Tag: Savings

WORD OF THE MONTH: BUDGET

On By mutualcuIn Financial Lessons, Just for Fun, Uncategorized, Youth SavingsLeave a comment

Teacher working with student

David’s friend, Mikey, had the most awesome basement ever. It had a ping-pong table, a foosball table and an air hockey table. That’s why David loved going over to Mikey’s house to play.

But David wanted an air-hockey table of his own.

“Can we get one, Mom? Please?” he asked his mom one day after coming home from Mikey’s.

Mom shook her head. “Not now, David. Air  hockey tables are fun, but they’re also expensive.”

“So what?” David cried. “Why can’t we buy something expensive, just this once?”

Mom pushed back her chair and stood up. She walked over to a kitchen drawer and pulled it open. She took a bunch of papers and checks out of the drawer and motioned for David to come join her at the table.

“Let me show you something,” she said. Mom started dividing the papers into two separate piles.

“These are our bills,” she said, patting the larger pile. “And these are our paychecks.”

Mom took out a piece paper and drew a line down the middle.

“Look, David,” she said. “On this side, I’m going to write all of our expenses and on the other side I’m going to write our income.”

“You mean like how much money you and Dad get paid?”

“That’s right,” said Mom. “I’m not going to tell you the actual numbers, just an estimate so you get an idea.”

“Why won’t you tell me the real numbers?” David was curious.

Mom smiled. “Because there are some things you don’t need to know about just yet. You’ll have to do all this when you’re older, but for now, you can learn about it without knowing the actual amounts.”

Mom started listing items:

  • Mortgage payment
  • Credit card bills
  • Phone and internet bill
  • Electric bill
  • Gas bill
  • Insurance payments
  • Car payments
  • Cable
  • Gym membership
  • Groceries

There were so many expenses! Next to each item, she put a small number.

Then she wrote a few larger numbers on the other column.

“You see this, David?” she said, holding up the paper. “This is called a budget.”

She pointed at the longer column. “This is the amount of money we need to spend on certain expenses each month.”

Then, she pointed at the shorter column. “And this is the money we have to work with each month.”

“But how do you figure out how much money you need for everything?” David asked.

“That’s where the budget comes in,” mom explained. “I set aside the amount we need for our fixed expenses—that’s stuff that costs the same amount each month—and then I set a little bit aside for the expenses that cost a different amount each month.”

“But how do you know how much to set aside if it always changes?”

“I take an average of a few months and use that number.” Mom pointed to Groceries: $350.

“But you see,” she continued, “I only have a little bit for extra expenses we don’t have all the time, like new shoes or winter coats, or household repairs.”

“And air hockey tables,” David added.

“And air hockey tables,” mom grinned. “That’s not on our budget.”

David was thinking. “But what would happen if we bought one anyway?” he asked.

“That would really mess us up this month,” Mom said. “It’s not planned, and we don’t have enough money in our budget to cover it. We might not be able to pay the electric bill this month, or make a payment on the car if we spent that money on the air hockey table. Do you understand?”

David nodded. “Does that mean there’s no way I can get an air hockey table?”

Mom laughed. “You can—just not right now! We can save up for one together. How about we build a save-up-for-air-hockey-table plan into our budget together? We can think of ways to cut back on our budget and use that extra money to put into an air hockey fund.”

“Sounds good!” David smiled.

He bent over mom’s paper and after 15 minutes of discussion and writing, they had a plan in place. It would take a few months for it to happen, but they had a plan to make it work.

David was happy that mom had taken the time to explain how budgets work. He knew he would have his air hockey table soon. After all, it was part of the budget!

Talking points:

  • Why is it so important to stick to a budget?
  • What would happen if David’s mom bought the air hockey table without a plan?
  • How long do you think it will take David and his mom to save up for an air hockey table?

