Pay yourself first - What?

Pay yourself first - What?

We [ my daughter and I ] were sitting and talking, of all things - about the subject of money. We had just finished reading the last part of chapter 4 of “Rich Dad Poor Dad”. My twelve year old was asking questions that proved she may not completely understand but had a deep interest in the subject.

I was trying to encapsulate what we had just read so far and go over some of what we’ve discussed these last few days. I tried to keep it very simple so she could understand.


Q. What is an Asset?
A. Something that makes you money and you own.

Q. what is a liability?
A. Something that cost you money… expense monthly..

Q. Example of an Asset?
A. Business you own.

Q. Example of a liability?
A. House, car - your always paying out.

She had that concept pretty much down but I wanted to help her get a better understanding of what and why I was teaching her all this.

Government Taxes you to Death !

So we spoke a little on the subject of “Taxes”. I didn’t go into the details of when taxes started or how taxes effect the poor more than the Rich. The book did a good job of that - I was more concerned with her getting the concept of “Paying yourself first”.

teach children about money
When I explained to her that the minute an “employee” gets his/her paycheck he/she already loses money [ in taxes]. She was shocked. When I explained to her that she will be taxed to death, she was puzzled.

Federal tax, state tax, social security, medical, County tax, city tax, sales tax, gas tax and even hotel bed tax - there is even a federal tax for cellphone use….

I could see she was confused & blurted out as only a child can - “ But that’s my Money”. I explained to her that even in death - the government taxes you. “how unfair” was her response.

The reason behind Paying yourself FIRST.

I tried to explain to her that as long as she only works for someone else - she will never be in control & will be overwhelmed with all these taxes. So I tried to condense what we’ve been reading, discussing and putting into practice in short form.

money and kidsThe reason people are poor, can never truly get ahead is because they always pay everyone else first and by the time they are done - they have nothing left for themselves. Nothing ….

Using myself as example:
1- I work
2- taxed by government before paid
3- pay mortgage
4- house ins. & car ins.
5- taxed when I buy gas, clothing, do things….
6- at the end of month, I barely have anything left of my money to save much less invest.

So I asked her: “What should I do?”
My daughters response: “Make more money…?”

She has the right idea but missed the real crux of the principal. So I tried to explain - it’s not about how much money I make, but how you make & manage that money.

Simple out line

1. Make Money
A. work my job [ make money]
B. find ways to make more money
C. save to buy “Assets”

2. Manage Money
A. Save money [ pay yourself first ]
B. Budget your money
C. Protect your money [ a fool & His money are soon parted ]

3. Invest Money
A. buy assets [ start small ]
B. learn how to make money work for you [ buy bigger assets ]
C. Multiply your efforts [ re-invest, grow ]

* above is just an outline of my speech .

I’m not sure if she totally understood it all, but it did peek her interest. I explained to her that Google is a business - every search, every click makes them money. Now that really got her asking questions. I explained to her that she has to decide what she wants for her life tomorrow, make a plan & a goal today, and work towards that goal everyday of her life.

Ofcourse she wanted to know more about Google - so I explained to her that there are millions of ways to make money. Just take for example her FREE interactive online penguin game she and her friends play with online everyday. The penguin is an imaginary thing [ does not really exist ] but thousands pay that website “Real” money to place virtual [ fake, imaginary] clothing on non-existing penguins. She defended herself & her love for her online penguin - but I could see she understood what I was saying.

Creating a goal to Pay yourself first

Understanding that the best way to learn is by doing - we came up with a small goal [ a year long goal ] as a lesson. Starting October 31, 2009 - my daughter has one year to earn $1,000 dollars on her own [ I can help but not do work for her or any allowance ]. So by Oct. 31, 2010 - my duaghter has to create, make, earn or work to build up $1,000 dollars.

To her last a lot of money.
To her it may be a game.
To her it could just be a test.

She has until Oct. 31, 2009 to think up of a way to earn income to reach that goal. I can see she is not really into it, yet. But I am hoping that once she gets started she’ll want to reach that goal and more. Then the real lesson begins.

Side Note: I just ordered “Cash Flow” for kids board game. I brought my family together and showed them the game online - I wanted them all to be interested in playing it [ learning ]. The kids were stoked, the wife…. She just gave me a funny look and said: “ what ever you say honey.”

I’ll tell you how it turns out… I can’t wait to try it. At minimum I spend time with the family - best case scenario - my kids learn how to manage money and invest.


G'Ma Angie said...

Good content and tips on teaching kids the value of money.

Angie Severs

Abdullah said...

Useful information. Thanks for giving us this useful information. I have come some advice to about Budgeting. Thanks for sharing.....

Post a Comment