Thursday, August 28, 2008

On the Road to Financial Freedom: Part I- The Beginnings of a Thrifty Life

I was just reading a post on Money Saving Mom about budgeting, and at the end of the post she asked the readers to post a comment about when they started budgeting and what inspired them to do so. 

Well, I left a fairly lengthy comment on there and I thought it would be a good topic for a post on my blog, and then I thought it would be a good jumping-off point for a series of posts I have been thinking of doing about my own personal story with my finances.

So let's go waaaay back to the beginning to start... (insert chimey music here)...

When I was a kid, I got an allowance. I remember that I kept it in a jar, and I was definitely a saver. Counting all my quarters and dimes and nickels and pennies was a frequent and enjoyable activity for me, and I can still remember the thrill I got when my little jar of money reached the $10 mark. I really thought I was rich! It was just such a good feeling to have the potential to buy something I wanted. My parents would even occasionally borrow money from me and leave an IOU in the jar. I was a tough creditor, and I always made sure that I got my money back!

The Teenage Years
As I grew into a teenager, the price tags on my desires got bigger. My mom decided to cut off the "gimmes" (as she called them) before they could get out of control. We were expected to do our share of the chores around the house (I had to vacuum, mow the lawn, empty the dishwasher, set the table, do my own laundry, clean the bathroom, etc.) and when I did I received a $50/month allowance. The stipulations were that:

1. I did my chores. Not doing them would result in either a hold on my allowance until they were done or a reduction in pay.

2. The money paid for all of my personal needs and wants with the exception of food and housing. I was to buy all of my own toiletries, makeup, clothing, and treats.

This was a very effective system for our family, because we knew that we were never to go to our parents to ask for money or things (I think they wanted to start this habit early in preparation for our college and newlywed days!) and it made us solely responsible for the money we received. I remember thinking it odd to see my friends go to their parents to ask for money before coming to the movies with us. I thought they had it easy- their parents were like ATMs! But at the same time, I knew that my $50 allowance was a real gift, and I felt like I had more freedom than they did because I knew that if I did what I was supposed to, that money was mine, and I never had to beg anyone for it.

I wasn't big on budgeting as a teenager. I remember I would keep a small savings of whatever was left over at the end of the month so that I could have enough to buy some nice Christmas gifts for my family at the end of the year (I love giving gifts- Christmas has always been so fun for me!), but I pretty much just spent as I went. There were times that I had to tell my friends I couldn't go out with them because I just didn't have any money, and that was a bummer but it taught me a good lesson- you have to plan ahead, and if you don't, you won't get what you want.

Moving on to college, I got my first bank account and my parents continued to keep me on an allowance, though I think it was raised to $100/month to account for gas (they liked for me to come home to visit) and other increasing necessities like school supplies (and parking tickets...). But I was on a meal plan that they paid for and I remember going for weeks without spending any money at all. That first bank account was a lesson for me, though- I learned quickly that if I didn't keep track of what I was spending, it would disappear quickly, and overdraft fees are no joke. So I started tracking my expenses.

It was during the summer after my freshman year that I got my first job, and so I suddenly had a lot more money to work with (not really all that much, but it was a lot more to me!). It was then that I created my first budget. Looking back, I think I was a pretty smart college kid because I made my budget value-based. To create it, I gave myself a fictional $100 on paper. Then I thought about the different things I would want to use that $100 for. I made categories based on those things- clothing, entertainment, organization (at the time I really wanted to get my space organized), books and music, savings, tithing, etc. I used the amounts that I had come up with ($25 for clothing, for example) to create a percentage-based budget, which I used to divide my paychecks among the categories (a $200 paycheck would have 25%, or $50 designated for clothing purchases).

The budget worked well, when I used it. I learned that I enjoyed the freedom of having money set aside for different things. The budget was only on paper, but occasionally I would allow "transfers" from one "account" (category) into another to accommodate a larger purchase. Since my purchases were pretty much all wants, it didn't affect the overall plan very much, and it forced me to really think about where my money went.

So that's where it all began. Looking back I can see how these early experiences shaped my views on budgeting and my overall approach to earning, saving, and spending money. For my next post in the series, I will talk about my newlywed years, and how budgeting became not just a form of organization, but a thoughtful financial decision for my life.

How did you handle your finances when you were young? How do you think it has affected the way you deal with your money now?


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