An original painting by Alex Ferrar
On display at his restaurant Sobremesa, Antigua, Guatemala
In this Q&A Edition IV we talk about:
- Setting up kids financially (and get to hear my own daughter’s take)
- Newsweek’s article on the whistleblower v. Vanguard lawsuit
- Explore the idea of getting a mortgage interest tax deduction by making a much larger mortgage payment before the sale of the property
- Celebrate a reader’s victory
- An embarrassing (to me) question from Kevin on my long-promised book
- Take on a mini-Case Study with Tom
- Accept Hahna’s invitation to contribute to her 41 experts post and my answer to her question: What one major limiting investing belief hindered my financial success?
- Currencies and international bank CDs at 7-8%
All these are drawn from the Ask jlcollinsnh page. Next time in Q&A-V we’ll look at some that have cropped up on other posts throughout the blog.
This year I put up only 18 new posts. Part of the reason is that virtually everyday I answer questions in the comments here on the blog. When readers take the time to comment if they ask a question or two I very much like to be able to respond.
But buried in the comments section of whatever post they’ve chosen, our conversation is unlikely to be seen and enjoyed by other readers. In fact, when answering I can’t really even be sure the original commentator has subscribed to the comments and will see the response. It is tempting to blow off these questions and simply move on to writing new posts more readers will see.
But the calibre of most of the questions is excellent and, as I’ve often contended, the comment section on this blog has some of the best, most interesting content.
Back in the Spring of 2014 I ran a series of posts highlighting some of these questions:
These posts were very well received and so, at long last, here is the fourth in this series. As with the first three, it is named after the featured painting above. Of course these posts are only the tip of the comment/question/answer material here, so if you like reading them I encourage you to poke around in the comment sections a bit more on your own.
OK, let’s get started…
Posted December 5, 2015 at 11:53 am
Hi Jim Collins ~
As slightly older parents of a four year old, I am wondering how best to set the child up for her future. You’ve done well writing about your experience(s) in posts about your daughter (regardless of the misleading titles) and I am looking for your thoughts.
I’ve gleaned more useful information from you that it is a ‘given’ when I have a question, I check your blog (and MMM, GCC, MF, as well). Thank you, in advance, for being such an incredibly kind, patient and pleasant voice of genuine concern when it comes to financial matters.
I am self-employed & my wife is part of the company (and a stay-at-home mother). We are each funding our SD401K (index funds), receive profit sharing from the company and contribute to our Family HSA. We each have a ROTH account – many years old, and without much in them. We “might” be able to contribute to these, however we may be ineligible (yet to be determined, for certain).
We save 50 to 70% of our income monthly, and are fortunate enough to do so. This is the first year of being this “savings / investment aggressive” for us, and we feel that we can maintain these goals, all things considered.
My wife & I have worked diligently to get to where we are – and we want to instill this work ethic in our little one. We do expect that our child will have to work / struggle to fund some of her own education – however, we also want to allow her the freedom to pursue her interests.
With that said, I want to begin saving for my child, and would appreciate your suggestions. I’d like to start her path to FIRE, as well as start contributing toward her college savings. Presently, I don’t know if she will want to go to college, but it seems a wise & prudent plan to save for such, regardless.
The 529 plans have limitations as to what can be done with the monies if she chooses to forego higher education – this makes me a bit nervous. We don’t have other children, nor other “qualified individuals” to give / gift this to – and neither my wife nor I will attend college again. (Tax rate + 10% penalties on withdrawals IF not used for purpose).
I would consider a trust, if that would be a better choice? (I am not sure what the rules / tax regulations are surrounding this idea).
You have “F-You” monies set up for your child – what did you do / set up for her? What would your plan be today, if you were doing this again? The same? Something different? If so…what?
Much like you, I’ve been blessed with a little gift from God: I want to make sure I do right.
Posted December 8, 2015 at 12:29 pm
Well, that’s a HUGE question. 🙂
It sounds like you are in a very similar situation as we were: Namely our child was born after we’d reached FI and so missed out on witnessing the effort it took. Kids, of course, learn by example.
One of the key factors in success is having grit. And just this week I finally came across this short Ted Talk that supports my opinion on this: https://www.ted.com/talks/angela_lee_duckworth_the_key_to_success_grit#t-173597
My wife and I came by our grit by facing some tough times when we were young. So the question becomes, how do we instill grit into our children who, because of our success, won’t have the benefit of their own tough times?
For that matter, is it even possible to instill grit?
Now 23, our daughter seems to have a fair share and her current life in the Peace Corp is testing it well.
I’m not sure how much any of this helped (how your kid turns out is at least in part due to the genetic lottery), but here’s some of what we did:
- Living modestly and below our means she never really grew up “rich”
- While we lived in a fairly wealthy town (for the school system) we never indulged her by buying brand name, fashionable stuff.
- Unlike many of her friends, she didn’t get a car for her 16th birthday. (although we allowed her fairly liberal use of the family car)
- While we paid for her college (tuition, books, room & board) she had to work for any extras (clothes, entertainment). She was a waitress.
So, not as tough as we had it, but much tougher than many of her peers.
Once she started working, each year I funded a Roth IRA for her.
Like you, I’m not a fan of 529 plans and never used one.
Trusts have always struck me as overly complex and expensive. Maybe if you come to see your child as immature and irresponsible the complexity and expense might be worth it. But fortunately, we don’t have that problem.
In the end, the best you can do is to love them and guide them and hope they use the benefits you are able to provide to become (rather than weaker) stronger and more successful.
And, yes, I’d do it pretty much the same way if I had it to do over.
Hope this helps!
Posted December 8, 2015 at 8:18 pm
Hi there Todd,
I was reading your question to my dad, as well as his response, and thought I could add a bit from my own experience.
