Teach your children about finances

This was originally published on Monday, February 6, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I have made some financial mistakes that took years to overcome. I am now about a year out of debt and turned my credit score completely around for the better. My parents never talked about money and I think if I had learned about it sooner I may have been able to make more sound decisions.  My question is, when should I start teaching my children about money?

Answer: As a parent, it is important and our duty to teach our children important financial lessons. Your financial history gives you the tools to become a great teacher to your children.

Now that you have learned about managing your finances, it is logical that you want to ensure your children don’t make the same mistakes. Many parents don’t talk to their children about finances.

Parents are the No. 1 influence on their children’s financial behaviors. You have the opportunity to raise your children to be savvy in spending, investing, saving and giving.

According to researchers at the University of Cambridge, kids’ money habits are formed by the age of 7. That means there are several years before the age of 7 to start introducing them to money and finance ideas. Teaching your children about money is a necessity. The method depends on their ages.

Kids at ages 3 to 5 will start to get curious about money. Although they may not truly understand the value of money, they can start to learn the name of the coins and which dollar bill is greater.

  • Wait for it. This generation is surrounded by instant gratification. No longer do they have to search through encyclopedias for answers or wait for a letter in the mail. However, the ability to delay instant gratification is a skill that will keep them from depending on credit or going into debt as an adult.

Teach them that if they want something, they should save for it. If there is a small toy that they want, help them save money in a jar and when they have enough, take their money to the store and have them make the purchase.

  • Three jars. Clear jars are a great way to teach kids about money because they can physically see their money grow or shrink. Label the three jars “savings,” “spending,” and “sharing.”

Every time your child receives money, have them divide the money equally among the jars. The savings jar should hardly be touched and can be used to buy a more expensive toy or just to grow. The spending jar can be taken to the store to buy smaller items that they want. The sharing jar can be used to help a friend or go to a cause in which they are interested.

  • Play time. Kids have great imaginations. Set up a store or a restaurant in the living room. They will learn the basic idea of spending and commerce by using play money and exchanging it for goods. There are many board games from which play money can be used,
  • Coupons. Go through the newspaper or magazines and have them clip coupons with safety scissors. At the store, hand your child a few of the coupons and have them search for the item at the store. This will make them feel like they are helping the family save money.
  • Set the example. Kids are sponges and they learn from your habits and behaviors. If they see you using credit cards or constantly arguing about money with your spouse, they will mimic these ideas and actions. Remember they are watching you and you should set a healthy example for them.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

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Tips for saving money in 2017

This was originally published on Monday, January 9, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: I want to start saving more in 2017, but I always find myself barely making it to the next payday. Living payday to payday is difficult and saving money on a tight budget seems almost impossible. Do you have any tips that you can share to help me find money to start saving?

I commend you for wanting to start saving. You are not alone. Many people find it hard to save money, especially with the cost of living. I’m not going to sugarcoat it — saving may mean having to give up certain luxuries and reprogramming the way you think about spending money.

If you stick to it, you will find that once you get going and see your progress, you will continue to save and eventually it will become automatic and not so tedious. Some of the tips I have may not fit your lifestyle. Pick the tips that best suit you. If it doesn’t work, try something else. The important thing is to keep saving a little at a time.

  • Record your spending. Most people think they know exactly where their money goes. The truth is you will be surprised to learn how much you spend on nonessential items. Save the receipts of all your purchases and expenses. At the end of the month, make two categories: essential and nonessential. In the essential category, include your rent/mortgage, insurance, groceries, loan/debt payments, fuel and any other payments you must make. Under the nonessential category, include your impulse and entertainment expenses such as coffee, eating out, game or music downloads, cigarettes and other items you don’t necessarily need to survive.
  • Credit cards. Credit cards are a great way to build credit, but using credit cards to pay daily expenses can really be draining your savings potential. Most credit cards have high interest rates. Unless you pay your card off at the end of the month, you will be paying hundreds of dollars on a cup of coffee by the year’s end. Use your credit card sparingly and you can save hundreds, even thousands, of dollars.
  • Tax time. Be sure that you are getting all the exemptions for which you are eligible. It may cost a little, but see a financial adviser or tax preparer. You may be eligible for some tax breaks that you didn’t know existed. Use the tax savings to pay down some debt or put it in a savings account.
  • Compare prices. Many people overlook this tip because it does take a bit of time to do your research. Before going grocery shopping, compare store circulars and sales. A little research can save you a few hundred dollars a month. Compare prices for expensive items as well. Home and auto insurance is another expense for which you can compare prices and save.
  • Earn extra money. You don’t have to get another job, but you can use your free time to earn money. Ask your family, friends, or neighbors if they have any jobs around the house that they need done. Baby-sitting, car washing, house painting, yard work, house cleaning and other jobs can bring some additional cash. Put some of the extra money earned in a savings account and use some of it to pay off debt.
  • Think before you spend. It is nice to treat yourself every now and then, but evaluate before purchasing. If you want to purchase a $60 dress and you make $10 an hour, is that dress really worth six hours of work? Sometimes reminding yourself of just how much you work to earn your income can put how you spend your money into perspective.
  • Use cash only. It’s hard to know what you are spending when you use your debit or credit card. If you use cash, you can literally see the cash depleting from your wallet. This can help you break the cycle of overspending.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Evaluate your spending habits

