"Only after the last tree has been cut down, Only after the last river has been poisoned, Only after the last fish has been caught, Only then will you find that money cannot be eaten." - Cree Indian Prophecy

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5 Common Money Mistakes You Can Avoid

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5 Common Money Mistakes You Can Avoid

By Linda Davis Taylor, Author of The Business of Family: How to Stay Rich for Generations

Money is made and lost in business every day. Nobody blushes during frank company budget talks. That’s not always the case when men and women return home, and they’re off the clock. Earnings, spending, and savings are line items a family can’t ignore. At work, sustainability hinges on taking care of profits as well as employees to guarantee resiliency over time. A family has to conserve for the future too. Making finances a little more human, and family a little more corporate in dealing with money is a winning formula. As an advisor to wealthy families, a former college admission dean, and a mother and wife who is also the primary breadwinner, I’ve seen all sides of families and money. We all need a better way for them to live in the same house. Here are five common money mistakes you can avoid so your family can prosper.

Mistake #1: Be silent about money. Billionaires like the Rockefellers set up family offices to do nothing but handle their affairs. The ultra-rich know their family and their money aren’t mutually exclusive. Though they may pay someone to do the spending reports for them, they educate their entire family about money. This same principle will work for any family, even if their version of a C-suite is the computer in the family room. Today’s technology allows every family to have a hub for its operations. The phrase “home office” will have more meaning when every member of the family can access it, provide input, and unite around shared goals. In whatever form, a family office helps a family focus on its future. Families with an established practice of regular meetings have a head start on fostering leadership for the future. Whether what is needed is a gentle suggestion or time for a serious change in direction, the family should be a source of sound advice. Honest feedback is essential for us to be the best we can be. An assessment of what is going well and what can be improved upon avoids frustration and costly mistakes. We all need a safe place to talk about what matters to us.

Mistake #2: Not including all family members in financial matters. Embrace the family’s diversity to expand its opportunities. All family members offer a range of skills and talents that can contribute to the family’s success. Being open to different perspectives enriches discussions and contributes to better decisions. Everyone has something unique to contribute, so include everyone on family financial discussions.

Mistake #3: Indulging kids with too much money. Indulging kids with too much money not only hurts the finances of the current generation, it creates a sense of entitlement in the next generation. Even wealthy families have to make tough choices today to take care of tomorrow. That can be challenging yet necessary. At home and in business, it takes courage to plan for the future. Many of today’s wealthy elite now say that they are giving more to charity and less to their children. Whether this strategy works depends not only on telling the kids they have to stand on their own two feet, but on having a plan that gets them ready to do that.

Mistake #4: Not giving back. Charity begins at home. Most young people say they learned about the importance of being generous from their grandparents or parents. Growing up in an environment where giving back is the norm makes a difference in the next generation’s habits. The best companies appreciate that giving back to their communities goes beyond the tax write-off. Families that give and make it about more than cutting a check earn extra dividends too, keeping everybody grateful and grounded. Working together for a common cause teaches financial skills and foments a sense of purpose. Families built on values rather than fortunes are destined to endure.

Mistake #5: Mismanaging money due to a lack of focus on the future. Manage spending for today and build new wealth for tomorrow. Financial health is a must. This requires sound fiscal habits to be adopted by current generations and new sources of revenue for future generations. A healthy enterprise is defined by its values — guiding standards that provide a compass for how people behave. This is true for employees in a business or members of a family. Make the standards clear and your family will not only weather any storm, it will grow stronger.

Although most of us don’t have a strategy in mind when we start our families, it’s precisely what we need to avoid common financial mistakes and create a family that prospers beyond one generation.

© 2015 Linda Davis Taylor, author of The Business of Family: How to Stay Rich for Generations

You can buy her book now on Amazon.

