Father Sez

From and to parents - parental advice to our children on personal financial management and life.
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Archive for the ‘Budgets’ Category

Helping to set up my daughter’s monthly budget

Monday, October 27th, 2008

I have regretted not discussing personal financial management with my elder two girls during their younger days. By the grace of God they have both grown up to be quite financially responsible. They have not shown any signs of the “must have” mentality for designer jeans, fancy cell phones and the like. 

I realised my shortcoming ever since I started blogging and have started on the younger 3 children. They now operate on a monthly allowance + maintaining books of accounts of their spending. In addition they practice the “pay yourself first” principle by allocating 10% of their allowance for savings as soon as they receive get their allowance. (Our youngest, Ain, has a weekly allowance). 

Coming back to the elder girls. Along and Azah have completed their degrees and have started work. (Along has resigned from her teaching job. More on this later.  Azah works with one of the Big 4 firms).

This budget exercise was done with Azah. Over the last 3 months, she has kept track of her spending and now has an accurate estimate of her monthly outgoings. She has a single income, a once a month paycheck. Her net salary is banked into her account and she withdraws what she needs using an ATM card.  We worked out her outflows, the fixed once a month ones and the other daily outflows. The worksheet looked like this. 

1. Income  This is net of deductions made for the Employee Provident Fund, a statutory requirement under Malaysian Law, and a little also for statutory insurance.  

2. Savings. I have explained the concept of paying yourself first to Azah and she transfers 15% into her savings account. 

3. Rental (she rents a room near her workplace) 

4. Loan Repayment (she has a study loan as well as an investment loan. The investment loan was taken by me under name when she turned 18. The returns are almost sufficient for the monthly payments and there is a small top up). 

5. Food 

6. Entertainment (including her cell phone costs) 

7. Travel 

8. Miscellaneous 

Items 2, 3 and 4 are fixed monthly. At present she does the transfers monthly. I have talked to her to make these automatic bank transfers. I’ll have to check to see if this has been done.  

For items 5, 6 and 7, I have asked her to do withdrawals weekly and keep the money in separate envelopes in her room. Each day she’ll take the estimated amount for that day and keep the money in her purse for daily spending. The purse is “topped” up each day.  

Picture Credit: http://www.money3rd.com/financial-success-2.php 

I have talked to her about joining friends to eat at expensive restaurants. It is likely that some of these restaurants may be too pricey for her budget. In such a case, she just has to turn down the invitation. Perhaps it may seem to be shameful amongst her peers, but I have assured my daughter that there is absolutely no shame in this. It is far more shameful to live beyond one’s means.  

The balance in the envelopes and in her “salary bank account” each month should be  transferred into her savings account.  

I have not talked to her on her yearly expenses like insurance, her new clothes for Hari Raya etc. This year these costs have been in the Ma and Pa’s budget. In January 09, Azah has to start including these. 

I suppose my children are far luckier than my wife and I were when we were at her stage in life. My daughter already has an emergency fund (again, thanks to Ma and Pa) and she does not have to contribute to our household.  

I have not talked to her on investing etc, though she did attend a workshop on property investment earlier. I plan to do this sometime next year, by introducing her to my friends who are far more successful in various investment activities than her parents.   

Note: 

The envelope system seems to be a great way for a start into budgeting. A fair bit has been written on this subject. Have a look at

- Budget Building 101 - Creating a Budget Using the Envelope Method,

- Frugal Dad’s fine tuning when you have to take your envelope system on the road and

- the well written piece on this subject by guest poster Luke from NeoBudget on Gather Little by Little.   (NeoBudget is an online budget manager that uses the envelope method to help you track your spending habits and stick to a budget).

The costly PF mistakes and blunders I have made, and why you should not repeat my mistakes – Part 1

Tuesday, January 22nd, 2008

The lessons that I so wish I had learnt and mastered much earlier in my life are :- 

-         paying myself first and

-         forming or joining a correct peer group.

I have now set myself on a crusade, mostly through this blog, to ensure that my children learn these two lessons much earlier in their lives. 

There have been other mistakes. Lots of them. Perhaps writing about them may help others. The costlier ones will be covered here, in no particular order. 