While I can’t give you details behind his mastermind plans (only he knows what’s going on in his brain), I can share a bit about how he and my mom taught me about money.
When I was very little, my parents started giving me an allowance. I don’t remember exactly how old I was, or how much it was, but for as long as I can remember, they gave me an allowance, until I started working.
Anyways, when I received my allowance, my parents always encouraged me to divide my allowance into three parts: a college fund, savings and personal use. When I was very young, my parents told me how much to put in each, but once I got a bit older (maybe around middle school?) they started leaving the choice up to me. I would also do this with birthday money and Christmas money.
Now I will admit (and I ofter joke with my dad about this), at a young age I did not really understand this concept. Let’s say my allowance was $1. I would put 25 cents into my college fund and 25 cents to my savings, so I would have 50 cents for myself to spend. At the time, I didn’t realize what I was doing. I just thought I had 50 cents and the other 50 cents disappeared and I would never see it again.
Eventually, I began to understand what I was actually doing with my money was investing it in my future. Yes, I went years not understanding why my parents would give me an allowance, only to take half of it away. 🙂
But, by the time all this clicked, I was already in the habit of putting money aside. I was in the habit of saving. Even while I’m here in the PeaceCorps I am still putting aside money from my tiny monthly allowance every month, in hopes of saving even a small amount while here.
Another thing my parents would was to sit with me and go over my finances. I know, sounds really intense, especially for a little girl (and it was- I hated these talks!).
We would sit at the kitchen table and go over my money: how much I had saved, and how much I had personally to spend.
When I was old enough to have a bank account, we would go over my bank statements as well.
We would discuss what I had spent my money on. They never lectured me on how to spend my money but just talking about it brought to my attention what I was spending money on and how much. Over time, this helped me prioritize what I value and would prefer to spend money on.
My parents also kept me very involved in my own finances. When it was time to open a bank account, my dad took me to the bank, where I talked to the nice bank lady about my options. Of course I didn’t make the decision on my own, but being involved helped me feel more in control of my finances.
Sorry to ramble on, just wanted to share my side!
I think as long as you keep your child involved in their own finances (whatever that may look like), then they will be ok. They may not enjoy it and they may push against it ( I know I did!) but they will come around.
It’s better to start them young and have to kind of force them; at least when they realize it’s importance, they will be prepared with the necessary tools.
I think the thing that made understanding money so difficult for me, was that, in order to understand money, one must have life experience. Most little kids don’t have life experience.
However, it’s once those life experiences start to come, those things start to clink into place. And although they may not understand right away, they will remember.
Hope this helps!
Anybody referring to my “excellent blog, unfailing patience and sage advice” is clearly writing intelligently. ????
Congratulations on reaching FI! I’m deeply honored to hear my blog has played some small roll.
You are right: Financial intelligence is rare and the path to FI is lonely. That fact is always brought home to me at our Chautauquas where attendees invariably report that the best part is finally being sounded by like-minded people.
Enjoy your new found freedom!
Note: I am aware of and apologize for the formatting glitches in this post. My guess is they hitchhiked on in as I cut and pasted the comments. Clearly I’ve been unable to correct these but, after hours of trying, it is what it is!
- Vanguard.com (unfortunately Vanguard doesn’t have an affiliate program)
- Personal Capital* is a free tool to manage and evaluate your investments. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you’ll see what’s working and what you might want to change. Here’s my full review.
- Betterment* is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review
- YNAB* has the best budgeting tools going and just might be the Best Place to Work Ever
- Republic Wireless* is my $10 a month phone plan. My daughter is in South East Asia and is on the $5 a month plan. We talk whenever can and for however long we please. My RW Review tells you how.
- Tuft & Needle helps me sleep at night. Unfortunately they are no longer an affiliate, but still a very cool company and a great product.
*These are affiliate links and should you chose to do business with them, this blog will earn a small commission.
Unrelated, but here’s what I’m currently or have just finished reading and enjoyed:
Leave it to Psmith
“Crime not objected to.”
One of my favorite characters from a favorite author. If you like it, here are two more:
Jack Reacher roams around the country carrying only a folding toothbrush. When his clothes get dirty he buys new ones. Oh, and he kills lots of bad guys. “Make Me” is the most recent in the series, but not the best. That might be this one:
First line: “People do not give it credence that a fourteen-year-old girl could leave home and go off in the wintertime to avenge her father’s blood but it did not seem so strange then, although I will say it did not happen every day.”
Last Line: “This ends my true account of how I avenged Frank Ross’s blood over in the Choctaw Nation when snow was on the ground.”
How we came to be what we are, behave the way we do and believe what we believe. My favorite in this group.
Where people who live to be 100+ live, how they live and what they eat.
Bad monkeys are Sapiens that need killing, and Jane is on the job. If you are already paranoid, you might want to skip chapter: white room (iv)
Why the future might be incredibly good. Unless the grey goo gets us.
This might be the most enlightening and entertaining take on American history I’ve yet to read.
And here are some of my all time favorites:
The book that has most influenced how I live my life.
“The Fall of Edward Barnard” is very possibly my all-time favorite short story.
Perfect for the readers of this blog.
“Bartleby the Scrivener” is very possibly my all-time favorite novella. Don’t be put off if you struggled with Melville’s “Moby Dick.” This is a much better and easier read. Plus it will teach you the most important phrase in the English language:
“I would prefer not to.”
*If you click on the books you’ll go to Amazon, an affiliate partner. Should you choose buy them, or anything else while you there, this blog will receive a small commission. This doesn’t affect what you pay.
Here’s to a
Happy, Healthy and Prosperous New Year!