Gift Card Holiday Shopping Guide

On By mutualcuIn Saving MoneyLeave a comment
With Thanksgiving only a few weeks away, holiday shopping is on the minds of many.  You might have gotten off to a solid start but have a few people left on your list that have you stumped when it comes to deciding what to get them. One of the simplest ways to check them off as complete is to pick up a few gift cards.  Clearly, they have become a go-to gift given that Americans spent nearly $32 billion on gift cards last year.  So it should come as no surprise that you’ll hear a lot more about gift cards as November rolls on. This is particularly true of your Facebook friends and family, who are probably choosing sides with one camp believing gift cards to be far superior to traditional gifts and the others finding them incredibly impersonal.  This guide will go over the case for and against gift cards and give you some tips on how to save money when shopping for them.
The case for gift cards:  Gift cards are more personal than cash because they show some thought about the recipient.  Gift cards are also more secure than cash, particularly when being shipped in the mail system.  They also have a favorable impact on your gift budget as opposed to bulkier gifts because shipping costs are much lower.
Gift cards also solve a persistent economic problem that makes an appearance in long-form think pieces within articles in the Atlantic or Slate every holiday season. Those pieces are usually accompanied by a few days of Facebook shares and retweets on the topic: deadweight.  This theory states that a gift giver can’t give an economically efficient gift because, if the item on which you spend $100 is worth $100 to the recipient, they would have bought it for themselves.  How many times have you received a sweater that doesn’t fit or a new gadget you don’t want?  Or how often have you received a gift that is close to what you wanted, but not quite right? It happens. In fact, an entire market exists for B-movies that are designed to look like the year’s most popular films, mainly to fool the unwary shopper at holiday time.  Gift cards solve this problem by letting the recipient choose his or her own gift; just ask any 11-year-old who gets a copy of “Triassic World” or “The Revengers” this year.
The case against gift cards:  Gift cards are impersonal compared to actual gifts. Nothing shows your thoughtfulness like the perfect gift.  If you want to make someone happy, the feeling of opening the big box will always beat out opening an envelope.  Finally, it’s really easy to create an awkward situation of imbalance.  When you receive a gift card for $100, but you gave that person one for $50, you end up feeling guilty. When the opposite occurs, it’s like you bought them a $50 gift and they got you nothing.  Putting a firm price on gifts makes any discrepancy very apparent.
As for deadweight, gift cards minimize the problem, but don’t eliminate it.  They still have some value less than cash (whether perceived or real), so you’re not fully realizing the economic potential of your gift.  In fact, the only way to fully beat deadweight is by giving a gift.  You can get them something they don’t know about, taking advantage of imperfect market knowledge.  You can make them something, taking advantage of the value of your time.  Or, you can buy them something they wouldn’t buy for themselves, taking advantage of some people’s unwillingness to indulge.  By the way, this paragraph is exactly why no one likes economists and why no one ever reads the articles on deadweight:  too much rationality and not enough jolliness.
How to buy a gift card:  Buying gift cards is easy, of course.  But that doesn’t mean you’re doing it right.  In fact, you shouldn’t pay full price for a gift card if you can avoid it.  Use gift card websites like giftcardgranny.com or giftcardzen.com to purchase gift cards at big discounts, sometimes as much as 50% off.  The sites offer protection from scams, and if you end up with a gift card for an odd amount, you can always use that gift card to buy a gift card from the retailer.  So, if you want to give a gift card to The Gap for $100, for example, you might find one that’s actually for $112, purchase it for under $100, and save the extra value for yourself.  You can often get larger gift cards at even steeper discounts, then turn them into multiple smaller gift cards.
Other ways to save money include looking for promotions.  Many chain restaurants offer gift card bonuses. For example, suppose you buy $100 worth of gift cards to a Chili’s.  You might be able to get a free $25 card for yourself.  It’s never a bad idea to get a free dinner, and during the busy holiday season, it’s even better.
Hopefully, this guide will make your holiday shopping smooth and easy.  This season shouldn’t be about stress and pressure.  If you find yourself overwhelmed, take a break and drink some eggnog.  If you find yourself short on cash, check out Mutual Credit Union’s personal loans that start at $500, or take advantage of the great rates on our credit cards!
Sources: