Tuesday, April 23, 2019

Financial management 101

If there's one benefit to raising kids frugally, it's that they learn to be frugal when they grow up.

We've had a number of critics over the years who warned us our girls would go crazy when they got out on their own. These critics pointed out the disservice we did to our kids by homeschooling them in a rural area under humble financial circumstances. We were told they would explode into a dark and nefarious lifestyle once they escaped what evidently they assumed was the jail-like environment in which we raised them. (I don't know why homeschooling critics always assume the worst of how we raised our kids, but there you go.)

I'm happy to report these critics are beyond wrong. Both our daughters have settled into their chosen careers beautifully, and are living responsible lives – and that includes financial responsibility.

Which leads to an interesting story Younger Daughter told us recently.

Younger Daughter, as you recall, joined the Navy in 2017. She graduated from boot camp just before Thanksgiving and spent the subsequent year undergoing training as an electronics technician. She is currently at her first overseas duty station and will go on her first deployment in about a month or so. (She flippin' loves being in the Navy!)

She's getting a reputation for being a "clean" sailor – a straight arrow, hard working, not given to excesses, etc. She also took up all the financial opportunities the Navy offers its members, including setting up a retirement account and savings account. She set herself an aggressive savings plan (in part, she hopes, to purchase some rural property when she gets out) while allowing herself some play money, since she'll be seeing parts of the world she's only dreamed about.

This clean and responsible reputation was confirmed when a fellow sailor asked Younger Daughter to help him draw up a budget. It seems this young man had $12,000 in credit card debt and needed to get out from under that burden.

YD asked him if he would trust her to look over his online banking records, and he agreed. So, drawing on the frugal lifestyle she grew up with as well as the financial management classes she received after boot camp, she sat down with the other sailor and worked out a plan that would get him completely debt-free and with $5000 in the bank by the end of next year … IF he follows the budget. Based on his income (which, in the Navy, is regular and predictable), she had him focus on paying down the debt first, then he can start aggressively saving by the middle of next year.

The sailor asked for a few concessions. While allowing him a certain amount of spending ("play") money on a monthly basis, he wanted extra funds available at some of the foreign ports they would be visiting so he could party ("If he makes it back without getting in trouble, I shall be genuinely surprised," wrote Younger Daughter). So YD budgeted that request accordingly, with the stipulation the spending money had to be in cash so he couldn't "accidentally" go further into debt. Once the cash was gone, no more partying.

We talked to YD a few days ago, and she said the other sailor was apparently following the budget she'd drawn up – to the letter. As a mom, I was very proud that other sailors thought YD was responsible and mature enough to trust her with their sensitive financial issues.

Which leads to an article I read recently entitled "Five (Potential) Misplaced Financial Priorities." In addressing the question of why people get into financial problems (outside of insufficient income, of course), the author, Trent Hamm, finds a lot of people spend money on "misplaced priorities" because they value the short-term more than the long-term.

Hamm writes:
[A]ssuming there isn't anything that can obviously be done to raise one's income or bring in some more money, the number one reason for financial problems is misplaced priorities. People spend money on things that should be a lower priority, and then find themselves struggling to pay for things that should be a higher priority."

This comes back to the "important" and "urgent" dichotomy that serves as a really powerful time management insight. Everything you need or want to do in a day fits into one of four categories – it's either important and urgent, important but not urgent, urgent but not important, and neither important nor urgent. Signing up for your 401(k) is important but not urgent. Taking your sick child to the doctor is important and urgent. Answering a ringing phone is urgent but not important. Channel surfing is neither urgent nor important.

We all do things each day that fit into each of those categories, but the biggest mistake we make is giving too much credence to things that are urgent but not important (answering a phone call) and too little credence to things that are important but not urgent (signing up for a 401(k).
Hamm lists five areas in which people overspend their money (go read his article for detailed explanations of each category):

1. Over-prioritized entertainment spending

2. Under-prioritized emergency fund

3. Over-prioritized food

4. Under-prioritized debt repayment

5. Over-prioritized college savings (this category was not a factor for the sailor in question)

Hamm concludes, "In my view, someone who is carrying a credit card balance month over month and doesn't have an emergency fund while going out to eat multiple times a week and carrying a cable bill is creating their own financial prison. That's a cavalcade of misplaced financial priorities, and they're adding up by the thousands each year, and yet it's a common story for many Americans." [Emphasis in the original.]

