Is Your Child Picky about Clothes?


GarnetsAt the Clever Dude blog, Brock asks the question: What would you do if your son dislikes all of the clothes he gets as gifts?  She describes her son who is very picky about his clothing, even when they take him along to shop for clothes.  He often will say he’ll wear something in the stores, but then leave it on the hanger when he gets home and never wear it.  They keep all of the receipts, needing to take things back often.  They then worry about what to do when it is hard to take things back.  For example, when her mother, his grandmother, buys him two sweatshirts for Christmas to make sure he’ll have one he likes, but then needs to take both back and mail another one that he may or may not like.

Now I’m guessing that if he is this picky about clothing that they aren’t buying him Faded Glory clothes from Wal-Mart.  They are probably buying clothes at the specialty stores and spending as much on a shirt for him as I spend on a whole outfit.  I’m also guessing that with the friends he has chosen that the labels he wears matter a lot and he is competing with others on clothing.  This means his parents are probably spending a lot on clothing for him.  Even if they aren’t, if they need to spend several afternoons at the mall, first buying and then returning things, they are wasting a lot of time, and time is money.  (Actually, I’ve always been surprised that stores take things back unless there is something wrong with the item.  I guess they figure you’ll buy more while you’re there, so it makes up for all of their time taking things back and restocking.)

It sounds to me like the son has a bad case of ingratitude, a disease prevalent among many children today who are overindulged by their parents.  (I confess, after hearing my own children complain about having to go to really neat science museum yesterday — complete with rides — instead of being able to sit home that I may be guilty of inflicting he same disease on them in the area of zoos, museums, and science centers.)  It was only about five generations ago when many children valued any clothes that they had because they didn’t get a lot of them.  A pair of jeans had to last the season, or maybe a year or two, because they would only get a pair or two per year.  Getting a new pair of shoes in the fall might have been a big deal for many children.

Today many children are given all of the clothes they want and then some, to the point where they worry about their own “sense of style.”  They also don’t tend to take care of their clothes because they know mom and dad will just buy them more.  Tore up the new, $60 jeans?  Oh well.

Now I agree that children should have a primary say in what they wear after about the age of 8, when they stop wanting to wear a sweater with a pair of shorts to school in September.  But still, teaching children that clothes aren’t cheap and getting them to appreciate what they get, not to mention learning that they will have a limited amount of money for things and that there will be clothes they just won’t be able to afford will help them when they become adults and mommy and daddy aren’t there with the credit cards, is important.  So what’s the plan?

The Plan

How about giving them a fixed amount of money each month for clothing.  For a middle-class family, something like $50-$100 might be reasonable.  Also give them a list of requirements, like they need to have long pants and a jacket for the winters, formal clothes for church and events, and a rain coat and socks.  Then, give them a reasonable amount of time to shop for themselves with the understanding that you will not be returning to the store before the next scheduled shopping trip unless there is something physically wrong with the clothes.  They have money and they have opportunity.  You have done everything needed to be a good parent and clothe your children.

Give them the chance to fail.

Probably one of the toughest things to do as a parent is to see your children struggle and deal with adversity.  Yet it is very important for their development that they be allowed to feel a bit of emotional pain for their bad choices.  Realize that you’re letting them make bad choices in a controlled environment.  It will be more serious when they decide to have a party rather than save their money for the rent and they face eviction when they’re young adults.  Bad financial decisions come with consequences, and most financial hardships we face are a result of what we do or fail to do.

If they come home from the mall with nothing, roll the money for the month over to the next (or keep it) and let them wear their old clothes, even if they’re two sizes too small.  If they spend all of their money on one outfit because it is just “so cool,” let them show it off and wear it, again and again.  If they don’t like what they bought, they can wear it anyway or they can donate it, but they won’t get any more money for clothes until the next month.  If they’ve spent most of their money, they can also spend some time at the thrift store looking for replacements, which will teach them both that many people don’t have the ready access to clothes that they have and that clothing yourself need not cost a lot of money.  There will be tears and tantrums, but freedom comes with consequences, both good and bad.