Author Bio

Linda Davis Taylor, author of The Business of Family: How to Stay Rich for Generations, is the CEO and Chairman of Clifford Swan Investment Counsel in Pasadena, California. A participant in a fourth generation family business, Linda is a frequent speaker on wealth transition, family governance, and philanthropy. In addition to her investment counsel career, she has had over twenty-five years experience in senior leadership positions at Emory University, Claremont McKenna College, Amherst College, and Scripps College. Linda has served as a trustee for numerous educational and non-profit organizations and is a co-founder of a private foundation. She and her husband are the parents of two adult daughters. For more information please visit lindadavistaylor.com

 

Dave Ramsey Financial Peace University: Week 2

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This is a series of posts about what you will find in Dave Ramsey’s Financial Peace University course. This is week two (week one)

This week’s lesson is about money and relationships. I was excited about this week because relationships are something that everyone has to deal with, no matter how much money they do or don’t have. I was interested to see what advice Dave would give to deal with those times when money strains relationships. Money fights are probably more common when a family is struggling, but everyone fights about money from time to time, even those who have plenty of money. Some couples are complete opposites and one is a saver and one’s a spender. Other couples are closer to each other in terms of spending habits, but money can still cause problems. In my house, despite the fact that things are going well money-wise and we’re both natural savers, we still have times where we argue over spending or saving priorities. Rather than focusing in detail on relationships however, this lesson jumped all over the place.

It started with a discussion of the stereotypical roles that men and women play in marriage. Men like to negotiate, women prefer to bargain hunt. Women like security, men like risk. Women like to shop, men can’t stand it. Men tie money to self-esteem, women tie money to security. Men handle the money, women handle the kids. In other words, women and men approach money very differently and this is the source of friction. While I understand that drawing such generalizations makes it easier for Dave to make his points, it did get old after a while because I know many couples that don’t fit these stereotypes. I found myself wondering if he makes these generalizations just for the laugh factor and for simplicity’s sake, or if this is really how he sees the world. I can’t answer that, but knowing he comes from an extremely conservative worldview, it makes me wonder.

Despite all the generalizations, his main point for the lesson is that both partners have to take an active role in the family finances if there is to be any success. There also has to be open communication. He spends a lot of time talking about free spirits — those who don’t really care about money and just want to spend as they see fit — and nerds who are the ones who like budgets. The nerd is often guilty of trying to control or browbeat the free spirit and the free spirit is often guilty of blowing off the nerd’s suggestions. If this is your relationship, I can certainly see the problems. However, Dave doesn’t spend any time dealing with what happens when both partners are nerds (my house) or both partners are free spirits. In my house, we tend to over-control the money, sometimes to the exclusion of some much needed fun. Couples who are both free spirits would have a hard time staying out of debt and ever saving anything, I imagine. I doubt that most couples are as directly opposite as Dave would like the class to believe.

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Dave Ramsey Financial Peace University: Week Two

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Dave Ramsey Financial Peace University: Week Four

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Dave Ramsey Financial Peace University: Week Six

Dave Ramsey Financial Peace University: Week Seven

Dave Ramsey Financial Peace University: Week Eight

Dave Ramsey Financial Peace University: Week Nine

Dave Ramsey Financial Peace University: Week Ten

I do agree that, whatever your natural tendency, be it nerd or free spirit, honest communication is essential for financial success. You can’t have each partner off doing their own thing and expect to stay on budget. You can’t have opposing goals, either, unless you negotiate how to save for both. You can’t have a partner sneaking off and buying things, or lying about how much they cost. Eventually the other partner is going to find out and stuff is going to hit the fan. Communication and openness is key and on this I agree with Dave.

The lesson hit briefly on the challenges faced by singles and then moved on to teaching kids about money. This probably could have been a lesson unto itself. There are many challenges involving kids and money, starting with the “allowance,” which is essentially giving kids money for nothing. Dave expects kids to work for the money and he calls it a “commission.” I like this approach because it begins to tie the concepts of work and money together for even the youngest kids. He also believes in making kids pay their own money for their “wants,” even if it means they are disappointed or frustrated at times. He also wants us to teach kids to give at a young age by giving a portion of their “commission” to the church. I’ll get to that in a minute.

