Author Topic: Have been asked to give financial advice - how to proceed?  (Read 4647 times)

Livingthedream55

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Have been asked to give financial advice - how to proceed?
« on: January 03, 2017, 08:49:48 AM »
Last week my 24 year old daughter (who still lives at home) - came to me and asked me to help her learn how to budget/manage her finances! I heard the angels sing! 

She has run up a small cc debt ($3,000) - and she said "Mom, I want to pay this all off in 2017" She has a full time entry level job, is already saving 10% in a 401K with a 4% company match (investing in Vanguard Total Stock Market Index Fund) and has close to $3,000 in a bank savings account.

I asked her to pull her latest pay stub so we can crunch the numbers. I've asked her to look up her phone and car insurance monthly payment and the plan is for us to sit down later this week.

I know she does a lot of online shopping/eating out so I think there is lots of room for improvement.

I believe her gross is about $30,000 annually. She was hired at $14 an hour last year but has had two merit raises already as she is a very conscientious worker. Comes in an hour early each day (and the company let's her earn that as overtime). She pays for her own car insurance (car was paid for with her own savings), gas and cell phone. My agreement with her was as long as she saves she can live at home for free. She only finished college last year as she has a learning disability and her two year associate's degree from a community college took her five years to complete! I paid for her college so no other debt other than the credit card.

She has $400 auto-deposited bi-weekly into that bank savings account (which is in my name and I have access to - but she is often drawing a $100 or $200 out again).

Has anyone else guided an adult child at this stage? Should she pull out all of her savings and get rid of the debt or will there be a better psychological benefit to learning how to budget the payoff? She is not a paper and pencil person (prefers apps) - is there a good budget app you would recommend?

All input appreciated!

Thanks in advance.

Mother Fussbudget

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Re: Have been asked to give financial advice - how to proceed?
« Reply #1 on: January 03, 2017, 11:27:25 AM »
Explain how the tiny return (interest rate) DD is getting on that $3,000 in a savings account vs. the percentage rate she's paying for that credit card balance makes it a no-brainer.
By paying off the full-amount with savings, DD will save more in interest fees than she could earn in savings, making 'paying off the debt' the best investment DD could make.

Then point her to the 'Start Here' blog entry, and/or JLCollin's stock series.

GizmoTX

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Re: Have been asked to give financial advice - how to proceed?
« Reply #2 on: January 03, 2017, 11:36:03 AM »
I helped my 23 yo son get started with YNAB (You Need A Budget) app last summer, which I use. Its best concept is giving every dollar a job, crucial for newbies.

Dollar Slice

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Re: Have been asked to give financial advice - how to proceed?
« Reply #3 on: January 03, 2017, 11:38:17 AM »
Should she pull out all of her savings and get rid of the debt or will there be a better psychological benefit to learning how to budget the payoff? She is not a paper and pencil person (prefers apps) - is there a good budget app you would recommend?

Maybe a combination approach: take $1500 and pay down the debt, and explain why this makes sense in terms of interest rates etc. Keep $1500 for an emergency fund (and explain that concept and talk about how much she would like to have in there eventually). Then figure out a budget, which is an essential life skill, and figure out how to pay it off in 2017 by cutting down on unnecessary expenses.

A lot of people use Mint and YNAB (You Need A Budget) for budgeting apps. I use Mint, which is free, but I think you have to pay a little bit for YNAB.

little_brown_dog

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Re: Have been asked to give financial advice - how to proceed?
« Reply #4 on: January 03, 2017, 12:25:22 PM »
Never guided a child at 24 but I WAS that 24yr old with a 35k/yr job trying to pay off debt…and I say, yes crush that debt asap. The psychological win of seeing your finances improve is a huge boost to a young mind who is trying to figure out this whole “financial stability” thing. Easy, very visible wins like eliminating a debt can be a huge motivator.
But don’t stop there, make sure you have steps and goals in place for AFTER the debt is eliminated (emergency fund, retirement, etc). Talk about how awesome it will be to get rid of the debt because then you can take all that extra cash and put it towards your next goal, etc. Young adults coming out of high school/college love momentum…they’re used to pushing for goals in a linear, ladder like fashion (achieving certain grade levels in school, then degrees, getting jobs, etc) and can feel lost when they finally don’t have anything concrete sitting in front of them to shoot for. I can't tell you the number of young adults I managed who became very despondent after their first year on their first job - the sense of "is this it? where do I go next in life?" can be very real. Financial goals can fulfill that need to pursue higher levels of achievement.

GizmoTX

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Re: Have been asked to give financial advice - how to proceed?
« Reply #5 on: January 03, 2017, 12:51:03 PM »
I agree: crush the debt immediately, only charge what can be paid off in full by the next due date, & build the emergency fund.

