Updated: Nov 13, 2021
Life has twists and turns, and our Elders are wise; listen to them.
I was very fortunate to have grown up living in my grandparents home as a child and to have my grandfather teach me about money at such a young age. I began working for my family’s business around 12 as a cashier, and at that age my grandfather sat me down and taught me 3 lessons that have served me well during my life.
And these are conversations that couples need to have before they are married. See my thought on this in "Before You Say 'I Do,' Can Couples Ease Financial Anxieties?".
1 - Always Know Where Your Money is Going
“How can you save and meet the goals you are saving for, if you don’t know where your money is going?” he asked.
If we can't manage $1,000 we won't be able to manage $100,000 ?
So true. As a Financial Planner, it all comes down to cash flow. Knowing what comes in and what goes out. If we can't manage $1,000 we won't be able to manage $100,000? Whether we make $40K or $400K/ year, we cannot take control of our financial destiny if we do not have this simple knowledge of the current state of our finances - and this is all begins with a spending plan. Yes, writing it down – using EXCEL or go “Old School” and use paper/pencil, and reviewing it several times a year; revising it when life transitions occur – school, career change, marriage, child birth, a large purchase (car, home), divorce, retirement, death, etc.
To drive the point further my grandfather explained what he called the “envelope system”. Today many professionals refer to this savings method as “buckets”. He instructed me to fill each envelope, each time I was paid, with what I would need that week/month. Then pay cash, “..when the envelope is empty you don’t get anymore”. If there’s money left over you will move it to the next week or move it to your short term savings envelope.
I LOVE the envelope system, and there are so many Apps now built around this premise. Dave Ramsey has one called Every Dollar, there's YNAB, Mvelopes. Let's face it, so much happens on our phones nowadays, and I believe that apps can be helpful to couples looking to track expenses, save for goals and know if they are overspending.
3 - Live Below Your Means
"You didn’t expect it, so don’t spend it!”. This is how we create "margin".
He told me, “The more you make, the more (money) you will spend, unless you are careful”. He advised that once I was at a comfortable place in my income and expenses, had my short term and long term goals defined, that I should not spend the raises I receive at work. Instead I was to increase my savings by that amount or increase my retirement savings deferral percentage depending on the greater need at that time.. Got a bonus? Save all or part of it in your short-term funds - you never know when something breaks, or you can use it towards a down payment or a vacation, Grandpa continued – “You didn’t expect it, so don’t spend it!”.
This is how we create "margin"
Grandpa lived on a spending plan. Nanny gave him a weekly allowance. Out of that, he was able to buy a new car for cash every 4 years (a Cadillac back then was the big thing). Every wedding anniversary, Valentine’s day, and birthday – my grandmother received a beautiful piece of jewelry from that budget which always included diamonds (Of course! We are Italian). My grandparents wanted for nothing, and Grandpa left Nanny well taken care of when he passed away in his mid- 60’s.
3 - Pay yourself first
“You are like a bill, like all the others, but pay yourself first”, he continued. This will ensure you have savings to cover unexpected expenses and will not need to use credit, he explained. Every month have money deducted automatically from your paycheck to save for retirement as well as go into a short term savings accounts for your emergency fund, short term (1yr-3yr goals) and mid-term goals (3-5 yrs). Payroll deduction – it’s automatic! Out of sight, out of mind. At one point into my life, I had 5 savings accounts, and this really helped keep a clear vision on my funds, my intention for them and my progress towards meeting those goals.
Back then at 13, I had envelopes for lunch, clothes, going for pizza with friends. Later as I was older, they included saving for wedding, gas, a car, insurance, school, a house, vacations etc.
These strategies enabled me and my fiancé to save for a 28K wedding in cash at age 20 30 years ago (that’s would be 50K+ today dollars with a 2% inflation rate) - that we saved over a 2 year period when we each earned only $12k/year. They allowed me to buy my first home at 21 without any financial assistance from our families. To work part time for 14 years while I raised my children. To go back to school and career transition after a 20 year career that I loved and last but not least to survive a costly divorce in my 40’s without leaving me financially devastated.
These strategies create margin. Margin allows for choices and options in our life. It reduces stress.
I have to laugh, a colleague and I were talking a few years ago about the basic Financial Planning skill of having a spending plan (and cash management), and he shared with me a book that he read over 10 years ago and loves, the “Automatic Millionaire” by David Bach. As I listened, I realized this was the same wisdom that my grandfather shared with me as a 13 year old over 35 years ago. Thanks PG for re-presencing me to to this.
Folks have claimed that these strategies/disciplines can pave the way to becoming a Millionaire.
Thank you Gramps! Your advice is so timely and relevant, even now over 35 years later. You are in my thoughts everyday as I work to share these principle with others. Who inspired you?
This information is not meant to be construed as financial, tax, or law advice. Always speak with a professional in the applicable area of expertise to address you specific situation and concerns