Why Little Kids Should Invest in Retirement

By on

Darren and I spend 10% of our income on retirement savings.  It’s a sacrifice for us to invest that much and really ought to be 15%.  We are working towards that eventually, but it’s not easy with as many kids as we are providing for at our level of income.

Roth IRAs grow tax free.  When you make less than $9,000 a year (like a kid might) you are in the 10% tax bracket.  They pay the measly tax and can invest with no taxes on the interest income.   That means if they retire as multi-millionaires and live off their Roth they won’t pay income tax during retirement.  It’s a beautiful system.  Read more…

Debt is Not an Option

By on

We had a shift in our thinking 10 years ago when we followed Dave Ramsey’s debt snowball to kick $89,000 in debt to the curb in 3 months.  We purposed then to never borrow again (except on a home.)

When we think that way and model that for our kids our thinking shifts from how can I borrow the money to how can I EARN the money.  We find ourselves planning ahead for things like car purchases, college, and appliances.

There isn’t enough money right now to fund every category we’d like to plan ahead for.  If an emergency comes up in one of those unfunded categories, we have our emergency fund. Since those extra categories are written into our budget with a temporary $0, we know how much income we need for the ideal monthly budget.  It gives us something to shoot for as I build my side hustle business to make up the shortfall.

I’m talking to my kids now about what they might being saving for.  A car, college….definitely.  What about a house?  If they can work and live at home for a few years as they sock money away, they might be able to purchase their first home with CASH.

Imagine never having a house payment…ever.  That’s the stuff I dream about for my kids.

Debt is slavery, because you’ve already spent money you haven’t earned yet.  Your future self ends up working for no pay.  Choose your hard:  I choose to wait until I earn it and hope my kids will too.

This is day 9 of our series 31 days of Kids and Money.

How to Teach Your Kids to Become Entrepreneurs

By on

My goal for my kids is to learn to work hard, do their best work, and be able to create income even if traditional jobs aren’t plentiful.  Helping them with their own businesses as children is one way we work on those skills.

A loyal reader sent me this suggestion: I absolutely love your kid’s money month, learning about their businesses. I was wondering for those of us less inclined, would you be able to do a blog tailored for the how to a kid would start a business? I loved the little tip about the fictitious name. I wonder how that “self employed” tax thing works. I was thinking about Abby and what she’s good at that she could help earn her some money and the party planning, cake baking came to my mind. While she’s still a teen and it may not be just like a professional baker, I think for what little practice she’s done that she’s knocked it out of the park.

I’m still learning a lot about running businesses, but here’s what I’ve learned so far.  Hopefully this will steer you in the right direction:

Choosing a Business

Have your child answer these questions and see if anything sparks a business idea:

  1.  What do I enjoy doing?
  2. What problem can I solve for someone else?
  3. What do I already have the supplies/equipment to do?
  4. What do other kids my age do to earn money?
  5. What adult jobs appeal to me?

Setting up a Business Plan

Keep it Simple, but include these things:

  1. What service will you provide or what will you sell?
  2. How will you make money?
  3. What will you charge? Make sure your fee covers your expenses plus profits.
  4. What are your expenses? (including supplies, equipment, advertising, transportation….)
  5. How much do you want to earn? (set a time frame) What do you need to reach that goal? (Specify the number of clients, Hours to work, or items sold)
  6. How will I keep records?
  7. How will I expand and grow?
  8. How can I leverage this business? (Earn a percentage of what others sell; Train others to start their own similar business)
  9. Do my prices reflect current market value (for my age?), allow for expansion and growth (to pay someone else and still make a profit.)  You want your prices low enough that you will get customers, but high enough that you won’t have to raise prices for several years. If you are worried you are charging too much when you are getting started, set your prices at market value, then offer a coupon incentive for your first few customers while you gain experience.

Finding Customers

  1. Who is your ideal customer?
  2. Where does your ideal customer hang out?  How can you reach them with your message?
  3. If you are doing something other than babysitting, you probably need a website to direct prospective customers to.  This is a great place to outline your fee structure, showcase your work, give customer reviews, and offer scheduling. There are free websites available but to save a headache in the future spend a few bucks to buy a domain name and have it privately hosted. You can set up hosting for about $6 a month. Then upload wordpress.org for the easiest to build website.  There are great youtube tutorials or you can get someone to do it for you from fiverr. (Most stuff there is only $5.)   I use Hostgator for domain registration and hosting and have been pleased with them.  If you use someone else, find someone who also uses Cpanel.  This simplifies things if you end up needing help from someone on fiverr or similar.
  4. You should also set up a facebook business page. Tutorial here.
  5. I’ve been able to help my kids get clients through facebook. It was a great first stop for us since I wanted them to work for people I knew well.  I just popped out a note that told the business, their availability and rate.  We were booked for the summer within a couple of days.

