How to engage your next gen around finances - Day 2

Written by: Josh Arrington

Welcome to day two of our Financial Basics information.  Today, we are taking on a subject that is crucial to financial success - budgeting.  Sadly, in all areas of life and among people of all ages and economic standings, I am always amazed at how many people do not have much less live by a budget. 

As mentioned yesterday, the goal is not to turn your children into immediate financial experts, but to provide basic understanding and give space for open dialogue on the basic subjects.


We realize that our clients have kids of all ages.  From elementary age to college student, the concepts covered over the next few days will help them understand the news coming out every day, and more importantly, prepare them for being responsible adults.  Knowing the variety of ages at play, each day is developed to provide you the freedom to fit the concepts to the cognitive level of your children.  Be encouraged that going into too much detail may make basic finance intimidating and boring to them, but not pushing learning a bit may mean a missed opportunity or even the message that these are trivial matters.  So jump in fully for 10-15 minutes each day and enjoy knowing your children will learn some things many of their peers may not understand for years to come.

 

day 2 - The Basics of Budgeting

 

Goal: Illustrate the importance of budgeting and provide a starting point for creating a working, livable budget.

 

I. What is a Budget? – Simply put, a budget is the most basic financial planning tool one can have. Done properly, a budget forecasts spending based on expected expenses thus managing stress and creating space to plan for larger expenditures.   


A budget is NOT a record of money already spent.  Once money has been spent, there is no way to predict or plan properly for how to best use those resources.

 

II. What Goes Into a Budget? – All major expenses or expense categories! The precise items may change with age, but the goal is to account and plan for all spending and saving.  For example, a young child may want to budget their allowance to include gum or candy while someone older might cover those items in a "Snacks" or "Groceries" line item.  The important thing is to be as detailed as you need to be to make sure no area of spending is overlooked.

 

LEARNING EXCERCISE:

Take a few minutes to have each child make a list of budget items based on there current lifestyle and activities.  Discuss each budget and fill in any missing areas.

 

Next, make a mock family budget for the month to show what it might look like for them later in life.  Feel free to use the spreadsheet below as a starting point.  Be sure to include any allowances your children receive so they see their starting budget is a portion of  your monthly budget!!  (For purposes of this exercise, choose a round number for income like $50,000 or $100,000 a year).

 

Note:  Be sure to mention taxes in your example.  As Bill Murray once said, “The best way to teach your kids about taxes is by eating 30% of their ice cream!”

 

 

50,000.00

100,000.00

Monthly Gross Pay

4,167.00

8,334.00

Taxes

815.00

2,069.00

Net Pay

3,352.00

6,265.00

     

Expense

Budgeted Amount

Budgeted Amount

Rent

   

Electricity/Water

   

Internet/Cable

   

Groceries

   

Eating Out

   

Car Payment

   

Car Insurance

   

Gas

   

Car Maintenance

   

Cell Phone

   

Entertainment

   

Gym Membership

   

Clothes

   

Generosity

   

Retirement

   

Savings

   

Kid's Allowances

   

Misc.

   

 

III. How Should a Budget be Prioritized? – As may have been noted by now, doing a budget often means having to choose between certain items. There are a variety of suggestions on how much of each month’s pay should be spent on different categories.  One suggestion is to spend 50% on the essentials, 30% on flexible areas, and 20% on future financial goals.

 

The most important rule though is always to budget for the most important things first.  Start with the absolute needs and add wants later.

 

LEARNING EXCERCISE:

To illustrate the importance of setting the right priorities, feel free to recreate the “Large Rocks” illustration with your children.  If you do not have the items needed or time to do so, feel free to watch the video by clicking here.  In the video, the concept of managing time is used, but the same principle applies to finances.

 

The illustration requires a jar, several large rocks (that will fit in the jar), some small pebbles, and some sand.  Basically, the illustration shows that when the large items are put in place first, then fitting in the other items in declining priority (size) is possible.  However, if you put the small things in first, the large things will not fit later.

 

READ MORE

Engage the Next Gen Around Finances - Day 3

PREPARING THE NEXT GEN FOR THEIR FINANCIAL FUTURE


 

Josh Arrington is the Senior Business Development Manager of Archetype Wealth Partners. He is energized when helping high-capacity individuals discover their creative purpose and grow to their maximum impact in that calling. Archetype exists to help families thrive across generations.

 

Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.

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