While I don’t have kids, I have to agree with his advice here. This method of teaching kids about money seems far preferable to the approach taken by one of the members of our small group. This woman admitted that they have been giving their kids all the money they ask for for years. Now that the kids are teens, they have no real concept of where money comes from or what it means that there is no more. Now that the parents are trying to get their financial house in order, the kids are having fits because they aren’t getting what they used to. The woman is afraid that it might be too late to help her kids and I fear she may be right. It will be interesting to see, as the class goes along, whether this woman can get her kids to understand money.

Now, about the giving: In just two weeks of this class, the concept of giving to the church or “tithing” has come up no fewer than twenty times, both in Dave’s lectures, in the small group, and during the general administration/recap period that precedes each class. It’s also mentioned often in the workbook and in Financial Peace revisited. I understand where this is coming from. Dave makes no bones about conducting these classes with a Christian worldview in mind. As such, he urges people to give to the church. And the church where this class is taught would really like us to give there, so they also put in their pitch.

I don’t have a problem with the message per se, although I do wish it were uttered a little less frequently. However, if the concept of tithing bothers you, be aware before you sign up for the class that you will hear it often. If it bothers you, you can try to reframe it in terms of giving to an organization other than the church. The main point of the class is that, once you have enough money for yourself, it’s your moral obligation to give back to society. If that’s the church for you, great, but there are a lot of other charities out there that can benefit from your generosity that might suit you better.

My other growing beef with the lectures is the constant sales pitches. So far I’ve heard pitches for Financial Peace Junior for kids, Dave’s program that can be taught in high schools, the envelope system (of which we received a free version, but apparently there is a deluxe version that we can pay for), the website (that we get for free for now, but we’re encouraged to pay when our free membership runs out), and tickets to see Dave live. The workbook is peppered with ads for everything from Dave’s apparel and water bottles, to all sorts of other tools and books that we should consider. I get it. Dave is a business and needs to make money. But at the same time this is irritating to me because many of the people in the class are deeply in debt and don’t have any extra money to spend. Tempting them and making suggestions about things that can “help” them seems wrong, somehow.

When we moved on to small group, it was inspiring to see what a difference the quickie budget has made to most people in the class. Several people reported having already paid down some debts using money they freed up once they did the budget. Several more people reported that, now that they can see where the money is going, they were able to trim their spending and save up large amounts of money already. One couple got paid just as we were beginning the budget and they were able to save $390 out of that paycheck. That’s more money than they’ve ever had in the bank before. When they added the proceeds from some sales of unneeded stuff, they had managed to accumulate close to $500. They are halfway to their emergency fund in one week. Other couples had similar stories. The point is that seeing where the money was going gave them some control. So far, the plan is working for many people.

As for me, I’ve managed to put away about $50 in coupon savings that I transferred directly to savings, plus I racked up about $65 from some rewards programs, rebates, and found money. I sold a few DVD’s we no longer watch and made another $20. I didn’t count my regular contributions to savings because those aren’t “new” to me. I’m trying to come up with $1,000 of money as though I didn’t have the extra income to just put it away easily. I’m at $135, although next week I should get some more because I have some payments for side work coming in.

Another story emerged in small group that I’m interested to follow. One couple has about $35,000 in debt, not counting the house which has an ARM that is about to reset. They don’t know what to do next, but even as the husband is recounting all of this, I hear an element of pride in his voice that he has a big motorbike in the garage, that he dresses well and travels often, and that he refuses to eat leftovers. Even as he admits that these things and habits are causing some of their financial problems, I can tell he does not yet want to change. He takes pride in consumption and it’s not something he seems willing to give up just yet. The wife says that the class was her idea. It will be interesting to see if the husband comes around to her way of thinking.

Next week we’re supposed to get into hard core budgeting with a detailed budget. This week for homework, in addition to reading, we’re to start saving all of our credit card offers that we get in the mail. At the end of the class we’re going to tally up how much potential debt was offered to the class. I probably won’t get many since I opted out long ago from the mailing lists, but I still do get a few that I’ll put aside. I’ll keep saving up that $1,000, too.

Next: Dave Ramsey Financial Peace University: Week Three