Business Licenses

  1. Most states have a Cottage Food Law that allows you to sell home baked goods and jams and jellies from your home without a license or health inspection. So if your daughter wants to bake cakes for birthdays, she probably can :). You can check the laws for your state here and here.
  2. Other business licenses–this gets tricky.  If you do a search for “Do I need a business license for_______.” you’ll get answers ranging from “definitely” to “probably not.”  We did not get licenses for any of our kids since none of our businesses require traffic to the house.  When I started my first home business, I got a fictitious name registry since my business name did not have my legal name in it.  That allowed me to get a bank account with my business name so I could cash checks made out to the business.  You can skip all that mess if you put your legal name into your business.  For example my official business name is: Angela Coffman: The Grocery Shrink (no fictitious name registry necessary–in Missouri.)  Get more info on whether you need a business license here.
  3. If you are advertising with flyers door to door or on cars, you probably DO need a permit for that.  You can get that at your county courthouse.

Taxes

  1.  Federal income tax:  Your child MUST file their taxes when they earn $400 or more.  The good news is when your child starts filing federal income tax, they become eligible to invest in a Roth IRA.  Make this happen.  (I’ll talk about it more later this month.)
  2. Self-employment tax:  This is social security and medicare tax.  Normally an employer pays half of this tax for you.  When you are self employed, you play both halves.  You can learn more here.  It’s 15.3% at the time of this post.
  3. State and local taxes–these are in addition to your federal income tax.  BLESS the states that do not have a state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire and Tennessee.  (47 states charge corporate income tax, keep that in mind when deciding if and when you should incorporate.) In addition your city may choose to charge a local income tax– 😛 Learn more here.
  4. State and Local sales tax: Your tax rate will vary based on your zip code.  These taxes generally apply to goods (but not services) sold to the end consumer (not sold to a distributor or to a tax exempt entity, such as a church.) This might come into affect if you are selling crafts or baked goods, which is one of the reasons I steered my kiddoes towards service industries. Learn more here.  Some states have also enacted internet sales tax laws.
  5. Tax Deductions: Having a cottage business makes taxes a bit more complicated, but there are whole list of tax deductions that can help reduce your child’s tax burden. Here’s an official list from the IRS.
  6. Whatever you do keep good records. This is great experience for your kids.  For every tax deduction you need proof, a receipt, calendar of appointments…something.  Keep everything together and save it for 3 years just in case you get the dreaded official letter in the mail. (Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction–probably won’t apply to the kiddoes :).)

This is day 8 in our series 31 days of Kids and Money

Meet Aspiring Kidpreneur, Brandon

By on

Kidpreneur Brandon

Brandon turned 8 on the 5th of this month and hopes to launch his business this summer as a personal consultant on Kid Bedroom Organization and Interior Design.

I’m going to be up front about this, Brandon is unusual. He was born organized and likes things to be tidy. He made his own lunch from the first day of kindergarten, wakes himself up for school with his own alarm, and frequently brings me items to get rid of because he doesn’t play with them enough. He chooses his own clothes and slicks down his own hair. He likes to wear belts, tucked in shirts, bow ties and vests. He loves an opportunity to put on a business suit, tuxes are even better. If I need assistance, he’s the first one to volunteer. We sometimes joke he was born an old man. (He considers that a compliment.)

I wouldn’t have talked with my other kids about starting a business at age 7, but he’s interested in it, has skills and an unusual sense of responsibility for his age.

He begged me to let him start working last summer as a recent first grade graduate and I held him back. I wanted to make sure he had the attention span and maturity level necessary to follow through on the job. I’m not sure he’s quite there, but we are going to try a few clients over winter break to get him some experience PLUS some before and after pictures and customer reviews for his website.  I plan to be his personal assistant until I’m sure he is ready to fly on his own.

I’ve been spending time talking to him about the steps he will take when he starts a new job, how he will respond if someone shows an emotional response to cleaning up or letting things go, and the importance of sticking with a job and working hard especially when someone is paying you.   He’s also thinking about simple systems and checklists to leave behind, so the parent and child can work together to keep the child accountable on keeping his room tidy.

He plans to work in 2 hour increments 2-3 days a week and has a list of items he can up-sell such as a virtual room redesign with shopping and work lists and subscription for weekly inspections and treat delivery .  He is also planning ahead to be able to hire people to work for him so he can take on even more clients and launch an online training program so other kids can start satellite businesses in their own areas.