Mgmny

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Re: Have been asked to give financial advice - how to proceed?
« Reply #6 on: January 03, 2017, 01:34:45 PM »
Pay off the CC debt immediately.

She lives at home with no car loan. She doesn't need an emergency fund more than she needs no CC debt.

I am actually baffled how someone could have $3000 in a savings account and have CC debt. Like... how did that happen? Are there more people out there like this??

stoaX

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Re: Have been asked to give financial advice - how to proceed?
« Reply #7 on: January 03, 2017, 01:56:43 PM »
Angels singing indeed!  I think it would be quite valuable if you were able to revisit the issue regularly, i.e. checking in with her every so often.  People who regularly think about their finances and make plans with that knowledge are already leaps and bounds beyond most folks and periodically talking to her about it will form that consciousness.  It can be just as easy as a short discussion about a frugal living tip, or personal finance concept or a good laugh from the anti-mustachian wall of shame and comedy.

Dagobert

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Re: Have been asked to give financial advice - how to proceed?
« Reply #8 on: January 03, 2017, 03:49:25 PM »
I dont agree with the above. If paying of the dept is a motivating goal for her, dont use savings.
Because saving is boring (for a non mustachian_, and something you want her to do; paying of the dept by reducing spending is her goal/drive.

So sit down with her and make a budget, see how much there is left over/short every month and why there is a creditcarddebt. Then make her change things. Let her see that if see doesn't eat out every week for 60 dollars, but cooks her own dinner, the debt will be gone within a year. If see also skips this / dont spend as much on that, it's even sooner.

After the debt is gone, the frugal mentality is there, and the ammount for the debt can now go to savings. But that's something to talk about in a few months after the first goal is achieved.

I fear that elimating the debt/savings will not prevent her from spending a few bucks her and there above budget with the credit card, leaving her with no savings, and a new debt.

ltt

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Re: Have been asked to give financial advice - how to proceed?
« Reply #9 on: January 03, 2017, 04:45:59 PM »
While we do not know what the specific disability this young woman has, I, as a mother of four--two who have disabilities--am very happy that the OP's daughter went to a community college, and find it admirable that she came to you for financial advice.  Like the others, I think that she should get rid of the debt.  However, in this case, I believe she should leave a small amount as a reserve in her savings account.  Maybe like $500 or so and then pay down $2500 to the credit card, leaving her a small balance to pay off over the next few months, so she can see the effect of her charging on a credit card. 

Also, has she mentioned what she spends her $100/$200 draw downs on?  Gas, lunches?

MDM

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Re: Have been asked to give financial advice - how to proceed?
« Reply #10 on: January 03, 2017, 06:26:20 PM »
What is the CC interest rate?

If over 20%, that seems enough of an "emergency" to use as much of the savings account as possible (e.g., without bouncing any checks) to pay off the CC.

Going forward, consider having her set up the CC for automatic payment of the full balance each month.  Giving her the mindset that the payment must be made each month, so the CC spending can't exceed the cash available, could be helpful.

Playing with Fire UK

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Re: Have been asked to give financial advice - how to proceed?
« Reply #11 on: January 04, 2017, 04:00:52 AM »
In YNAB, you can set starting debts (I believe). You could pay the card off with the savings and then set a YNAB debt for $3,000, called 'credit card debt' but it is a debt to the savings account.

I would definitely get the daughter to either look at or calculate how much the credit card debt will cost if only the minimum payments are made.

The other thing that I did when I 'suddenly' discovered that I'd overspent on my cards at a similar age, was to go through all the statements and look at everything I'd bought. I then compared that to how much I'd earned, what I wanted to save and sort of 'ranked' the purchases so that I knew what I 'should' have spent. This did may me pretty upset, but it was really helpful in understanding what I'd done wrong. I'd gone from earning 5 an hour part-time to ~24k a year, and it felt like a near infinite amount of money. It was not.

I'd strongly suggest a review of every single thing that has been purchased, as that will inform the new budget.

Maybe also clarify the rules for living at home for free and saving? If the $400 is in lieu of rent then I would suggest that money should go to you, she shouldn't have access to it and if she thinks that it should be spent then she should make an application to you. You should do whatever works for you. From your description of the system below, I wouldn't know whether or not it is okay for me to be taking the $100-$200 out of the account.

If the aspiration is that she will move out, I'd start the budget conversation with an understanding of how much rents are in your area, and what other costs would be involved with living independently. My suggested target (although she should decide) is that this is how much she should be saving.

I hope it goes well.

Livingthedream55

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Re: Have been asked to give financial advice - how to proceed?
« Reply #12 on: January 04, 2017, 07:17:16 AM »
Thanks everyone. This input has been incredibly helpful! Sitting down with her tonight.