This is some of the basic stuff Younger Daughter tried to impart to the sailor who requested her help.

The ironic thing about both our daughters' financial management is because they've avoided debt and are aggressively saving their income, they're able to "play" and indulge in fun stuff a lot more than other young people their age who are mired in debt (credit cards, student loans, car payments, etc.) and feel hopeless to escape the trap.

I'm grateful our girls grew up frugal, and I sincerely hope the young sailor sticks to his budget.


  1. I got my credit card bill the other day. I pay it off every month but what struck me was the minimum payment. I did some back of the napkin calculations and if I did not add anything and just paid the min. it would have been 9 years before it was paid. That was assuming that the min payment stayed the same which I doubt because as the total amount went down so would the min amount. It is such a suckers trap that it is almost not believable. You and Don did an admirable job as parents with the girls.

  2. You would think that, with the proliferation of people drowning in debt, money management would be taught in high school. Thing is though, "they" don't WANT kids to be financially responsible. "They" WANT kids to go into debt up to their eyeballs. The kids grow up into adults who are easily steered politically, while "they" get more and more rich...

    Stupidity reigns in this country now...

    1. B-I-N-G-O! Peteforester spelled it out.

      Mommas, don't let your babies be government-schooled.
      Montana Guy

  3. I'm out of debt except for the mortgage. When I was just starting out, and had very little money, I lived within my means, and always had a little something for entertainment. Sometimes it was only enough for the second run "dollar" movie theater. Good for your children getting a great start now!

  4. Good for her! And congratulations to you for raising her well.

    I just got home from my final meeting to finalize my retirement next month. I was given incorrect information at a previous meeting and found out I'm getting about half the amount I was told. No worries. I have more than my retirement to live on. We've been planning this for decades. I'm still retiring and will continue to live frugally...but joyfully.

  5. I actually think nature has more to do with how people manage their finances than nurture. That is, it's a part of people's intrinsic personality, rather than parental teaching. Naturally cautious, frugal people tend to give birth to naturally cautious, frugal children.

    1. If you think this I'd suspect you've never had kids.

    2. I do, I have two. One of them is a saver (I'm not) and the other is naturally frugal (I'm not).

    3. So, how do you account for your saver? If a naturally frugal person tends to give birth to a naturally frugal kid, then logic says a naturally profligate person will tend to give birth to a naturally profligate kid.

      Your statements conflict. You should have given birth to two profligate kids, yet you didn't.

  6. How dare you raise you girls in a loving caring home. Giving them values and a useful education. Making them financially stable while teaching them skills that they can use their entire lifetime. You should be embarrassed.

    Just kidding. I hope the sailor sticks to the plan. My oldest daughter did take some loans out for school. She paid them all off in less then 4 years. Her boss, that is 10 years older, has barely made a dent on his. She just got engaged and is looking at a small wedding. They would like to buy a small house shortly after the wedding. They would rather have a house then a huge wedding. We didn't raise snowflakes.

    1. Woot! Good for your daughter! You raised her right.

      - Patrice

  7. YD might be interested in this website: https://the-military-guide.com/

  8. Our two granddaughters have been brought up to be careful with money. One is finishing her junior year in college with no debt so far and is unlikely to have any when she graduates. She currently has three jobs and is carrying an average just below 4.0 (3.9 I think). The younger is graduating from high school.with straight A's and several thousand dollars in savings. She has two jobs and has applied for another for this summer. She has earned at least one large scholarship to help her get her college education.

  9. Congrats on your children's achievements! I must say it's very impressive that somebody that young is recognized by anybody as being good with money.

    I retired a couple of years ago when I was 47, so I get a few folks asking about how I did it, but I don't think I was ever asked prior to retiring.

  10. You have every right to be proud.

    You knew you were right, you stuck to your beliefs, it turned out just how you hoped.

    Wish I'd been that brave. Now I have to correct the consequences of years of going with the flow, while the same people who demanded my compliance berate me for the consequences of doing what they wanted.

  11. Can we get an update on that young sailor in debt, Patrice? He had his head screwed on right asking younger daughter for advice. Would love to know how it worked out!

    1. I asked Younger Daughter for an update (Jan. 14, 2022), and she replied, "He fell back into his old ways in about a year. It was worth a try, anyway. He's back where he started."

      Poor guy. I'm sorry to hear that.

      - Patrice