Mistake – Not having a written budget 

I have never been “broke” since I started working, Thank God. This has not been due to adroit financial management, but thankfully, as a direct result of my background. I come from a poor family. And the early difficult years have been embedded deeply into my psyche.  

Though I have always spent less than I earned, there was no system to it. There were no investments systematic or otherwise.  

I started saving I think, around the time, my second girl was born. Not saving what I should, rather an amount that I thought I could “afford”. I have never done a spending budget, personal or family until recently. 

I now see and have started enjoying the advantages of having a budget 

We may think we know where our money is going, but believe me, we are only fooling ourselves. Though payments like mortgage payments, insurances etc., can be tracked, it is the expenses in the “others” category that end up draining us.    

By drawing up a budget, our expenses can be broken up into several categories and tracked category by category. This way, the management is less complicated and drainers can be identified and tackled.   

For example, my family now knows the amount we spend on phone bills. It is unduly high and is being reduced now. 

Club subscriptions that we have paid for years while hardly using them have been cancelled. 

Petrol bills have been cut down by converting the car into a NGV. 

And so on. 

The danger of not having a budget is that you don’t quite realize where the money is going and blame the wrong people or look at the wrong reasons.   

I used to have some quite messy quarrels with my wife over this. Only after the budget was drawn up and discussed have we both realized where our biggest drainers were. 

We had debt levels that were too high. This led us to seek cheaper financing sources that did not work out. So now we are disposing off our investment property.

I do believe that the actions taken since drawing up our budget will have a lot more positive impact on my family’s financial well being than the steps taken in the last 3 years! 

As an additional bonus, now there is so much better alignment between my wife and me, and in fact, the children in managing our finances. 

Don’t repeat my mistake, please draw up your budget. Monitor your spending. Even if it is only for keeping you informed, do it. 

And if it is “how to budget” or more “why must budget” information that you need, please read this excellent and most timely post by Free Money Finance.  

How my wife and I “frugalized” a sensitive item, telephone bills

Sunday, January 20th, 2008

I have earlier written about doing our family budget for the first time in our married life and our intention to work on paring the budget further. 

One item, telephone bills, was a bit of a bother. My wife and I have between us 3 cell phones, 1 landline, 1 fax line and an Internet connection. The monthly bill comes to a handsome sum. 

Can we do something to reduce this bill? 

My wife and I are quite, no, very, different in character. I am a numbers and logic person. Seeking order and organization in everything I do. I have one checklist for this and another checklist for that. (And usually end up check listing myself to a standstill). I would most probably be classified as “unfriendly” at almost every first meeting with anyone.  

My wife, on the other hand, is a people’s person. She is bubbly and has something nice to say about almost everyone she meets. She knows all the people we deal with in our lives - our grocer, the children’s teachers, the school principal, the school canteen operator, the local police station people, our doctor, the pharmacist, the bank tellers…….well, you get the idea.  

This is on top of her 12 uncles and aunts from her mother’s side and another 12 or 13 from her father’s side, and a serious busload of nephews, nieces, grand nephews and grand nieces.  

Then there are her former colleagues, my colleagues…. 

I shall not even try to complete this list. 

And in line with her people personality, her one weakness is the phone. Maybe weakness is too harsh a word; I should perhaps use “her one necessity”. 

We have had some arguments on the telephone bills. However, since the “budget day”, she is a lot more tolerant of my arguments on the need to cut down the bill. 

We have now realized (yes, I know, I am quite a peabrain) that the phone companies have various plans.  My wife and I have done some research on the plans available. Plans that would suit our requirements and help bring down the damages somewhat.  

As I may be traveling this week, my wife has agreed to drop by our phone company’s office and sign up for the new plan. 

This is indeed a very comforting sign of our financial alignment getting better.    

We have found our “How to Guide” to shaving our monthly budget

Monday, December 10th, 2007

For the first time in our married lives, we have done our family budget. And after only 23 years of marriage and 5 children. Whilst this may not be exactly Speedy Gonzales’ style, at least it will give us a chance to find out if the old adage “Better late than never” is indeed true. 

