Runaway Checkbook
Frequently Asked Questions
I wanted to provide a section for people to ask questions. To ask a question, click the "Ask a Question" link below. This will send me an email. I will not reply to the email, but I will post the question in this section with the answer. I will NOT print who the question is from. I believe this is the best way to help more people as there will be many people who will benefit from the answer to your question. Most people have the same questions, but are afraid to ask!
How do I pay off credit card balances?
How do I teach my children proper money management skills?
Should I pay off my debt quickly or put money in savings?
How do I pay off credit card balances?
First, credit card balances are bad now matter what the interest rate is. Read the section titled "Loans & Credit Cards". The important point is to first determine how much you can afford to spend each month to pay towards credit cards. Apply the bulk of that amount to the highest interest rate card first, and only pay the minimum amounts to the other cards. Do this until that card is paid off. Then, start working down the next card, and so on, until all cards are paid off. This will ONLY work if you DO NOT use credit cards anymore while you are paying these off. (Back to Top)
How do I teach my children proper money management skills?
You have to start by having proper money management skills yourself! But, even if you do not, here are some ideas to teach your children proper money management skills:
1) No matter how old or young they are, do NOT give them an allowance. That is welfare. Teach them that you have to work to make money to then be able to buy the things you want. No one is going to pay them to clean their own room or pick up after themselves later on in life, so do not pay them to pick up after themselves. Give them jobs to do, or if they are old enough, make them get a job. The amount you pay them to do jobs around the house is not important when they are too young to understand. However, as soon as they are old enough, make them negotiate their wage with you. Teach them to negotiate as high as they can, but be sure to stop at a fair wage. Do not over pay them when they are old enough to negotiate.
2) Make them use their own money to buy discretionary items like movies, eating out with friends, and things they want. Tell them if they ask you to buy something for them, they have to use their money. Feel free to buy them things occasionally that they normally think they are supposed to pay for, but never pay for it if they ask for it. Nobody is going to buy things for them when they are on their own.
3) When they are old enough to drive, get them a checking account and debit card. Make them pay for their own gas for their car. Make them pay for eating out. If the child is active in extracurricular activities and is making good grades, you can give them a “salary” per month since they do not have time to work. However, even a very part-time job is better than no job. Make sure they know the “salary” is a reward for hard work and good grades. Be sure to teach them how to keep a check register and balance a bank statement. Their finances are simple, but it is easier to learn now then later when their finances will become much more complicated. (Back to Top)
Should I pay off my debt quickly or put money in savings?
You should do BOTH! Most people make the mistake of using all their extra income to pay off debt and do not put any money into savings outside of retirement plans. The problem with this approach is that when the unexpected repair or medical expense occurs, they have to go into more debt since they have no savings. In order to stop the debt from increasing, it is important to structure a plan so you are paying off debt AND adding to savings each month. One rule of thumb is to structure your debt reduction plan so that all your debt is paid off within four years or less. You have a significant debt problem if you cannot pay all your debt (except a mortgage) within four years. Ideally, you should have in savings an amount that is equal to at least six months of income. This can be in readily marketable investments. It does not have to be just in savings or money market accounts. (Back to Top)