Here’s his interview:

This is day 7 of our series 31 Days of Kids and Money

Meet Kid-preneur: Caleb (13)

By on

kid-preneur Caleb

When we were kids, my brother had a trailer that hooked up to the minivan.  He and a friend mowed grass for around 20 clients on a weekly basis.  Darren grew up doing something similar.

So when a mass email came through our church asking for someone to mow 2 apartment complexes, we jumped on it and Caleb’s business was born.  Darren imagined it as something all the boys could do together so they named it: “Coffman Brothers.”  Turns out for the last 2 years it has been something Heidi and Caleb do together while the other boys are growing bigger.  She doesn’t mind being called a “brother.”

Their first residential client gave them the nickname “The Green Team” and it stuck. Now they call themselves The Coffman Brother’s Green Team. (In Missouri If your legal name is in your business title, you don’t have to get a fictitious name registry–saves steps.) In addition to mowing they do storm and leaf cleanup and weeding/brush removal and this winter plan to do snow removal too.

Caleb didn’t have much say in choosing what he did for a business.  We decided it was good for him to work, to save up as much money as possible so he could have future choices, and made it happen.  He has earned and saved more than any other kid in the family, but would he do it over again?  I turned on the camera and asked him some questions.

This is day 6 of our series 31 days of Kids and Money

Meet Kid Entrepreneur, Heather

By on

Kid Entrepreneur Heather

Heather is fairly private and doesn’t like to appear on my blog or Facebook.  She gave permission for this spotlight and even granted a video interview in case it might help another aspiring kid-preneur. 

When you don’t get an allowance and you have wish list too expensive for a birthday or Christmas gift….what’s a tween to do?

Around here we call it work.  When Heather (11) decided she needed an IPod, she asked me what kind of jobs I was hiring for at the moment.  I listed some of the usual: deep scrubbing the kitchen floor, cleaning the laundry room, organizing my office, cutting down overgrown brush.  She passed.

I happily hired other pleasantly motivated children to do those jobs.  They counted their money in front of her, and she thought a little more about her situation.

She came and found me where I was working, and sprawled across my bed.  “Mom, how much do IPods cost?”  We looked them up at the Apple Store & Amazon and compared those prices with buying used from Swappa.  Swappa won out and I assured her while the price still looked high, it was within reach if she learned to work.

I offered again to let her to clean the kitchen floor. This time she took it. Then she asked, “What ELSE can a kid do for money? I mean, besides cleaning?”  We had a good talk about bringing value to the market place by freeing someone else make more money, or by doing something that they can’t or don’t want to do themselves.

Then we brainstormed a list of things that Heather (at 11) could do that might be valuable to someone else.  She picked her favorite thing and we wrote up a business plan.  She decided to offer her services as a mother’s helper: $5 an hour for complete child entertainment while the mother worked somewhere else in the home.  She packed a bag of books and activities and we talked about possible discipline scenarios; cooking options if she was working during meal time; and how to handle multiple children at once.

Then I put a note out on Facebook announcing her skills, experience, rate, and availability. Within 24 hours she was booked for the summer with 4 different clients each requesting weekly or biweekly service.  She had so much business that she had to hire her older sister to fill in for her on occasion.  In a month she saved enough to buy a used IPod and kept working anyway.  It felt good to be useful to an adult, to be meaningful in a child’s life and to earn money doing it.  She came home from work skipping and smiling and energized.

Here’s a rarely seen video interview with Heather.  I apologize in advance that the sound is so terrible.  I was sitting closer to the mic than she was, there were kids playing on the playground behind my house making background noise that was easy to ignore in person, and this was the first day of getting a voice after a bad case of laryngitis.  BUT better imperfect and done, than never done at all.

This is Day 5 of our series 31 Days of Kids and Money

3 Ways to Pay the Kids

By on

Allowance vs Commissions….it doesn’t matter at our house, because either way you look at it, the money comes from the family budget.  When your budget is super tight, that’s not an option.

Just so we’re talking about the same things:

  1.  Allowance is money kids get for living.  They are usually paid by the week or the month and use that to practice money management. Kids with allowances are usually expected to pay for their own entertainment, school lunches and sometimes clothing too.
  2. Commission is an allowance tied to performance. Kids earn their commissions by doing all their chores and having good behavior.  It’s usually a set amount similar to an allowance, but they might not get it all if their performance isn’t up to par.

My kids get neither.  We pay one child $1 a week for trash and another $3 to mow our yard. Occasionally I offer a quarter here and there to do some of the harder chores that are above and beyond their normal job description.  Split that however you like between 6 kids and they don’t have enough money to learn how to manage it well.  If they drop a quarter in the plate at church, it took a lot of work to earn that.

