By Mary Hunt Do You Need an Allowance?
It used to be that when I felt broke, I chased away the horrible feeling by leaning on my bevy of credit cards. As long as I could spend money, it felt like I had money. And the more I used my credit cards to prove to myself that I wasn't really broke, the more debt I created-until finally I couldn't fake it any longer. It took me 13 years to get out of the financial mess I got our family into. But I did it, and in the process I learned a very important lesson: Every woman needs some money she can call her own.
At some point during my long journey back to financial health, my husband and I agreed to put me on an allowance. It changed everything for me. As long as I had my own money for splurges and it wasn't money I was sneaking out of the account in hopes that he wouldn't find out, I didn't feel broke. And when I didn't feel broke, I was much more willing to be frugal with the rest of our income. My change of attitude made all the difference.
"Having an allowance lowers your anxiety and boosts your self-esteem," says Kathleen Gurney, PhD, founder of the Financial Psychology Corporation, where she counsels clients and specializes in the psychology of money management. "It makes you feel like you're on top of things and in control."
Gurney couldn't be more spot-on. When I would get my allowance, I'd create a simple spending plan to figure out how I was going to use my money. What I was really doing was creating a budget. Suddenly the whole idea of a budget for all of our expenses wasn't scary anymore. Planning out my little allowance made spending intentional, not impulsive. And the more I stuck with monitoring it and setting little goals, the better I felt.
If you're ready to put yourself on a similar plan, here's some firsthand advice.
How Much, How Often?
Step 1: Talk it over.
If you're married, bring up the subject with your spouse. My husband totally endorses my allowance. (He gets one, too.) Determine what you're going to spend it on. It should be just for you, so no groceries or household essentials like toothpaste or laundry detergent. Even clothing essentials should fall into the household budget and not come from your allowance. Your little stash is for your extras-a handbag that's wildly expensive, dinner out with your friends. (Photo courtesy of Shutterstock.)
Step 2: Decide on an amount.
The best way to determine it is to go through your monthly expenses and tally up how much you're spending. Deduct that amount from the amount of money coming in. What's left over is discretionary money for savings and emergencies. Your allowance should come out of that money and be a reasonable and realistic amount that works for you.
If you don't have any left over, it's time to focus on where all your money is going. Some financial experts believe that if your household is not tracking its spending carefully, you're losing around 10 percent through "leakage"-money that's just disappearing through inefficient management, the old "I took $100 out of the cash machine and only have $10 left, where did it go?"
Once you know where the leaks are coming from, fix them and use that found money for your allowance. If money is really tight, consider taking some from a current variable expense like food.
Then step up the challenge by eating out less, using more coupons and sticking to sales to reduce your food costs.
And make sure your allowance amount is truly reasonable, says Dr. Gurney. "Too many people go on an 'austerity' allowance-they go from frivolity to austerity. But that only sets you up to fail because you're not going to stick with it. The amount you settle on should be somewhere in between," she says.
Step 3: Set a Schedule.
You may want your allowance in one lump sum at the beginning of every month, which is what I do. Or would you prefer smaller amounts weekly or biweekly? "Know yourself," says Dr. Gurney. "Getting an allowance at the beginning of the month is great for women who can budget themselves, but if you're more likely to spend it all in one day and feel poor for the rest of the month, pay yourself weekly." No matter what you decide, when you know how much and how often, add it to your bill file. If you pay bills online, add yourself to the list of payees. There. Your allowance is now part of your budget.
Step 4: Choose cash or debit.
Cash is my choice-no hassles, no worries. Once I get it, I put it in an envelope that I keep in a secret place. If cash isn't for you, set up a savings account with access via a debit card. The benefit of doing it this way is that you'll have a monthly statement showing where your money goes.
Make the Most of It
Once you've got the basics down, use your money to your best advantage by doing the following:
Keep track. If you just start spending your allowance without keeping track of where it goes, at least some of it is going to just disappear. (Remember, leakage.) You need a system. If you're keeping your allowance in an envelope, record your expenses on the back of the envelope. Or monitor how you spend your allowance at SpendingDiary.com. It's free and easy. Another choice: Wealth Watchers offers a free app for the iPhone, iPod touch and iPad.
