The Ins And Outs Of Money Management

By Neale S. Godfrey For New York Life

Where does all that money go?

This is one of the important questions your children will ask you, or themselves. Helping them with an answer is one of the important life lessons you can teach them.

You are helping them learn about earning money with an allowance system. It is just as important for them learn how to spend it wisely. A key is for them to understand how much money they have and what they are spending it on. Knowing whether or not they can afford to buy what they want is one of the secrets of success with money.

Budgeting is what will help your kids manage their money. Learning early that a budget is a plan showing how much money comes in and how much money goes out is an important concept for your children. To start, simply having them keep a record of the money they earn and what they spend it on will provide information helpful in planning for the future. Often a record of this kind will help them see where they can cut spending in order to have more money to spend on other things.

A budget has two parts. Money coming in and money going out.

Part 1. Money IN.
In this part of the budget have your children record their income, or money they get from allowance, gifts and other jobs. That income will vary from week to week and will increase as your children grow up.

Part 2. Money OUT.
This part of the budget is where they plan how they will use their money. From the record they have been keeping, they can determine what they plan to spend and on what, how much they will save, and how much they plan to donate.

Spending includes everything they use money for from bus fare, lunch to a snack after school. It covers the extras also — the things they buy just because they want them. Things like movie tickets, video games or a gift for their best friend..

Saving is money they put away to use later on. Saving is the way they plan to have the money to buy things they want or will need in the future.

Saving can be thought of in several ways. Short–term savings is money set aside to buy something in the near future, like the latest Harry Potter book.

Medium–term savings is the money saved over a longer period of time, probably to buy a more expensive item, like a new bicycle.

Your children should also be thinking of long–term savings or money designated to be used in the distant future, as a higher learning fund. It will take years to save for this.

Money In	Income	Allowance	$ 9.00
		Gift from Uncle Joe	$3.00
		In Total	$12.00
Money Out	Spending	New pen	$ .75
		Snack	$ 2.00
		Movie Ticket	$ 5.50
		Total	$ 8.25
	Saving	for bike	$ 1.50
		for college	$ .50
	Sharing	Katrina relief	$ 1.75
		Out Total	$12.00

Managing money can be simple once your children understand that what they can spend is all they have to spend. In the example above, if your children want to get that new bike faster, they could decide to skip the after–school snack and save the money…or choose gum instead of a candy bar. Keep in mind that what is important to one child may not be important to another. So the items your children select for their medium or long term goals might not be ones you would choose. The decisions they make here are ways you can also help your children become intelligent consumers.

Your children will soon see that planning their spending may be tough since they cannot create a spending plan that exceeds their income. Understanding what things they can really live without is a tough but important life lesson.

Here are tips to help your children avoid running out of money.

Have a budget and stick to it.

Don't forget longer term savings.

Think about what they are saving for. Have then determine the amount they need to save each week and write it down so it is included in every budget.

Be sure to plan for "extras" in their budget like an upcoming birthday gift. This could easily become one of the short–term saving goals.

List the donations they want to make to help others.

Once they subtract the money out they have planned from the money in, the budget should balance.

In our sample budget show we showed long–term savings. It is also important for younger children to learn the concept of long term savings so there should be some money allocated to this category.

Teaching these principles to your children will go a long way to equip them for success in the life long game of money management.

Neale S. Godfrey is a former bank president and an acknowledged expert on family finance. Her 14 books include a #1 New York Times Best Seller, Money Doesn't Grow On Trees and her latest book, Money Still Doesn't Grow On Trees: A Parent's Guide To Raising Financially Responsible Teens and Young Adults. She has authored an educational program called The One and Only Common Sense/Cents Series which corporations are donating into their local community schools and after–school programs. Neale has appeared on TV on The Oprah Winfrey Show, Good Morning America, The Today Show, CNBC, NBC, CNNfn. She frequently delivers lectures on "How to Raise Financially Responsible Children." For more corporate marketing programs, products, and books go to Neale's Web site www.childrensfinancialnetwork.com or call 908–879–8898.

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