Start your children investing in the stock market EARLY!!!!

I highly recommend that you start your kids investing in stocks and savings bonds early. They will get it quickly!

Many finance books I have read talk about waiting until the kids are older. I started mine at the ages of 6. Now my oldest is 11 years old and she is very fluent in what it means to invest, diversification and the importance of saving.

Stock trading costs are so low now, this does not take a lot of money (to buy a few shares).

Here is what I do (since this is about learning and not really making a lot of money).

First, I give them an allowance as I describe in earlier posts. Part of that allowance, as well as parts of gifts they get, is always saved up for "College and a House". When they get up to $100-$200+, you can buy a few shares of stock from this "College and House" savings. Also, when they turn 18, this account will be theirs so you will have started them off in life already knowing how to save and invest.

I like to let them pick companies that they use product from:
- Barbie (Mattel)
- Polly Pocket (Hasboro)
- Disneyland and movies (Disney)
- iPod (Apple)
- Marachino cheeries (Safeway grocery store)
etc., you get the idea

The part I try to do is also suggest ones that pay a dividend. Then, every 3-6 months, I pay them the divident payment (while letting the real dividend invest in their account). This lets me reinforce to them the benefit of saving, and how saving pays you back and grows over time. They love getting the EXTRA allowance when the dividend comes in, "Here is $2.14 for your Mattel stock that you own in the company!". They are then excited later to give me more and they LOVE picking companies.
This is so much more exciting, tangible and direct with them. Later on I will talk to them about mutual funds, diversification, etc., but they will always have the memories of owning stocks, getting a return, etc. I can't see myself telling them about mutual funds and diversification if they don't even know what stock is. My approach builds that knowledge.
I only need a few shares to make this work. I cover the brokerage fees myself (Vanguard only charges me $7 / trade). It is cheaper than taking them to a movie.
I opened an UGMA brokerage account and they can see what stock they own and it makes them feel very important (I did have to explain, "No, you don't own ALL the Safeway stores. You probably own a some of the tiles on the floor" :-) ).
I highly recommend you do this to improve the financial literacy and comfort of your kids. If you yourself don't know much about stocks either, it is a fun low-cost way to learn yourself!

Have fun!

Teach your children to save....

One of the reasons many of us may have struggled with finances at some point is that we just never learned the solid basics personal financial management. Please, if you have children, make a concerted effort to break the chain.

Here is one approach I am taking. For each child, I have set up four piggy-banks. Then, starting at the age of three, I give each child an allowance. They get $1 a week for every year of age. This then gets split into the following piggy-banks:

1st) Regular Spending (50% of allowance goes here)
2nd) College & House (40% of allowance goes here)
3rd) Charity (10%)

I actually have these broken out as three piggy-banks with labels on them.
This then lets them start saving from an early age.

Falling off the Wagon....

OK, all this financial advice is great. However, what do you do when you, "Fall off the Wagon" and spend more than you are supposed to and more than you have planned? We've all done it: a new gadget, some unforeseen emergency, a vacation getaway that just wouldn't have been right without a little splurging.

This is what you do. You stand up. Brush yourself off. Put your indiscretion behind you and get back on the wagon. You need the ability to course correct to get yourself back on track. The worst thing you can do is give up and stop watching your cash flow and stop trying to bring down your debt. You need to have a focus on the future. Don't beat yourself up. Try to understand what little mental "trip-wire" made you lose control and see if you can protect yourself.

Here are some examples of ways my wife and I have used to protect ourselves.
- If you are about to spend over a certain amount, let's say $150, you check in with your partner and make sure you both agree
- If you are shopping online, save your electronic "cart" and make the order in a few days (I've gotten rid of a lot of impulse purchases that way).
- Shred your credit cards and just carry a debit card instead.

Remember, pay yourself first and keep focused to not over spend. Don't give up when you make a mistake and just keep focused on improving.

Pay down debt or Pay off 401k???

A number of people have asked me if it makes sense to put money into a 401k or pay down debt first. There are two parts to this answer:

First part: Absolutely put in the amount into your 401k that you receive a match on. If your company matches the first 3%, put 3% in. If your company matches $2,000, then go for it.

The second part of this answer depends somewhat on you.

If you are truly, sincerely, absolutely ready to build your financial future and crush your debt, then you should pay down your credit card bill. If in the back of your mind, you are worried that once your bills are down that you might go crazy and spend like tomorrow again and rack up that debt all over again, then put more in your 401k.

I hope you are the former. However, you have nobody to fool here but yourself. Do not forsake your future by spending on credit cards. Do not forsake your future by not paying off your debts. Do not forsake your future by never putting money in a 401k.

Here is how I did it.
While I was going full-tilt trying to pay down my debt (I was determined not to rack up debt again), I put 7% of my salary into my 401k.
Later, as I got close to my goal of paying down debt, I lowered by 401k match to 2% the minimum to get full match at my company.

Then, when I was very close to paying off all my credit card debt (I couldn't stand it), I took a loan against my 401k and immediately paid off my cards. I then just as aggressively paid myself back.

Then, after I paid off my 401k load, every few months I increased my 401k deductions by 1%. Eventually, I raised it up to enable me to contribute the full amount possible for a year.

How would you handle a Health Care Flexible Spending Account (FSA) in Quicken?

Hi, I've had a few people ask me about how they should handle an FSA account. There are two basic options. The first is to create a separate cash account for the FSA and the second is to just use a spending category.

I personally use a separate account. I made it a "Property & Debt: Asset" account rather than a cash account. This is primary to keep it out of the way for day to day spending. I call mine "Medical Reim" account. I have done this as a separate account for years. Honestly, for me, it I don't track the details of this account close enough for me to have a strong bias as to having it as a separate account vs. just using a spending category.

The benefits are keeping it an asset account are:
- Reminds you periodically that you have the money and that you should drain it
- Treats the transactions accurately (e.g., refunds are really transfers from and asset that you have)
- Contains a ledger that *if* you want, you could track the spending of this account.

I just periodically (maybe twice a year at most, usually in August and then in December), sync this balance up to ensure I am on-track to use all the funds. Since I don't track all the expenses that I use on my medical debit reimbursement account, I just put in an aggregate transaction to balance out my spending and balance. It is useful to have this account when make sure I net to zero at the end of the year.

Thanks for the questions and feel free to keep them coming!

-Fortress Architect

Get rid of your stuff! Stuff weighs down your soul!

Hi,

As part of my New Year's Resolution to reduce clutter in my life and to improve my financial situation, I had a family garage sale this weekend.

I was shocked at how many people came. I ran a small ad in the local newspaper (this is way too expensive but it worked) as well as posting on Craigslist. I also did the usual tape-up of signs.

The good thing about paying for the newspaper ad is that it brought serious buyers (people willing to drive to a garage sale).

Here is the kicker, I got rid of a ton of stuff, and I made good money. You really have to ask yourself, "have I used or even touched this in the last 18 months?". If the answer is, "No" then you should really consider selling it. I know this is easy to say. I had a really hard time gettting rid of a few things. Once you get in the mood you can get rid of a lot of stuff that you probably will never use anyway.

Here was my cycle:
1) Sell everything at the garage sale. start dropping your prices fast as the morning goes on (you want to get rid of junk too!)
2) Anything that doesn't sell, seperate into two piles:
a) stuff you should take to donate to charity (Goodwill) THAT DAY. Remember, the tax write-off is worth something too!
b) stuff you want to sell still (try eBay).
3) Stuff to throw away in the garbage, THAT DAY

I did the above and we made over $200!!! It was sweet. I also feel great about reducing clutter.

Having a Written Plan Shrinks Your Debt Faster!

I would encourage you to have a plan, and to write it down. There is something about setting up goals and making them concrete that makes your mind work magic and helps you achieve your goals. Back when I was trying to eliminate all my debt, I focused hard on it and made it my mission to pay off all our credit cards.

One of the tools that really helped me, was a simple piece of graph paper that I hung on the back of my door (I didn't want everyone to see it, but I wanted to see it every day).

On this, I charted by current debt level. Then, each tick on the graph was a month in the future. I made a projection based on how much I thought I could pay off every month. This went out a few years. Then, as month by month went by, I took out my pencil and filled in another dot.

This wasn't fancy. This wasn't expensive. This didn't need a computer or anything else. However, it got me focused on my goal. And you know what, I blew-away my debt faster than I could have imagined.

I met my goal a year early. I got visible reinforcement when I made a big payoff. There isn't much "joy" in paying down a card. It is hard work and you have to give up a lot and have a lot of discipline. However, as I think back on how I did it, this little graph paper was a key to my success. It was rewarding to see this debt go down and it was a simple tool for my wife and I to stay achored in our priorities.