This was originally published on Monday, December 5 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: With the new year approaching quickly, I have been reflecting on my current financial habits. I know that there are certainly some habits that I can change. I want to start thinking about my New Year’s financial resolution for 2017 and how I can improve my financial position. What are some of the most common money mistakes you encounter that lead to bad financial habits and how do you go about avoiding them?

Kudos for taking the time to evaluate your spending habits. There are several habits or patterns that often lead people to major hardship. Fortunately, many of them are preventable. Some may require a different way of thinking and others may include overhauling how money is spent. Realize what mistakes have happened and resolve.

  • Frivolous spending. This is the most common error. It is the most undetected, but easiest to fix. Unless you are very honest with your budget and become aware of your spending patterns, this habit is literally letting money slip through your fingers. How many of us stop off at a coffee shop or gas station for a coffee in the morning? While $5 doesn’t seem like much at the time of purchase, if you multiply that by five times a week that equals to $25 a week. For the year, 52 weeks, that equals to $1,300 on coffee alone! Now think about how many other little purchases you make? All these nonessential expenses add up. That $1,300 can be better spent on lowering your credit card balance or making an extra mortgage payment on your house.
  • Living off credit cards. Unfortunately, this behavior is becoming more of the norm.  Many purchase gasoline, groceries and other essentials, and even advance cash, with high-interest-rate credit cards. Credit card interest rates can double, sometimes triple, the amount of the original purchase.
  • Purchasing a new car. Many of us cannot afford to pay for a car in cash. On Guam, a car is an essential item to get around. However, many don’t take into consideration that a car is a depreciating asset. A depreciating asset loses value due to its age, wear and tear, or market conditions. For a vehicle, once you start adding mileage to the car, the value of resale decreases. This magnifies the difference of how much you owe versus how much the car is worth. Many people trade in their car every two or three years and lose money. Evaluate what type of car you really need. If you have a large family, a vehicle that comfortably fits everyone may be needed. But is a gas-guzzling SUV with all the upgrades needed? Those extras add up and create the need for a larger loan. Don’t forget to factor the high price of insurance and fuel costs. Assess what type of car you need, not want, and use the money you saved for other purposes.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Take time to review your personal budget

This was originally published on Monday, November 7 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

It is November and very soon we will be ringing in 2017. As festivities get started, it’s time to step back and take a look at your personal finances.

Take time to reflect back to the start of the year. Have you meet your personal financial goals or did you fall short? Maybe your life took an unexpected turn and you may need to re-evaluate your goals. Reviewing your personal finances before the year ends also gives you some time to make adjustments that will affect you when tax season rolls around.

Get organized. Life is hectic and sometimes filling paperwork is not a high priority. But getting organized will create a solid picture of your financial behavior and habits. It will also help ease the strain at tax time if you start with files that are well-organized and comprehensive. If you itemize deductions on your tax return, organized statements will help you quickly track down important purchases. Ensure that your files are well-organized and stored in a place that will be easily found come tax time.

