It Takes Money to Make Money

You’ve probably heard the phrase; It takes money to make money. Have you ever wondered what that actually meant? Let’s take a look at different aspects of life and how this phrase applies. Also, I’ll provide tips on how to navigate through this so you can make money without having a lot of money.

• Young Adult Head Start: When parents buy or provide their children a car at a young age, they are giving them access to get a job. By having a job, the children can save and invest the money at a younger age giving them more money to make money. Also, when parents pay for college, their children are able to make more money quicker, be promoted faster, and be insulated better against long periods of unemployment.
  • My parents weren’t able to buy me a car or pay for college. I joined the Air Force and was able to acquire them myself. I was 19 when I bought my first car and didn’t receive my degree until I was 26. Someone who had a car at 16 and graduated college at 22 had much more time to save and invest than I did.
  • Advice: Help your child work and save for a car so they can start working at an earlier age; doing the same for college yields exponential dividends for your children. There’s not a lot you can do if your parents couldn’t afford these for you except to make it right for your children.
    

• Debt: People who have a lot of money tend to avoid debt. Having a lot of debt means you’ll continuously have less money and it’s a negative feedback loop that is hard to get out of. People without money need more money but money is more expensive when you’re in debt.
  • Advice: Reduce and/or eliminate your consumer debt now (credit cards and small loans)

• Credit Scores: You need a good credit score to be issued credit but you can’t get a good credit score until you can get credit. This is a double-edged standard many people face. Typically, it takes having money to sustain a good credit score. A good credit score is extremely important because it saves you from 1) having to put large deposits on common utilities 2) makes college, car and house loans cheaper which means you can save more money and 3) keeps credit card interest rates low so if you do run into financial trouble you won’t get buried quickly.
  • Advice: If you have children, then establish teen credit accounts. Starting early is essential is important because each loan you take out will save you money with a good credit score. If your credit is in shambles then repairing it should be the first thing you start working towards after you establish an emergency savings account.

• Fees: For bank and brokerage accounts, the more money you have, the less you have to pay in fees. Minimum account balance fees will eat away at your savings. It’s better not to invest your money, avoid the fees, and then wait until you have the minimum account balance. People who don’t make a lot of money are forced to take out $20 at a time from the bank and pay ATM fees each time. A $2 ATM fee on a $20 withdrawal is the same as a 10% loss to your savings. Also, people with money usually don’t worry about Overdraft fees. Some banks charge $29 regardless of the overdrawn amount. If you overdrew your account by $1 and have to pay $29, then you theoretically suffered a 2,900% loss.
  • When I started my first bank account, I was getting charged $8 a month for not having direct deposit to my checkings and $3 a month for not having the required minimum balance in my savings account. $11 a month in fees is a lot of money for an E-3. This was before internet banking really took off so reconciling accounts was difficult.
  • Advice: Check your bank and brokerage accounts right now and make sure you’re not being charged any fees. During the financial collapse of 2008, banks had to restructure their accounts to regain confidence with the public. A benefit to customers was a serious reduction in normal fees. If you’re being charged fees, then you need to switch bank accounts or stop whatever action is causing those fees. For example, USAA doesn’t charge an ATM fee and will reimburse up to $15 a month for ATM machine fees.
    

• Investments: This is the simple “Time Value of Money” principle. The more money you have to invest now will be worth more in the future. Mathematically, if you’re over 30 without $100K saved up in non-pension/military retirement accounts, then you’re seriously jeopardizing your retirement goals. People who have more money to invest earlier get to reap the benefits of compounding returns.
  • Advice: Start investing now in an IRA and/or your TSP/401(k).

Having money means you can make more money and so on. If you’re flat broke, then it’s time to start moving. It takes money to make money is just a parable form of the math behind investing early.

Marriage and Finance Part 2: Logistics

In Part 1 of my Marriage and Finance series, I discussed some of the common roles I’ve seen. There are many other roles, but they are rarer. They key is to understand the roles you and your spouse play and nurture the strengths and mitigate the weaknesses. In Part 2, I will discuss the logistics of finances in a marriage. Financial planning takes care of the “basic needs” (think Maslow’s Hierarchy of Needs); i.e. food, shelter, telecommunications, etc. If you are having difficulties fulfilling your basic needs it will be difficult to have good communication or fulfill each other’s sexual needs and/or establish mutual happiness. It all starts with finances taking care of basic needs and good communication.

·         Common goals – Have you seen the Wells Fargo commercial with the customer service rep saying, “Now let’s talk about your…” and then man says “new motorcycle” and the woman says “home repair”?  This is an example of having different goals and can cause financial arguments. Some goals can be mundane (cost of interior design) yet still cause significant controversy in the household. I think good communication in the beginning resolves most of these disagreements. I’ve also found visual aids help facilitate discussion and agreement.  Have each person write down his or her goal and then create a plan on how to get there.  Discuss both goals and plans and see if it helps you come to an agreement.

·         Always point the “blame finger” on yourself first – Men will often say, “My wife has a spending problem” and then after a little research, she indeed has a spending problem; however, he also has a spending problem. Women will often say their husband spends too much money on car parts or video games but neglect their shoe and purse addiction. Usually when blame is placed, it puts the other person in defense mode and then creates an argument. Instead of blaming, try saying, “we have a spending problem and I’ll reduce spending money on video games and you can reduce spending on shoes” or whatever the commodity of overspending is. If one person has a valid spending problem, it may be because they are unfamiliar with finance basics and/or there’s something wrong in the relationship and spending is just a symptom.  If it’s financial ignorance, then seek help from a friend or counselor. Someone in an “official” capacity can say the same thing as you, but it now will be “official”. If it’s something deeper, then you may need to protect the finances from being negatively affected until the relationship problem has been identified and corrected.

·         Account management – There is way too much discussion and debate about whether it is more appropriate to have separate or joint accounts. I’ve seen scholarly articles and books written solely on this subject. Most people think what works for them will work for everyone, like parenting advice. But the real issue is trust. Regardless of how your accounts are set up, the situation must establish trust in the relationship. If both people have separate accounts but have 100% trust then it will be successful and vice versa for joint accounts. However, due to the nature of the military and deployments, it is always important to ensure both people have access to all accounts. Whichever you choose, make sure trust is intact. If the relationship does not have trust, then the issue is bigger than account management.

·         Budgeting – A lot of arguments stem from how to budget your money with one paycheck or with two paychecks. The key to this argument is to ensure you establish equality. Spending and saving money should be equally distributed. The focus should remain on the Family and remember all funds belong to the Family, not to the husband or the wife, regardless of who makes the money. There’s debate on how to best deal with this, whether all funds are deposited into the same account and budgeted in totality or if each paycheck should have a percentage taken out. There are pros and cons to each method and each couple will have to make that determination on their own.

BL:  Be very careful taking financial advice in marriages, to include this article. Every relationship is different and implementing advice that is not suitable to your relationship can cause severe trauma to the relationship. Married people should discuss their financial position frequently. Financial insecurity can bleed over into so many other parts of a relationship. Secure the finances and securing the relationship should be easier.