A. I’m glad you’re going to teach your daughter about money. But in my mind, there’s never a time for an allowance. I believe that kind of thinking, and using words like “allowance,” are some of the best ways to instill an attitude of entitlement in a child. I don’t think you want your daughter growing up with the idea she deserves money simply because she’s alive.
My advice is to develop a method by which she can earn commissions. Write down a daily or weekly list of jobs around the house that are age-appropriate she will be responsible for doing. Then, at the end of the week, she gets paid for jobs she completed — and she doesn’t get paid for the ones she didn’t do. The idea is to teach her that work creates money, and teach a healthy work ethic at the same time.
Of course, there are some things a child should be expected to do without financial reward. Everyone needs to pitch in, and do certain things to help when they’re part of a family. And once you’ve taught her about the importance and rewards of work, make sure to also teach her about the three uses for money — saving, spending, and giving!
Step by Step
Q. When is the right time to buy a house when someone is following your Baby Steps plan?
A. That’s a good question. Let’s start by going over the first few Baby Steps.
Baby Step 1 is saving $1,000 for a beginner emergency fund. Baby Step 2 is paying off all consumer debt, from smallest to largest, using the debt snowball. Baby Step 3 is where you increase your emergency fund to the point where you have three to six months of expenses set aside.
Once you’ve done all that you can begin saving for a home. I’ll call it Baby Step 3b. For folks looking to buy a house, I advise saving enough money for a down payment of at least 20 percent. I don’t beat people up over mortgage debt, but I do advise them to get a 15-year, fixed rate loan, where the payments are no more than 25 percent of their monthly take-home pay.
Doing it this way may take a little more time, and delay your dream of becoming a homeowner a bit, but buying a house when you’re broke is the quickest way I know to turn something that should be a blessing into a burden!
