I love your email. It helps me get better at my job. And it helps you get the answers you need to better your financial life. Yesterday, I received the following email. Today I explore whether or not Clint’s assertion is correct. Watch the video above, and you decide.
Your financial advice is overly-simplified. A child could do what you do. You’re not really that good.
Clint in Iowa
Oh, here’s some of Ollie’s other financial video work. This is the time she hijacked my live television segment.
In a perfect world, we’d pay cash for our car purchases. Not having a car payment is one of the best things ever. But what should you do if the car payment is going to drain your savings? I recently received the following question from an emailer, and I answered it on The Pete the Planner Radio Show.
I have a quick question for you I think you might be able to provide some insight on. I recently graduated from college and I’ve started my first real job. I’ve been fortunate in being able to work from home for the first couple months but soon I will need to move to the home office which is in another state. I have been borrowing a family car when I needed it living at home. I’ve tried to be pretty frugal through college and I have about $10,000 saved up through my time at this job and from working through college. I will need to buy a car within the next few weeks and I am strongly opposed to financing one. Do you think it would be a better idea to buy an older car for $3-4000 and maintain my cash which I’ve been working on building as an emergency fund? Or should I buy a newer car for $8-9000 that might last me longer but if I ran into trouble I wouldn’t have much to fall back on? My medium term transportation plan is to spend the next 4 or 5 years paying myself a car payment so that I can buy the next car albeit a nicer one in cash as well so whatever I purchase needs to be reliable for at least that long. Extra information: I have no student loans and I make a livable but not excessive recent graduate salary. I will pay around 350$ a month for rent with a room mate. Also probably add 100$ a month for food. Other than that expenses shouldn’t increase too much. After taxes withheld, insurance, 401k contributions, savings, rent, food and gas I expect to have around 500$ leftover from each month’s check.
Good question, Larry. Here’s my answer.
I’m currently teaching my 4 yr old daughter Ollie how to ride her bike, without the use of training wheels. Every weekend, we head to the park in front of our house, and begin the same process we started several months ago. At this point, you’ve just learned something about me. I don’t want my daughter to fall off of her bike. As I stand behind her holding the seat, all I can think about is the fact that I’m the only thing standing between her wellness and the bloody knee she will get when she falls. I wasn’t a criminology major in college, but I don’t think you can push a little girl down and cause her to bleed. I’m pretty sure it’s a crime. I’ve yet to let go of her seat.
Yet, when I’m out about town, I’ve never seen an adult riding a bicycle with training wheels. Why? Because I’m doing it wrong. I’m hurting my daughter by not letting her get hurt. You can try to tell me I’m wrong about this, but I’m not. Unless she falls off that bike, then she’ll never learn to ride it. I fell off my bike. You fell of your bike. She must fall of her bike.
We help our families, even when we shouldn’t, because we are trying to lessen their pain. Sadly, we rarely lessen their pain, when it’s all said and done. Instead, we spend years slowly tearing the band aid off. And the crazy boomerang thing about it all is that we also end up hurting ourselves. In my recent book, Mock Retirement, I discuss how the increased financial assistance to adult children has ended up devastating baby boomers’ retirements.
So what does “doing stupid financial things for our families” look like?
- Giving down payment assistance to children
- Paying for your adult children’s cell phone, car insurance, or other monthly bills
- Assuming your children’s student loan payment obligations
- Paying off any of your children’s debts
There’s lots of reasons why we do things like this. Frankly, it’s pretty damn easy to justify “helping” family. But my assertion is that none of these things really help our family members. Here is a non sequitur list of reasons why people do these things, that I’ve personally witnessed
- Charitable desires
- Overconfidence in own financial situation
- Overconfidence in others’ financial situation
- Mental illness
- So the borrower’s failure doesn’t reflect poorly on the giver
- Societal pressures
- To make things “easier”
My least/most favorite story in this regard happened about 9 years ago. A firefighter at a local firehouse was pleased to welcome his son onto his engine company. This was a proud moment for this dad. For years he had wanted his son to get into the family business. About six months into the new gig, the son asked his dad to help him payoff his $6,000 of credit card debt. The father, full of pride, but not full of money, decided to give his son the money. The father called this money a loan; the son called it something else. His son paid off the debt, and immediately became financially stress-free.
About three months later, the son showed up to the firehouse in a brand new pickup truck. It was a $36,000 truck, with a $580/month payment. In essence, the father’s willingness to pay off his son’s debt, was rewarded with his son buying a $36,000 truck. The father was understandably upset. Things got worse when the father was hit with an unexpected medical bill for about $10,000, just two months later. Meanwhile, the son was already racking-up more credit card debt. The $6,000 loan/gift/whatever was the worst decision for everyone involved. More money never helps the unresourceful.
When a family member comes to you with a money problem, stop and breathe. Your parental instincts generally kick in, and you are immediately inspired to do whatever you can to remove the pain. Sometimes you shouldn’t try to prevent the pain. Your family member might just need to fall off his/her bike.
There are always exception to this quasi-rule. There will be obvious situations in which loaning/gifting money to someone in trouble is a good idea. If you have the means, have at it. Hold onto that bicycle seat. But if money doesn’t solve the problem permanently, then let go.
I’m pleased to announce my partnership with Indiana University and IU MoneySmarts. As you know, financial wellness is vital to creating balance in one’s life. Indiana University recognized this and created a department of financial literacy in 2012. The mission for IU MoneySmarts, the name given to the program, is to increase the financial acumen of all students and prepare them for managing their finances both during and after college.
This is a monumental task, for several reasons. To be frank, learning about money isn’t exactly high on the college student priority list. IU MoneySmarts has done a great job making their resources approachable and palatable. As part of their efforts, IU MoneySmarts decided that a snappy weekly podcast would be a good idea.
Enter Pete the Planner.
After five years on the radio and a decade of teaching nearly every demographic about money, I’m confident that our podcast, How Not To Move Back In With Your Parents, will hit the mark. I recruited my wunderkind intern and IU student, Alex Eaton, to be my co-host, and the rest is history. Indiana University has placed the podcast on their student mobile app so that students can absorb the information on their own schedule.
The podcast isn’t IU specific. This means all college students can use the podcast to build the foundation of their financial lives. This shows IU’s commitment to education and community learning. Want to hear the first episode of How Not To Move Back In With Your Parents? You can find it right here.
IU continues to innovate and create meaningful program for its students. I’m very honored and thankful to be a part of it.
Hi, my name is Pete the Planner, and I make financial mistakes.
Hi, Pete the Planner.
I am not immune to doing stupid things with my money. In fact, I’ve been doing dumb things since I had my first checking account in 1993. Many of the mistakes I’ve made were well before I started giving personal finance advice for a living. Thank God. And sadly, many of my mistakes have been stupid and lazy. I know that I’m supposed to say something like, “I don’t regret a single one of these mistakes.” But I do. I regret every single one of them. I would handle each situation the complete opposite way.
I don’t know whether you should take comfort or fear in knowing that I’ve made some really dumb financial mistakes. But I do know that some people like hearing about others’ mistakes. It’s easier to learn that way. I’ve fixed every financial mistake I’ve ever made, but it hasn’t been easy. I’m still dealing with some of the ramifications of some of these mistakes. I am proud to say that I’ve never stiffed anyone on a bill that I owed money on, and I’ve learned a ton of life lessons. So here they are, the list of my most embarrassing financial mistakes.
1. Bounced a check on my fraternity’s account- I was the treasurer of my fraternity. Go figure. I learned quite a bit about accounting during that time. I also learned not to bounce a check that was written to a vendor. It was a pretty embarrassing incident, if I remember the story correctly. I believe the vendor happened to be the father of one my fraternity brothers. Oops. I was kicked out of my office. They voted me out of office. I didn’t get a chance to defend myself at the chapter meeting, I skipped the meeting to play basketball with my friends. Lesson learned. It worked out.
2. Didn’t sell my home before I bought a new one- Mrs. Planner and I decided we wanted to move out of our townhouse, and build a new home. We talked to realtor about selling the townhouse, but decided to commit (with money) to building the home, in the meantime. We put the townhouse on the market. Didn’t sell. Didn’t sell. Didn’t sell. Crap. It was April 2007, what could possibly go wrong in the housing market? Boom. Taste it. Loss. We were forced to rent it out because the value of the property fell so quickly. I’m still the reluctant landlord of the property, to this day. While it hasn’t been a disaster, it’s been a character-building exercise, for sure. I learned all about talking to people who owed me thousands and thousands of dollars. Sigh.
3. Signed up for a fitness membership when I was in high school- This was dumb for no less than 338 reasons. I signed a long-term contract, and didn’t quite think it through. I paid the price.