I must admit, I was pushed into this by some great posts that I read in the blogs on preparing for self employment.

Posts from blogs such as:- Get Rich Slowly Redomestication and  The Digerati Life. 

Then we sort of stress tested our budget. I thought we had it pretty much pared to the bone, when along came Clever Dude’s three parter on “What could you give up if you were in financial trouble”. 

The Dude classified the expenses as luxuries, semi luxuries and essentials. We can guess which would go, if push came to shove. The surgical, practical and unemotional cuts suggested by Clever Dude made me wonder if I could cut more. 

I also like Moolanomy’s useful idea to apply the Pareto Principle to rank our expenses and direct our focus on the bigger hitters. 

So it is back to the drawing board.  

Another 2008 financial goal is going to be cutting down our monthly budget. How, by how much and by when will have to be agreed upon after discussions with my better half. 

After all, we now have some great “how to” guides.  

Ribuan terima kasih, guys. (This is how we offer a thousand thanks in my country).

One of my goals for 2008 is to impart to my children the two most important PF lessons that I have learnt.

Thursday, November 29th, 2007

My wife and I have 5 children. The girls are, Along, 21, Azah, 20, Nana, 12 and Ain, 9 and our only boy, Abang, 13. 

We are just as concerned as any other parent that our children should grow up stable, well rounded, respected and respectful members of the community we stay in. And personal finance is one area we want to make sure our children, if not excel, should at least do well.

Imparting these lessons has been one of my wife’s and my goals for some time now, or rather a wish. A strong wish, no doubt, but still just a wish. 

I call it a wish, as it had no specifics, had no measurable metrics and no time limits.  

Not any more. Thanks to the knowledge learnt from the pf blogs I follow and some serious thought, this wish has now crystallized into SMART goals for my wife and me.  

This is my story. 

The two most important PF lessons that I have learned, are:- 

a)    Paying myself first or living below my means and 

b)    Having a peer group with PF as an “agenda item”. 

I believe that if a person masters or is comfortable with (a) and has a good peer group that avidly discusses personal finance, then he or she is well on his/ her way to financial independence. In fact having (b) should also lead to (a). 

My wife and I have set ourselves the following goals as part of our goals for 2008. 

i)      To ensure that the 2 senior girls, form or join a peer group with PF as a core subject, and  

ii) To ensure that the 2 younger children learn to pay themselves first. 

And our plan to achieve these goals:- 

i)      Goal (i)  

-         We have tried asking them to form a peer group themselves, it has not worked. They are in college now, and though they have made some solid friendships, none of their friends seem interested in this idea now.  

-         I have enjoyed great positive effects from reading pf blogs. Since my daughters belong to the generation that is very comfortable with the Net, I have given them a list 5 pf blogs that I think they may find interesting. It is possible that my girls may well decide that some other pf blog is more their type. This will be fine with us. 

-         We have offered them monetary rewards for every comment they make on these blogs. These comments must be accepted and published by the blogger.   

-         My children have to email me the URLs so that I can keep abreast of their comments. 

-         To comment, the girls have to read the posts. I am sure that some interest will be generated, from posts which should be close to their hearts now, for example those on career guidance, tips on facing the interview, etc.  

-         Over time, we expect (and hope) our children to start having an interest in the lessons these bloggers post, and for this interest to grow. These blogs will then become their peer group.    

ii)     Goal (ii) 

-         Give the younger children (except the youngest), a weekly allowance.  

-         Sign an agreement with them on this allowance. They have to keep accurate and neat accounts and save at least 10% of the amount, (they can save easily by taking packed lunches to school).  

-         Thanks to another pf blog, I have a great model to follow for this agreement. Used by none other than John D. Rockefeller himself, and edited to suit our purpose. I forget the name of the blog that pointed this out. I am sorry. 

-         Fixed targets have been set for their savings for the year. At the end of 2008, we shall go to the bank and deposit their savings in a bank account. I have agreed to contribute 300% of their savings as a top up gift. (So as you can probably guess, the targets are modest….baby steps, baby steps first) 

Do our goals meet the benchmarks for well set goals? Let’s run through the checklist.

Do we have a strong desire for the goals? But, of course! Our children’s education is very high in our list of priorities. 