If I have a job that I would have hired an adult to do (because I had the budget for it) and one of my children could do that job, I offer it do them.  I treat it like a job interview and if they act lazy or less than thrilled I don’t hire them and offer it to someone else.  Those types of jobs don’t come up a lot, so our kids have remained relatively broke (though are usually enthusiastic about an opportunity.)

I want my kids to know how to handle money. To know how, they have to practice.  In order to practice, they actually need money.  It either has to come from me, or someone else.

3. We aren’t into begging people to pay our kids for things they wouldn’t normally pay for, so we taught them marketable skills and sent them out to the real world to bring in money apart from our family budget. So far it is working. Its harder on us while none of them are drivers, because we have to taxi them to their work.  The hassle is worth it.

Next week I’m going to interview each one and let them tell you about their businesses (or future plans for one) and all the details.  It’s going to be fun, because you never know what kids are going to say.

Do your kids get an allowance or commission?  How do you teach them money management?

This is day 3 of our series: 31 days of Kids and Money

7 Things to Teach Our Kids About Money

By on

When I look at my kids, I want the world for them.  I want to protect them from pain and sorrow and all of the hard. I can’t do that, I know.  The pain and sorrow and hard is what works in their lives to build the character they need to be useful to God.  Character is like money.  It’s easier to develop character if you already have some. When bad stuff happens to people without foundational character, it makes them bitter.  If I can’t protect my kids from all the bad, I want to at least equip them to get the most out of it when it happens.

With that in mind, I want them to know:

1.  Money comes from Work.  Work is just another word for helping people.  It can be fun, but it doesn’t have to be fun. You are not above any legitimate job.  My ultimate goal for you is to find work that uses the unique gifts and talents God gave you, but there may be a season in life where you just do a job because you need to eat.

2. Money doesn’t buy happiness, but it does buy choices.  Money is a tool for you to use to provide for yourself and your family, to help other people, and to create opportunities.  Money gives you more choices in life and I want you to have a lot of it.  It’s better to be poor and have God than to be rich without him.  But it’s even better to be both rich and Godly. The more money you have, the more people you can help.

3. Patience is the opposite of impulsive. It’s being willing to wait until you understand something before you invest in it.  It’s waiting for a good price.  It’s saving up cash to make a purchase instead of borrowing money.  Patience will save you a ton of money.

4. Budgeting is freedom.  It’s knowing how much money you have, what your necessary bills are and making a decision about what you are going to spend your money on ahead of time.  Budgeting brings order to chaos, harmony to marriage, and prosperity in scarcity.  The easiest way to stay on budget is to use cash envelopes so you can see at a glance at the time of purchase where you are with your plan.

5. Tithing and giving is a blessing. Everything you have already belongs to God.  He just asks for 10% back as a good faith gesture, the rest you get to manage for Him.  In exchange He offers you greater prosperity if you are faithful with your management.  Giving is separate from tithing and it’s supposed to feel good.  There will be hands coming at you from every direction asking for your money.  As a manager for God you need to make sure that you give well, research and choose wisely.  The most satisfying form of giving is done in secret and blesses someone directly.

6. You deserve it when you can pay cash for it. We live in a prosperous nation, so it’s hard to feel how rich we really are.  Messages bombarde us from the media: “You deserve a vacation” “You deserve a new car” “You deserve a fashionable outfit”  There’s nothing wrong with having nice things.  Borrowing money to get them, however, brings pain to your life.  It’s spending money you haven’t earned yet, which makes future work feel like working for no pay, slavery.  It causes stress which can lead to arguments, sleepless nights, and illness.   So when you are tempted to borrow money for something you “deserve” remind yourself: “You deserve to be free.” “You deserve a peaceful sleep” “You deserve good relationships and good health”  You deserve it when you can pay for it.

7.  Stuff happiness isn’t lasting happiness.  When you get something new, it feels really good for a moment, but that good feeling won’t last.  It’s not wrong to feel good when you get something new, but don’t chase that brand of happiness.  Lasting happiness comes from knowing you belong to God and that He is personally invested in you. It comes from living a life of service to Him by serving others.

This is day 2 of our series: 31 days of Kids and Money

31 Days of Kids and Money–Day 1

By on

Hi Friends, I’ve been watching the whole 31 days thing since the Nester started it 7 years ago, and thinking I could never write for a whole 31 days on one topic without taking off a day.  This is the year I’m finally crazy confident enough to give it a go.

Read more…