I think the real learning here for her is to get out of the "fog" of just buying anything anytime the whim hits her. While the amounts are low (relatively), the behavior will only create bigger problems in time. The cc is a tool to satisfy every impulse instantly. That is why the budget piece is so important, IMHO. And just sitting down to look at monthly income and outgo should be an eye opener. She literally doesn't know what her take home pay is.

I have been pretty hands off so far (her temperament is one that a heavy handed approach would only backfire) and I think developmentally this is her lesson to learn, but I also need to be mindful of my contribution to enabling some bad habits.

I am going to focus on her dreams and aspirations (I know she wants to save for a down payment on a condo) and really try to support finding a budgeting tool that works for her. I am cautiously optimistic - she is in a much better place now with money than in her teen years - but she has a ways to go.

'll write up a summary tomorrow!

zolotiyeruki

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Re: Have been asked to give financial advice - how to proceed?
« Reply #13 on: January 04, 2017, 08:56:38 AM »
The other thing that I did when I 'suddenly' discovered that I'd overspent on my cards at a similar age, was to go through all the statements and look at everything I'd bought. I then compared that to how much I'd earned, what I wanted to save and sort of 'ranked' the purchases so that I knew what I 'should' have spent. This did may me pretty upset, but it was really helpful in understanding what I'd done wrong. I'd gone from earning 5 an hour part-time to ~24k a year, and it felt like a near infinite amount of money. It was not.

I'd strongly suggest a review of every single thing that has been purchased, as that will inform the new budget.
I love this, especially the part about ranking purchases.  DW and I had a similar experience a couple years out of college--our first step was to sit down and look at every expense and categorize them.  That's when we realized we were eating out a lot more than we thought, and it was costing a LOT of money.

Kapiira

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Re: Have been asked to give financial advice - how to proceed?
« Reply #14 on: January 04, 2017, 10:00:57 AM »
Another website/app to consider is Mint.  I downloaded it to see if it was appropriate for some financially challenged relatives and liked it enough that I use it now.

GizmoTX

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Re: Have been asked to give financial advice - how to proceed?
« Reply #15 on: January 04, 2017, 02:37:57 PM »
Apps like Mint only report what's already happened. Apps like YNAB can do both: get the user involved in planning as well as recording what was spent. Essentially an electronic envelope system.

Playing with Fire UK

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Re: Have been asked to give financial advice - how to proceed?
« Reply #16 on: January 05, 2017, 01:26:39 AM »
The other thing that I did when I 'suddenly' discovered that I'd overspent on my cards at a similar age, was to go through all the statements and look at everything I'd bought. I then compared that to how much I'd earned, what I wanted to save and sort of 'ranked' the purchases so that I knew what I 'should' have spent. This did may me pretty upset, but it was really helpful in understanding what I'd done wrong. I'd gone from earning 5 an hour part-time to ~24k a year, and it felt like a near infinite amount of money. It was not.

I'd strongly suggest a review of every single thing that has been purchased, as that will inform the new budget.
I love this, especially the part about ranking purchases.  DW and I had a similar experience a couple years out of college--our first step was to sit down and look at every expense and categorize them.  That's when we realized we were eating out a lot more than we thought, and it was costing a LOT of money.

Yes! It is really useful. The worst (most useful) bit was the number of transactions I really couldn't remember what I'd bought (Amazon, eBay) and had to go and look it up. Some of them were still in the packaging. Or I'd not be able to remember who I'd bought drinks for or gone out to eat with. The pitiful, agonising waste of it all was really informative.

Livingthedream55

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Re: Have been asked to give financial advice - how to proceed?
« Reply #17 on: January 05, 2017, 07:14:56 AM »
My update:

I sat down with dear daughter for a couple of hours last night. My tone was warm and respectful. I explained that I got into trouble with credit cards in my twenties and that I was really proud of her for asking for help. I started with asking her "What are you goals for money in 2017?

She said - "keep up my current savings, pay off at least half of the credit card, buy a new laptop and save for a down payment on a condo after the credit card is paid off (eventually, not necessarily this year)"

I then asked her "how do you feel about your credit card debt and how do you feel about your ability to manage money?" She said she felt anxious, that it really surprised her to look at how a bunch of little purchases (food, makeup, treats, shopping on Amazon) really added up. She then handed me her credit card (I didn't even have to ask!!!) and told me to hold onto it for her as she would not be charging anything until her debt was paid in full!!!

We then got into the weeds as she looked up her paystub online (I explained to her what each line item was -showed her the amount in gross pay, fed tax, her 401K savings, the amount already on autopilot ($400 biweekly) being directed to savings and finally told her what her take home pay was (an average of $450 biweekly was left after all the deductions). Then we looked up her savings account balances. She has about $400 in the "debit card" savings account and there is $3,000 in the savings account under my control (built from the autopilot "sweep" each pay period).

