years).
    Tickets to vacations are paid in cash and everything else goes on the credit card.
    We (husband and I) share one credit card and make an effort to pay most of it by the end of the month.
    My husband says I am stingy but when he sees the results I think he understands.

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  5. @ Ashley - Great resources--thanks for sharing! I agree on the investments...that's my next step is doing more with my money, but I certainly don't expect a windfall.

    @ Lorena - I do the same thing with my change (although my quarters now go mainly to paying parking meters). It's great that you had two examples (even though one wasn't so good) and learned a lot from both. Sometimes it's hard to give up instant gratification, but I agree--it's so worth it.

    Ladies, these are all great pieces of advice! My mom read it and actually emailed me this morning to say that the advice in the comments was really good. :) Love it!

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  6. I lve this post. Such great advice. My parents taught me to save starting really young so I was depositing into a credit union account at 11 through high school and had enough cash to pay part of my college tuition one year. It wasn't much but it made me feel great to know I had helped out.

    Savings and investing are th big things for me. I can save like crazy but knowing what to invest in can be difficult. I am learning though

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  7. This is great advice, especially about the savings account. It's great to see you balancing a blog about style with financial stuff. Why pretend the two don't go hand in hand?

    My mom added me as an authorized user on one of her old cards when I turned 18. It was kind of like she was cosigning a loan; it gave me a little bit of credit history right away, which enabled me to open a small-line credit card and build my own history. I've been obsessive about budgeting and building good credit ever since (e.g. I request my right to a credit report from the 3 agencies annually, increase my limits whenever I can, carry no balance month-to-month, and never close an old card).

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  8. @ Anemone - So true! I think I've waited so long because I really wasn't sure how to put my thoughts together into a cohesive post. Plus, I'm the first to admit I'm not as conscientious about my money as I should be (not that I don't know where it goes, but I'm not super active with it).

    Those are some great habits of yours...kudos to you for taking control!

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  9. I just wanted to say I am really enjoying your blog. As a recent college graduate (debt/student loan free...I might add) with a new job to boot your advice has been very helpful from navigating relationship development at work to finding office appropriate attire. I can't wait to keep reading. As for this particular post about finances the best advice I can give anyone is to teach kids to be responsible with money early. Personally, I have had a great mentor when it comes to money (my mom) and I have been watching the Suzy Orman show since I was eight which is also when I got my first checking account. Controlling my own finances definitely made me more cautious when it comes to spending and often makes me evaluate things based on whether something is a want vs. a need. My newest hobby is also a huge money saver for those of you who want to squeeze more money out of the family budget to add to those savings accounts. The third biggest expense in my budget besides Rent, Car, & Insurance are Groceries I used to spend around $300/month. While food is obviously a need I recently discovered I DON'T need to pay retail prices. I stumbled on a website called southernsavers.com which teaches you the basics of couponing and with minimal effort (the website does most of the hard work for you) its easy to save 50% off of your grocery bill today I got $150 worth of groceries for $55 simply by couponing this even includes fruits and veggies. Most of my extra savings is going towards my retirement account and emergency fund but I also think it is important to give back to the community so my newfound hobby coupled with some of my savings is also being donated to my local food pantry.

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    Replies
    1. Hi Anonymous! Thank you so much for your kind words. I've always been intrigued by couponing, but it doesn't come naturally to me so I give up pretty quickly. Maybe it's time for another try. :)

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