4. Had a mortgage payment considered late, because I paid the wrong amount- This was a weird one. I was used to paying a particular amount on my mortgage, and I paid it religiously every month. I didn’t realize that my mortgage amount went up $11, due to an escrow increase, and the mortgage company didn’t notify me of my short-pay, until the 29th day. When I paid the additional $11, it was too late. I had a 30 day late payment on my credit report. I blamed my mortgage company for this for a long time. I’ve changed my mind since then. It was my fault.
5. Had a business checking account go to collections because I left it open- A friend of mine and I decided to open a joint business account to share some marketing expenses early on in our careers. Fast forward two years, we both had left the company we were working for, and forgotten that we left money in the account. The balance was below the minimum balance requirement. The bank started taking fees because of this account. The bank didn’t know where to find us, because our business address had changed. The account went negative after about 18 months. Got a collection call. Panicked. Ding on credit.
6. Racked up $3500 worth of credit card debt for no particular reason- It was really dumb. I think it was around 2003 or 2004 and I kept reading about how important it was for me to build my credit. So I put down my debit card, and started using my credit card and paying it off at the end of the month…until I didn’t. I can’t even tell you what we spent the money on. We looked up one day, and we had a big stupid balance. It was a bit shocking, to be honest. I think this is one I first realized that sometimes what the financial industry tells you is a good idea, actually isn’t. Behavior will always ruin technical advice. It did. It does. Don’t do it.
7. Had my debit card declined at a grocery store, two weeks after I got married- Embarrassing, you ask? Um, yes. Did I mention my wife was with me? It was classic young kid. I just assumed money would be in my account. It wasn’t. I hadn’t deposited my paycheck. I’m not making excuses, but no one ever teaches you about that kinda stuff. Nothing like having your new bride stare at you in disbelief when the cashier tells you that you can’t afford the food you are buying. That night, I ate humble pie.
8. I day traded in college- It was dumb. I was risking serious money, and knew close to nothing about investing. Over the years I’ve justified this in many ways, but ultimately, it was a really bad idea. At times, I didn’t even go to class because I was glued to my computer screen. I was too young and too dumb to really understand what I was risking. I worked hard during the summers to earn money. And I ended up risking over $10,000 in the market when I was day trading. Although I didn’t lose money, it was still stupid. I was lucky, not smart.
9. Got a 40 yr interest-only mortgage- This could have been a disaster, but fortunately my discipline and lucky timing saved me. In 2005, a mortgage broker convinced me that I should refinance my mortgage to a 40 year interest-only mortgage in order to reduce my mortgage payment. He then wanted me to invest the savings created by the lower payment into an index fund. I did this. This plan would have been awful, if I had not saved the difference aggressively. The plan was still awful, and the only thing that saved me was the fact that I freaked out, and starting paying more on the mortgage to repay the principal. This ended-up being lucky timing, because I stopped putting money in the index fund right before the stock market crashed. I was talked into this idea based on a book that my mortgage broker had read. I got very lucky. I still have that mortgage, it’s on my rental property, and I still pay it aggressively. Crisis averted. The entire idea was a version of a “get rich quick scheme.” I hate that I did this. Again, it worked out, but it shouldn’t have.
10. I (currently) spend more than I should on housing- It’s true. If you take a look at Pete the Planner’s Ideal Household Budget, you’ll notice that I want people to spend 25% on housing. I spend more than this. We spend next to nothing on transportation, less than 1% of our income. I put a great deal of the surplus created in this category, toward our housing budget. Since you and I are in the trust tree, my housing spending stresses me out. We aren’t overhoused. If we had consumer debt, a car payment of any sort, and didn’t save money, I would be really worried. But the fact remains the same, I spend too much on my mortgage payment. I have rectified this the best I could over the years by refinancing my mortgage, increasing my income (I fortunately control my own salary), and saving a larger than normal emergency fund. But it’s still a giant mistake. You can’t polish a…never mind.
I don’t know if I’ve hit the million-time mark yet, but let me try: our financial lives are dictated by our behavior. We have to set ourselves up to succeed. Your behavior CAN change. Mine did. If you have struggled with any of these mistakes, or any other ones, for that matter, then just know that it’s okay. You can change. You should change. I’m very passionate about helping people prevent these mistakes. I lost a tremendous amount confidence in my decision-making ability during these times. I was so upset by some of these stupid mistakes that I’m trying everything in my power to prevent others from reliving them.
What’s your biggest mistake? Let’s use the comments section as a confessional. Go.