Dear Dave,
What are your views on teaching children good work habits? Many of our friends don’t require their kids to help out or work around the house, but we both strongly feel that instilling a strong work ethic early in life is one of the best things you can do as a parent for your children.
Deshay
Dear Deshay,
I’m so glad you both feel that way. Our culture has made many great advances to ensure the happiness and well-being of children. But too many parents today are so centered on what their children want that they have lost perspective on what their children need.
Perspective, or looking at life over time, demands that you teach children to work. Teaching a child to work is not child abuse. We teach them to work not for our benefit, but because it gives them dignity in a job well done today and the tools and character to win as adults in the future.
In my mind, children should be taught to work just like you’d teach them to bathe or brush their teeth—as a necessary life skill. An adult who has no clue how to tackle a job and finish it with pride is every bit as debilitated as an adult with body odor or green teeth. If your child graduates from high school, and his or her only skill set consists of playing video games, eating fast food and believing the world owes them something, you’ve set up your child to fail.
Another benefit of teaching a child the wonder of work is they may grow to lose a little respect for those who refuse to work. I’m not talking about folks who lost jobs due to unforeseen circumstances and are trying to get back on their feet, or someone who genuinely cannot work. I’m talking about folks who refuse to look for, or accept, gainful employment.
My wife and I noticed that our kids, as they grew older, didn’t pursue relationships with people who didn’t understand the value of work and demonstrate the character traits of mature, hardworking people. And that was wonderful news to us!
— Dave
Dear Dave,
I have decided it’s time to get control of my money. Your plan sounds workable, but I talked to some friends about it, and they think I would be better off using a credit card for emergencies. Can you explain why you advise saving a separate emergency fund?
Leslee
Dear Leslee,
When bad, unexpected things happen, like a job layoff or a blown car engine, you shouldn’t depend on credit cards. If you use debt to cover emergencies, you’re digging a financial hole for yourself. My plan will walk you out of debt forever, and a strong foundation of any financial house includes an emergency fund.
Putting together a fully funded emergency fund is Baby Step 3 of my plan for getting out of debt and gaining control of your money. Before you reach this point, however, steps one and two should be completed first. Baby Step 1 is saving $1,000 for a starter emergency fund. Baby Step 2 is where you pay off all debt, except for your home, using the debt snowball method.
A fully-funded emergency fund should cover three to six months of expenses. You start the emergency fund with $1,000, but a full emergency fund can range from $5,000 to $25,000 or more. A family that can make it on $3,000 per month might have a $10,000 emergency fund as a minimum.
What is an emergency? An emergency is something you had no way of knowing was coming—an event that has a major, negative financial impact if you can’t cover it. Emergencies include things like paying the deductible on medical, homeowners or car insurance after an accident, a job loss, a blown automobile transmission or your home’s heating and air unit suddenly biting the dust.
Something on sale you “need” is not an emergency. Fixing the boat, unless you live on it, is not an emergency. Want to buy a car, a leather couch or go to Cancun? Not emergencies. Prom dresses and college tuition are not emergencies, either.
Never rationalize the use of your emergency fund for something you should save for. On the other hand, don’t make payments on medical bills after an accident while your emergency fund sits there fully loaded. If you’ve gone to the trouble of creating an emergency fund, make sure you are crystal clear on what is and isn’t an emergency.
Also, keep your emergency fund in something that is liquid. Liquid is a money term that basically means easy to access with no penalties. I use growth-stock mutual funds for long-term investing, but I would never put my emergency fund there. I suggest a money market account with no penalties and full check writing privileges for your emergency fund. Your emergency fund account is not for building wealth. It’s an insurance policy against rainy days!
— Dave
Dear Dave,
I have a good job and make pretty good money, but I’m tired of always worrying about my finances and being strapped for cash at the end of the month. I’ve heard you talk about getting out of debt and living on a zero-based budget, but what exactly is a zero-based budget?
Edward
Dear Edward,
The concept of a zero-based budget is simple: income minus outgo equals zero. If you bring home $4,000 a month, you want everything you spend, save, give and invest to equal $4,000. That way, you know where every one of your dollars is going. Not knowing where the money’s going is what kills lots of people’s financial dreams. They think they know how much they’re spending and where it’s going, but they really don’t.
Here’s how you do it. List all your income sources for the month. Your income should include paychecks, small-business income, side jobs, residual income, child support and so on. If it’s money that comes into your household’s bank account, write it down and add it up.
Next, list every single expense you have each month. Rent, food, cable, phones and everything in between. Your expenses vary from one month to the next, and this is why you make a new budget each month. Your giving budget might be high in December when Christmas rolls around. The car budget will spike during months when you pay insurance or renew your tags. Focus on one month at a time.
Now, subtract your expenses from your income. Ideally, this number will be zero. It might take a few months of practice, so don’t worry if it doesn’t balance out immediately. If it doesn’t, it just means you need to do something to bring one of the numbers up, the other one down—or both. If you’re spending more than you make, you need to make some cuts in your spending. If you need to generate more money, get a part-time job or sell a bunch of stuff.
The deal with a zerobased budget is this: every dollar must have a name. That means every dollar has a designated job to do. If you fill out every item in your budget and come out $100 ahead—meaning you have nothing for that $100 to do—you haven’t finished your budget. You have to find a job for that $100. It’s your decision what it does, but if you don’t give it a name and purpose, you’ll end up blowing it and wondering where it went.
Good luck, Edward!
— Dave