Are the goals specific? Yes, they are. 

Are they measurable? Yes, the elder girls have to post comments, which can be counted. We have not set any numbers on the comments they should post. We believe we should leave it to the girls to decide for themselves.  

The younger children have a target amount to save and a date by which to achieve it. 

Are the goals achievable? Yes, they are. All our children now accept that goals are something that they want to do, as opposed to being forced to do. (Or are they just saying it???) 

Are the goals realistic? I think they are. 

Do the goals have time limits? Yes, the target dates are 31 December 2008, and we shall have periodic reviews.  

Will we achieve the goals?  We feel well prepared and are looking forward to marking off these goals as done. 

Nevertheless, my wife and I have to delicately balance our wishes and plans against the comfort levels of our children. It is likely that many,  if not, most of our children’s friends’ parents would not be doing anything similar, so there might be some negative peer pressure from their friends at school or college.  

Time will tell. My wife and I just have to find their “switch”.  

We’ll appreciate any ideas, comments or advise from like minded parents out there, who have walked this path before.     

Cosmetics – Is there a way to lighten this outflow from many a lady’s wallet?

Thursday, November 29th, 2007

Sometime ago we talked about preparing our children for the onslaught of advertising that they would face daily in their lives.  

Billboards, newspapers, magazines, TV, internet ads – the advertising industry is a mighty formidable one.  The basic premise is that without using or owning the product being advertised, we are inferior in some way…..and their product would fix this. 

There are many ads for some really useful products, but, many, many more needless ones. 

One big sector is cosmetics, and as parents of 4 girls, my wife and I have to address this.  

In the days of old, almost all cosmetics were based on folk remedies and very light on the budgets. Not anymore.  For a young girl starting off in her career, where she would be mixing with mature men and ladies, the pressure to look good (as in air brushed cover girl good) is incredible.

A significant part of the monthly budget goes into buying cosmetics. What about going back to the days of old?  Those days when home  remedies and natural cosmetics were the norm. The ladies of old were as lovely as any of the models that we see today on glossy magazine covers. 

Even some doctors are advising us not to spend too much on personal care products. Read the Frugal Duchess’ story on this here.  

Will my daughters even consider this option at all? How do we start?  

There are resources such as Indian Home Remedies and books like Natural Beauty at Home, More than 250 Easy to use Recipes for Body, Bath and Hair. 

I suppose this is something they have to be comfortable with. As parents, we just want to point out to them that there are other cheaper and possibly better options to just buying the latest cosmetic that is advertised.

My first budget meeting with my wife

Monday, November 26th, 2007

My wife and I have been happily married for 24 years now.  

Ever since an almost tragic accident happened to our second girl, when she was 3 months old, my wife and I decided that she would be a full time mother and home manager, whilst I brought home the bacon, so to speak.  

It was accepted that I’ll be the general and she the major. So she made all the major decisions, while I made the general decisions. 

Though we never make any significant purchases without consulting each other, (now we consult our two elder girls, too), my wife and I have never sat down and drawn up a family budget together. 

I took the plunge this year.

I fortified myself with a wealth of advise and ideas from :- 

a)    LazyMan’s “How to have a successful budget meeting with your spouse”, 

b)    Yahoo Finance’s Five-point peace plan to help couples avoid a war over finances, and

c)     Millionaire Mommy Next Door’s “How to make money management a family affair”. 

I am the accountant in the family, so I drew up the monthly list of expenses, expected for 2008, and discussed it with my wife. (I think this is also the first time, my wife has a clear and complete understanding of the expenses of our family).  

We have now agreed that we shall have a budget day every month to review actuals against budget. 

I am glad and actually feel a sense of relief that we have done this.  I am looking forward to the day when the family is comfortable with the monthly budget day, and we can then move to Stage 2 - Implementing the Millionaire Mommy’s great ideas to make our family money management a family affair. 

I am sure that many couples do not have family budgets. Perhaps because of earlier experiences or disagreements on spending etc. After all women and men do not think alike, do they? 

I ask you to persevere. I am sure only good can come out of this joint facing of the major issue of family expenses.   

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