Hey guys, I’m excited to have Amy from SlayYourBudget.com as a guest blogger for this week’s post. She is a therapist turned stay-at-home mom (of 4!!) turned Rock Star Budget Blogger. She’s from Pittsburgh, but we won’t hold that against her #GoBengals. Follow her on twitter @SlayYourBudget Like her on Facebook @ SlayYourBudget Facebook
How One Innocent Question Saved my Kids from a Lifetime of Debt
“Can I order a soda?” It’s the same question from my children every time we go out to eat (which, mind you, isn’t very often). The answer is the same every time — NO! You think they’d catch on, but one thing I’ve learned about these little people after almost 11 years as a parent—they are always looking to catch you off guard. They know eventually, they’ll find you in a weak or distracted moment and they’ll be able to pounce. Kids aren’t dumb, that’s for sure!
Getting on the Same Page
That’s why it’s important to have a financial plan and share the age-appropriate details with your kids. When we decided to focus on financial independence and early retirement, we explained to our kids that things were going to change. We said we were on the Dave Ramsey plan of paying off all our debts now, so someday we could have the freedom to live without worry or put any undue burdens on them. There would no longer be just the question of whether we could “afford” (such a dangerous word) something, but also what’s the cost-benefit analysis of said purchase.
Taking the soda as an example, we explained to them that the small insignificant choices we make daily can add up to a large impact:
What they see as a $2.29 soda X 6 (as there are 6 of us in our family) = $13.74 charge.
PLUS 6% sales tax and a 20% tip for a grand total of $17.48. In addition to our already pricey bill.
So, is it really worth paying $17.48 for soda with our dinner, when 10 minutes later, we could pour everyone the same drink at home from the 2-liter in the fridge for pocket change? Hmm, puts things into perspective.
To help drive the point home, we set our big kids (8 and 9 at the time) up with the Dave Ramsey Financial Peace Jr kits which focus on getting kids accustomed to earning money and managing it through the use of his envelope system. Dave Ramsey does such a great job taking the complexities of money and making it simple enough for an elementary student to understand. Great Read!
We pay them weekly (or more accurately when I have the cash available—yikes) for their chores around the house. They divide the money between their Spend, Save and Give envelopes. 40% of what they earn goes into the Spend, 40% to Save and 20% to the Give. They’re earning their own money. Now, they have an even better appreciation of what it means to evaluate purchases based on their cost-benefit.
When asked if they would use their own money to purchase that $2.29 soda, or buy an entire 2-liter bottle for $.99 and have multiple glasses of soda, suddenly the smart choice becomes a lot clearer (though my now 9-year-old still gets blinded by what she wants right NOW—we’re still working on the concept of delayed gratification).
Simple Cost-Benefit Analysis
Everyone’s cost-benefit analysis for various purchases will obviously vary based on your priorities. I’m not a high-maintenance kind of girl. Most days, I do little more than brush my hair and pull it back into a ponytail, so getting a high-priced haircut and color is not important to me. The benefit of covering the few grays peeking through and a sleek cut on hair I hate to maintain is just not worth the high cost. I know many women who wouldn’t be caught in public with a hair out of place. Their cost-benefit analysis would look completely different than mine.
One of the odd things that I value enough to pay for is Sirius satellite radio in my car. It’s a silly little luxury, especially as someone who doesn’t have a commute to work. I just can’t give it up. Dave Ramsey himself could walk in my home and tell me it’s a ridiculous money waster. I’d simply scoff while handing over my credit card number to the sales rep.
Now I do have a cost-benefit analysis for Sirius itself; I won’t pay more for it than I feel like I should. When I initially got hooked on the service, it was included in a previously owned vehicle that we bought. Unbeknownst to us, the previous owners had bought a lifetime subscription and never transferred it to their new vehicle, so the entire time we owned that car, we had free Sirius radio. Score!
Later, when I went to order it for my newer used car that we had purchased, Sirius had wised up and discontinued the lifetime subscriptions so that was no longer an option. They gave me an intro deal of 5 months for $25. When the promo was up, the subscription renewed at normal price, some $15 a month. I begrudgingly called to cancel and the customer retention rep tried to get me to stay on by offering an annual deal with a reduced monthly price. I said, “No thank you, I love the service, but I can’t justify paying more than the $5/month average price based on how little I actually use it (my perceived benefit!).” To my surprise, they said, “Well we’d hate to lose you as a customer—would you renew again at the 5 months for $25 deal?” So, I did, and have been getting that same deal at renewal every 5 months for the past number of years.
Bringing it all Together
We subconsciously make these analyses every day when we pick up an object only to quickly discard it after looking at the price. The real change comes in when we see something that on the surface looks “affordable,” but after digging deep, we take the time to ask ourselves if the benefit really outweighs the cost. Those $1 bins at Target sure are enticing and who can deny that they’re affordable, but do they bring enough benefit or will they just end up as clutter a week from now? The $300 designer purse you’ve been eyeing up has finally went on sale for $100. Does the benefit of a quality bag hanging from your arm outweigh the more affordable, yet still expensive cost? If you’re debt free and it’s going to last you a few years instead of just a few months like a low-quality purse, then perhaps. But if that $100 could put a dent in your debt or be smartly invested for a solid return, then perhaps not. Everyone has their own analysis to make.
Do you do a quick cost-benefit analysis before making purchases? Are there things you purchase that you know aren’t really worth the cost—even if that cost is “affordable?” I would love to hear about them in the comments!