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Is it okay to teach kids that it’s okay to spend money sometimes?

Dear Dave,

I have two kids and both of them are on commission, and so far, it is working wonderfully. My six-year-old even knows that if he wants something, he has to earn it. It is great. My question is about my other child. She is ten years old and she loves to save money. In fact, she saves practically all of her money and doesn’t like to spend any of it. I have actually encouraged her sometimes to go out and buy something, just so there is a balance there. Is that okay for me to do, or should I just accept the fact that maybe she is just a saver by nature? What is your advice?

Susan

Louisville, Ky.

Dear Susan,

Generally speaking, each of us has a personality. We are either a spender or saver by nature. In my house, for instance, I am the spender and my wife Sharon is the saver. It is her nature to save money.

Our job as parents is to accentuate the strengths of our children, and to stretch them in their weaknesses. I have a daughter that would spend every dollar that her hands touched if she could. So we had to teach her about wise spending and that she needs to enjoy her money, but at the same time she needs to be smart with it as well. And with the other daughter, we had to force the spending issue because it is so vital. Believe it or not, one of the primary purposes of money is to have some fun with it. We need to buy some things and we need to spend some of it occasionally. Just saving it all the time is not fun.

If I were you I would encourage some spending, and I would not feel guilty about it. There needs to be some spending because you can’t teach wise purchasing if there is none. Value versus bargain is a great lesson to teach your kids, and you can’t do that if they are not spending any of their money. Everything that is cheap is not always a good deal. Without spending, there will very few teachable moments like those.

Dave


Emergency fund or pay off debt?

Dear Dave,

I have a question about your “baby steps” and how they apply to my situation. I was wondering if I should save up three to six months’ expenses, which is baby step #3 before I pay off my debt with the debt snowball, which is baby step #2. I am self-employed and work on a contract basis. My current contract will be up in the middle of October, and at that time I will find another contract to replace what I have now. I tend to lean more toward the conservative side, so I want to make sure I have money saved for when the work ends in October. Should I save up my emergency fund now?

Pat

Knoxville, Tenn.

Dear Pat,

In a sense, you are going to be laid off in October, so it would be wise to be prepared for that in advance. Just paying the minimum payments on your debt for now and saving up three to six months’ expenses would be one way to plan for that event. However, the day you get your next contract, I want you to take that emergency fund back down to $1000. You will have gotten your stability back at that point. The good thing is that you have a month and a half or so to be looking for a job. That is a luxury that not many people can afford when they get laid off.

As soon as you have the new contract locked down, bring the emergency fund down and go into attack mode on the debt snowball. I mean every extra dime you can find needs to go to paying off the debt. When you have paid the smallest one, put all of that money toward the second one, and so on. Sell some things if you have to, but get out from under the debt as soon as you can, and don’t ever borrow again. Think of how quickly you could save three to six months expenses if you had no debts at all. Think how you could change your family tree if you had no debts to pay and could save like crazy.

You can make it happen.

Dave


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