Spending and budgetUnderstanding how you spend and save is a valuable step to reviewing your spending habits and patterns. Did you stay on budget this year? Re-examine your spending ratios, the amount of money you spend on a specific category within your budget. Monitoring the amount spent on each category can help you decide if you are spending too much on one category and not enough on another. Every household budget is different depending on the dynamics of your household. These ratios are a general guide that you can use to help you improve your spending and stay on budget:

  • Housing costs are normally the largest portion of your budget and should account for 35 percent of it. This will include rent or mortgage payments, maintenance and repair costs, insurance, and your utilities. Decreasing your power consumption can make a huge difference in this category, along with streamlining your cable services.
  • Transportation costs are the second largest category. Approximately 20 percent of your budget should go to car loan payments, insurance, fuel, repairs and maintenance. If you spend more than 20 percent of your budget, think about finding a lower insurance rate, carpooling or downsizing your vehicle.
  • Living expenses are similar to transportation costs — 20 percent of your budget. Living expenses include food, clothing, medical insurance and medical costs. It also includes entertainment, personal upkeep, hobbies and more. This category may be a bit more deceiving, as many of the components in this category may not cost much, individually. It can add up quickly and be quite costly. This category is the best place to find ways to be thriftier.
  • Debt should consume the second smallest portion of your budget at 15 percent. This category doesn’t include your home mortgage and car loans. It includes student loans, credit card payments, personal loans, store charge cards and other unsecured loans.
  • Savings is the smallest category coming in at 10 percent of your budget. This category is a bit more flexible. If you are saving more than 15 percent of your budget, consider using the money allocated for savings to pay off your debt. Once your debt is paid off you can start rebuilding up your savings.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Avoid triggers of bad spending habits

This was originally published on Monday, August 8 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Emotional spending is becoming a trend in today’s society.

Money is very personal and you could become emotionally tied to it. Shopping can cause the body to create endorphins, which give the shopper a rush. When the “high” is over many feel guilt or realize that their purchases have put them in financial jeopardy.

  • Spending to feel good. When stressed, some people turn to comfort food or alcohol to ease the edge. Emotional spenders use shopping as a way to feel good. Shopping gives them a diversion from what is really bothering them. While shopping, they do not have to face the issues at hand. Eventually they will have to face it and unfortunately it usually is too late. The damage has been done.
  • Better life. Numerous people want to improve their life especially if they grew up without much. It is hard as a child to be deprived of certain things that you see other kids get so easily. As an adult you may be trying to overcompensate what you were missing as a child. Purchasing top name brand shoes and clothes can make you feel that you are no longer that underprivileged child. Perhaps it is the reason you buy new cars because your parents could never afford one.
  • Power. When we think of power, we often think of wealth. It is not hard to see why we associate power with money. Being able to spend when we want equates to us having money. It feels good when people respond to your purchase.
  • Upkeep of your standards. When we were younger, we had less to worry about and less responsibilities. As we grow older, more people start depending on us. Our lifestyles change. Maybe we have more mouths to feed or we need more health care. As we get older, we need to start thinking about retirement. Our spending should reflect a more modest approach. Just because you used to spend that way and you were all right then, does not mean that level of spending should continue. This may cause you to spend more money than you actually have. Accept that life changes and so does your budget.
  • I saved money. Just because something is on sale does not mean you need to have it now. When you start focusing on the savings, you can lose sight of the spending. Of course, we all want to save, but at what expense? If you were intentionally going out to purchase that item, the sale is a bonus. But if you are just purchasing it because it is on sale at that time, you have done your budget a disservice. Sure, you may have saved some money on the purchase, but if you didn’t need it then you are actually spending money, not saving it.
  • Idle time. One of the biggest spending traps is boredom. When people feel that there isn’t anything to do, they create something.  Shopping is an activity that keeps you busy. It is pleasurable because it can be done at a leisurely pace; it is usually in a comfortable store and things around you are neat and tidy and pleasing to the eye. Many people say they just want to walk around and window shop. But with so much temptation, it is hard to ignore.
  • Self-worth. Spending money to raise your self-esteem can be a slippery slope. Yes, it feels good to get a manicure or get your hair done. On occasion you should treat yourself. But if you feel that it’s the only way to achieve that boost, you may want to reconsider how your money is spent.

We are potentially guilty of emotional spending. Retailers are aware of it and take advantage of our weaknesses. Know your triggers and temptations. The next time you go shopping, put safeguards in place to keep yourself from reaching for your wallet.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Know the signs of emotional spending

This was originally published on Monday, August 1 ,2016 in the Pacific Daily News.  Click her

Emotional spending occurs when a person purchases something they don’t need when they are in a certain emotional state. These emotional states can arise from stress, low self-esteem, dealing with a loss, loneliness, or wanting to improve their emotional state. Just as some people who use binge eating, alcohol, or drugs to cope, emotional spending can quickly get out of control. Emotional spending can rearrange a person’s financial priorities. Bills may not get paid, it adds tension on relationships, and it can take years to repair credit that was overused.

The first step to managing emotional spending is to realize you may have a problem. Watch out for these emotional triggers that may indicate you may be an emotional spender.