So she has $3,400 in savings, will continue to add $800 a month to savings, saves 10% into a company Roth 401k with a 4% company match  and vows to cease all use of the credit card. 

Then we looked at expenses. The good news was they were not awful.  An $85 a month car insurance payment, and $85 a month cell phone bill (she is not interested in switching to Cricket - which is what I have - at this time as she is on a contract, etc.) plus she estimates she spends $80 a month on gas.  She also had a $10 a month iTunes and a $10 a month HULU expense which she cancelled last night so they are both gone. She is keeping a $10 a month XBOX charge to game online with friends as this is something she does every day and brings her a lot of joy. She (for now) wants to budget $100 a week for fun (coffees, eating out, movies, hanging out with friends, etc.) She thinks this might be more than she needs but she is basically switching over to a cash based spending plan so she will take out $240 in cash each biweekly pay period for fun and gas, pay her three bills with her debit card and not touch her credit card. She also vowed not to ask me for $100 or $200 withdrawals from her savings account (which is in my name and which she does not have access to).

So - to summarize - average monthly take home:
$900

average monthly expenses:
$85 car insur
$85 phone
$400 fun
$80 gas
$10 XBOX

which leaves $240 a month for debt repayment (paying off the credit card) - which has zero interest until June, 2017 - which means it would take her a little over a year to pay off at that rate.

Two amazing things happened next:

DD said she was going to tell her friends that she was on a strict budget and her plan was to see if she could stay well under the $100 a week fun money line item (saying - "if I could not spend $100 a month on that I could put it on my credit card.) She said she could cook at home and invite friends over instead of always going out! (She already does this from time to time.)

and

she thought about taking on a weekend job (she used to be a grocery store cashier) - just for six months to speed up the debt payoff.  She decided to hold on going back to the grocery store and opted to place an ad on our local town FaceBook advertising herself as a babysitter. Here where we live she can earn $12 an hour as a babysitter.

She thanked me for not being judgmental and for my help and we talked about it again briefly this morning.  It was a great start. I am cautiously optimistic that she might really take off with this new way of thinking about spending and saving.

Thanks to all who weighed in - great input and advice!! 
« Last Edit: January 05, 2017, 07:20:00 AM by Livingthedream55 »

MonkeyJenga

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Re: Have been asked to give financial advice - how to proceed?
« Reply #18 on: January 05, 2017, 07:20:04 AM »
That was well handled on both your sides! Great that she's serious about it and has you to help her.

snowball

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Re: Have been asked to give financial advice - how to proceed?
« Reply #19 on: January 05, 2017, 08:16:24 AM »
That's lovely.  Your daughter is lucky to have you!  And I really like how you kept it warm and non-judgmental.  I'd probably be way ahead of where I am if I'd had someone to ask for advice at that age (though to give them credit, my parents provided excellent live examples of what *not* to do ;) ).

prognastat

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Re: Have been asked to give financial advice - how to proceed?
« Reply #20 on: January 05, 2017, 08:30:13 AM »
Apps like Mint only report what's already happened. Apps like YNAB can do both: get the user involved in planning as well as recording what was spent. Essentially an electronic envelope system.

I think either you haven't used Mint in a long time or are simply reporting on what you have heard.

I use mint almost religiously and they automatically report your expenses and categorize them which saves a lot of time and convenient, but for as long as I have been using it it also includes a budgeting tool to set a budget and it will show you how far you are towards every category in your budget and automatically keeps track of that, it even warns you when you get close to hitting your budget or if you surpass it. They've also had a goals tool since I started and allow you to set goals such as saving for retirement, building an emergency fund and more that it will keep track of for your, set a budgeted amount monthly towards and keeps track of the expected date you will be done given the current amount towards it and what you budgeted towards it monthly.

Finally they even recently added a new feature called bills that allows you to add your bills to a calendar and have reminders for those and even allows you to link directly to the bills account so you can click to pay it in mint and it will take you straight to the page to log in and pay that bill.

Also congrats on having a productive conversation about this with your daughter Livingthedream55, I know it can be quite hard to talk about finances so I'm glad it went well.
« Last Edit: January 05, 2017, 08:33:01 AM by prognastat »

Bicycle_B

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Re: Have been asked to give financial advice - how to proceed?
« Reply #21 on: January 05, 2017, 08:39:31 AM »
What a great mom and a great daughter!  So happy for you both!

Playing with Fire UK

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Re: Have been asked to give financial advice - how to proceed?
« Reply #22 on: January 06, 2017, 01:49:57 AM »
So pleased this went well. You are a great parent!