Failure is how we learn to not fail in the future when the consequences are graver.  Some of the nicest people in the world are enablers, who think that they are helping someone, but really they’re allowing them to maintain a lifestyle that is unsustainable.  Giving in to your children’s demands when they are young creates entitled adults who will think Bernie Sanders is a great choice for President.  Your adult children need to learn to make enough money for rent and food and budget for these things.  They need to figure out how to pay for their own cell phone.  Propping them up by paying for their rent or their food so that they can live beyond their means will keep them from learning their financial limits and delay them from finding ways to make more money so that they can afford better things.  Starting out by learning how to budget money for clothing, and learning just how much clothes cost, is a good start.

So what do you think?  Please leave a comment – I’d love to hear from you!  Also, I’m happy to take your investing questions.   Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Should You Buy Individual Stocks or Mutual Funds


 

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Many people say you should not buy individual stocks, and maybe they are right.  Buying individual stocks is radically different from buying mutual funds.  It takes a different mindset and it carries a completely different set of risks.  So what is the difference?

When you buy into a mutual fund, you are buying a large number of different stocks.  One of the most concentrated mutual funds you can buy is one that tracks the Dow Jones Industrial average (such as the DIA, or “diamonds”). which trades on the American Exchange.  In this case you are only buying into the Dow Jones Industrial Average, which includes 30 large, household-name companies.  There is also the Janus Twenty Fund that invests in just 20 stocks that the managers pick.  Otherwise, you’ll probably find that a listing of the holdings in your mutual fund will cover a few pages in the prospectus (a booklet that describes a mutual fund).   

Because you are buying so many stocks, your return over long periods of time will essentially equal that of the market in general, minus expenses, regardless of the mutual fund you pick.  Your return will be between 8-20% before expenses if you hold for ten or more years, and if you hold for more than  fifteen years, your return will narrow to between about 10-15%.  There will be years when you make 30 or 40% returns, and others where you’ll lose 20 or 30%.  On really bad years, you might lose 50% or more.  On great years, you might make 100%.

With a mutual fund, you’re protected against a single CEO making a big mistake and causing the company stock to lose 90% of its value.  You’re protected against choosing the wrong company and seeing your investment tread water while others are charging ahead.  You don’t need to spend a huge amount of time pouring over annual reports or earnings sheets.

Individual stocks are different.  Individual stocks routinely double in value or drop 50% in a year.  If you have only a few stocks, you may see your portfolio value change by  ten or twenty percent in a day.  There are also times when your stocks will fall in price even though everything seems fine at the company, or continue to rise for days on end without a clear reason why.  You might also see a company take on too much debt, misread the customers, or just become no longer needed and disappear entirely.  This doesn’t happen with mutual funds.

So why would someone buy individual stocks?  Again, most people shouldn’t.  Most people who try to trade individual stocks end up making much lower returns than the markets.  They buy too late, chasing the latest fads after the run-up has occurred, then hold on way to long as their stocks crash back down to earth.  Then they sell out, right at the bottom, when they should have been buying. 

Look at average returns, and you may see 3-4% when the market was making 15%.  For most people, if they would just buy index mutual funds (funds with low fees since they just buy whatever is in a particular stock index) and forget they own them, they would do much better.  In fact, everyone should do this for a portion of their portfolio if they have a portfolio of reasonable size (greater than $20,000, say).

There is a way to use individual stocks, however, for a portion of your investing that can allow you to beat the markets.  This is the way that Warren Buffett and Bill Gates made their billions.  You do it buy buying companies, rather than trading stocks.  Rather than worrying about the price of the shares and trying to time buys and sales to make a small profit, you find great companies and buy in for the long-term.  You plan to own them for the good times and the bad times as they grow and mature.  Twenty years down the road, they may be paying out as much in dividends each year as you paid for the shares.

This type of investing is very simple mechanically, but very difficult emotionally.  You need to be willing to sit there as your shares lose half of their value, perhaps buying more at the bottom.  There may be years when the markets go up 30%, but your company’s stock sits and does nothing.  The big gains are made in short bursts, with a lot of waiting in between.

Individual stock investing isn’t for everyone.  But for some, it can be the path to life-changing gains.  The secrets are patience, stock selection, and proper risk management.  Plus control of your emotions and a willingness to buy when everyone else is selling.  