  • Immediate gratification. We live in a “now” society. Everything is instant. We can get almost everything we want in a short amount of time. We no longer must have cash on hand to purchase what we desire. If we are feeling down or stressed, we can take advantage of being able to feel better now. There are experts who say that retail therapy can actually help improve your mood and remove anxiety. However, it is a temporary fix, and should not be relied on to continue to feel good. If you come home with buyer’s remorse it can only add stress to the actual problem. Before purchasing something to instantly improve your mood, consider your purchase for a few days. During those few days, decide if it will ruin your budget, or do some research and see if you can get it at a better price.
  • Our image. Most of us have heard of the idiom “keeping up with the Joneses.” This saying refers to comparing yourself with your neighbors. The thought is the more material goods you accumulate the better your social standing. If you fail to “keep up with the Joneses,” you are inferior to your neighbors. Unfortunately, this idiom is repeated over and over again in television shows and movies. Caring more about how others perceive us, and not about how to provide basic necessities, is a warning sign that you are an emotional spender.
  • Justifying purchases. When we get a promotion, a raise or come into some extra money, it is OK to treat yourself as long as most of that money goes to bettering your finances. Make a payment on your credit card or a loan. Deposit it in savings, or start an emergency fund. Then treat yourself. If you justify that “I deserve this” as a reason for a shopping spree, you may consider looking a little deeper into the cause of this feeling. Most items that you need do not have to be justified. Most emotional purchases need justification because deep, down inside you know you are not using your money wisely.
  • Buyer’s remorse. Some of us get an adrenaline rush from shopping. If you go home with a feeling of “I know I cannot afford this,” the guilt will eventually eat away at you. Many people try to correct this feeling by returning items as damage control. This can become a viscous cycle of shopping and returning items. Returning items may even cause one to feel inferior and lower their self-esteem because they are not in a place to be able to treat themselves. Several stores have a restocking fee or a fee if you missed the deadline to return an item. This will cost you more money than you actually spent.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Be smart about staying out of debt

This was originally published on Monday, March 28 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Financial trouble can happen to the best of us. Small mistakes or an emergency can cause our finances to get out of control. Once you pull yourself out of trouble the important thing is to remember how difficult it was to get out of it. Mistakes happen but if you don’t learn from them you’ll find yourself back in that same situation.

Understand what started your troubles: Did you lose a job? Was it due to unforeseen circumstances? Or maybe it was a combination of several catalysts. Whatever the cause, be aware and stay clear from making the same mistakes again. Go back and think what could have reduced the impact? A larger emergency fund? Better budgeting? Or possibly understanding how credit works?

Budget: If you’ve been reading my past articles, you’ll realize I’m a believer in a budget. Think of a budget as the blueprint to your financial health. You build your wealth and security based on these blueprints. Be aware of what comes into the household and where it goes. The goal is to have a little left over every month and put a little away in savings. Prioritize your spending with your necessities first and then work your way through your bills saving the “luxury” items for last. These are the items that bring you joy such as the movies or dining out.

Tailor your lifestyle to your budget: In other words, live within your means. Don’t try to keep up with the neighbors or friends. Be creative and find ways to stay comfortable. If your income is reduced your spending should be too.

Charge no more than what you can pay: Bad credit habits are one of the major reasons people find themselves in financial trouble. If you do not have the money in your pocket or in your bank account, don’t use your credit card. There are some circumstances where you may need it to purchase a vacation or large item. In that case, before you purchase, reevaluate your budget. How will you pay off the balance and how long will it take? What are you willing to sacrifice to pay it off?

Spending is emotional: Whether it’s to ease the troubles of a long, hard day at the bar with friends or purchasing a video console for the perfect birthday gift, our money is usually connected to our emotions. Find out what triggers you to spend impulsively and find a way to stay away from it or ways to cope with the emotion.

Expect the unexpected: Create an emergency fund. Everyone has an optimal amount they want to set aside. The bigger the emergency fund, the better you’re prepared. This fund should be able to cover car repairs, busted pipes, or even the loss of a job for a few months. Whatever your amount is, the important thing is to start.

Get money smart: You don’t have to hire a financial counselor or pay for a lesson. There are many free resources online, in the library or from nonprofit organizations that you can turn to. If you become familiar with money, you will not be intimidated by it.

Enjoy your financial freedom. You worked hard to get out of your financial troubles. Enjoy your new-found freedom. With good planning, you can realize your dreams.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.