Negotiate a raise. There have been times when I've taken a "pay cut" for a period of time as we've needed to tighten our household spending, but my allowance has grown over the years. My "raises" have been the result of systematic negotiation with my financial partner, my husband. If your allowance is a percentage of your take-home pay, tie the raise to when you get a raise at work. Or reward yourself with a small increase each time you pay down an outstanding debt or score a big save on the weekly grocery shopping. The more incentives you have to save money outside of your allowance, the faster it will grow. (Photo courtesy of Shutterstock.)
Budget. From time to time I've set up a little budget plan for my allowance. Once, I created a second envelope for my husband's birthday. For months I put savings in that envelope so I could surprise him with a weekend away. It was great! I've set up other envelopes to save up for special things that cost more than I could afford in a single month.
Another way to budget is to use index cards. "Think about your priorities and write one thing you really want on each card," says Dr. Gurney. Then place a dollar amount next to each item. Prioritize the stack of cards- now you know your goals and can figure out what you'll have to budget to reach the first one. When you accomplish that goal, go on to the next.
The best thing about an allowance system: You're the boss. You can spend it all now, put it away to buy something you really want later or give it to charity because you see a need greater than your own.
Supplement. Whenever I get a rebate, I put that money, no matter how small, into my allowance. Birthday money and bills I find in the pocket of a coat I haven't worn for a long time go into my stash, too. It's amazing how many little ways I find money now that I'm really looking.
Don't cheat. This whole idea only works if you commit to being 100 percent honest. If you start sneaking money away from places you're not supposed to, you're just hurting yourself.
Reap the Benefits
Here are just a few things an allowance can give you:
Freedom. Even if you're in a tight financial situation, an allowance gives you the freedom to spend without feeling guilty.
Fun. Now that you have discretionary money, you've built some fun into the household budget. It's a reasonable way to spend money on "wants" like new makeup or concert tickets while still sticking to a strict budget.
A safety net. No more major financial crises. So what if you blow your allowance on shoes? You've done no harm in the big scheme of things, and next month you can just buckle down to rebuild your stash.
Confidence. "Sticking to your allowance makes you feel proud," says Dr. Gurney. "It shows you that you're able to honor your commitments." (Photo courtesy of Shutterstock.)
5 Reasons to Give your Kids an Allowance
If you're not already doing it, you may want to reconsider. An allowance can:
…teach them about real life.
Nothing beats an allowance for a hands-on course in values. Having their own money teaches them about responsibility, consequences, saving and charity.
…distinguish needs from wants.
Do they really need that new PlayStation game or peace sign earrings? Having their own money makes them think harder about what to spend it on.
…put an end to the nickel-and-diming.
You create a set budget item for yourself and stop that constant drip, drip, drip of money flowing from your pocket to random stuff for them.
By giving kids money to manage, you demonstrate that you trust them. And they soon learn that to keep the money coming, they need to become trustworthy.
Just as it does for you, managing money has a magical result on their self-esteem. Teaching them how to give some of their allowance to charity, save some for a longterm goal and spend some now gives them the tools of self-reliance. (Photo courtesy of iStockphoto.)
How to Implement an Allowance for Your Children
When to start? There are no set rules. However, Janet Bodnar, author of Raising Money Smart Kids, suggests waiting until kids are old enough to manage their money and understand the concept, which is usually around age 6.
How much? Though many families use age to determine amount ($10 per week or month for a 10-year-old, for example), Bodnar suggests you think about how much money your child needs. A 6-year-old might only use a few dollars a week for ice cream or toys, while a 12-year-old will probably use more for things like movies, snacks and games. According to a 2010 study by American Express, the average allowance is $12 a week, or $48 a month.
How often? Whether it's weekly or monthly, kids do better when you stick to a schedule. Younger kids tend to manage their money more effectively when they get it weekly, since out of sight often means out of mind, says Bodnar. For older kids, consider paying monthly so they can learn about budgeting.
Work for pay? Think about your goals when it comes to the allowance-for-chores quandary. "If your main goal is to teach your kids to manage money, give them a basic allowance with financial 'chores' attached, such as paying for their own collectibles," Bodnar says. If you also want to teach kids the value of working for pay, pay them for extra chores on a jobby- job basis.
What about saving? No matter what the amount, encourage kids to save a percentage (having their own bank account is empowering for them), set aside a percentage for charity (they'll learn the value of giving back), and spend the rest.
Original article appeared in WomansDay.com.
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