Got an investing question?  Write to me at VTSIoriginal@yahoo.com or leave a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

A Financial Mistake Wealthy People Don’t Make and You Shouldn’t Either


Probably reading no phrase causes me to shout out into the room and bother my wife and sleeping cats more than, “I cashed out the 401k.”  I usually see this in Money magazine when they have a story about a reader starting a business at age 50 as a second career.  (The worst one was in 2009 from a lady who added speaking about the money in her 401k, “It wasn’t doing anything anyway.”  I wonder if she ever looked back after 2010 or the years since then, during the period where she probably would have seen her 401k double, and realized mow much she gave up.)  I’ve also read it in blogs when people are talking about getting out of debt.  Thankfully I haven’t heard it in real life or I might commit homicide, shaking them and yelling, “WHAT WERE YOU THINKING?!!”

Why does this simple phrase give me so much frustration?  Three reasons:

1.  By cashing out before retirement, these people are going to give away about half of the money to the government for taxes and penalties.

2.  More importantly, they are giving up about $8 for each dollar they cash out.  If they had held the money in their 401k from age 50 and retired at about age 70, that $150,000 they took to start a coffee shop would be worth about $1.2 M – enough to finance a good portion of their retirement.  Instead it all now rests on the fortunes of a small business that very well may fail as most do.

3.  Now, when they reach retirement, they’ll probably get there with no money and everyone else will need to support them because they decided to leave a six-figure job to “pursue their dream” or because they used their retirement savings to pay off credit cards that they’ll probably run the balance right back up again within a year because their behavior hasn’t changed.

Don’t get me wrong – I think it is great to pursue your dream or to get out of debt and stop paying credit card companies 18% interest.  It is just that using your 401k to do so means that you’re throwing away the one thing that, no matter how badly you screwed up your budgeting and savings while you were working, would nearly ensure you have a comfortable retirement.  If you want to start a business, start living like a college student and direct some of that six-figure income into a savings account until you save up enough money.  If you want to get out of debt, change your spending and start down Dave Ramsey’s “debt snowball.”  If things really are impossible – like you have $100,000 in medical bills and $50,000 in credit card debt but you only have a $60,000 per year salary, maybe a bankruptcy is the right path for you (not something I say lightly).   Don’t give up your retirement assets.

This brings us to the next item in the list provided in 10 Dirt Simple Rules of Money Management.   (Note, as always, you can find all of the posts in this series by choosing Dirt Simple from the category list in the sidebar or searching for Dirt Simple in the site.) Today we cover the eighth rule:

8.  Once money becomes an asset, it stays an asset unless an emergency happens.  This is especially true with money in retirement accounts.  Never borrow against a 401K or take money out unless you are retired or facing homelessness.

As discussed in the seventh rule, you should spend part of your money building up assets.  These are things like stocks and bonds, a reasonable personal residence for your needs, and maybe a rental property or two.  These are your “pipelines” that will keep you from needing to carry buckets for all of your life.  They are hard to build and it takes some sacrifice to build them, so don’t go ripping them out on a whim just when they are starting to flow water.  

A huge, critical asset everyone should have is a 401K account, with maybe an IRA account on the side.  If you work for the government or are self-employed so that you don’t have a 401k option, use whatever options you do have, even if it is an account at a mutual fund invested in index funds called “Sam’s Retirement Account.”  People talk about how wonderful pensions were while they bad-mouth 401k plans, yet you were never able to go up to the pension fund manager and ask to take out your portion at 45 to start a doughnut shop.  It wasn’t happening.  Leave your 401k alone and compare the outcome with that of a defined benefit plan and you’ll find the 401k isn’t such a bad route after all.

Beyond the 401k, if you want to become financially independent, you need to be building up assets.  As discussed in the 7th rule, Rich People Buy Assets,  you should always be putting some of your paycheck away into investments since those investments will add to your income.  When you have enough assets that your investment income equals your work income, you’ve become financially independent.  

You should also be looking at buying assets to pay for things rather than pay for them directly with your salary.  For example, rather than just paying for a vacation each year from your salary, start putting money away regularly into a mutual fund designated for vacation funding and then use a portion of the proceeds from that mutual fund for vacations each year.  You can do this for car purchases, meals out, and even donations to charities.  You then scale your spending based on the revenues generated by your assets.  As your assets grow, so does your lifestyle.

The beauty of this technique is that you get to have your cake and eat it too.  You get to go on the vacation, but then you come back and instead of having a big credit card bill to pay off, you still have the assets, producing more income and replacing the money you used.  You work to pay for your vacation once and then you’re done.  You never have to work to pay for vacations again.  Kind of like growing an apple tree and then getting apples every fall for the rest of your life with little work on your part once you’ve done the work of digging the hole, conditioning the soil, and training and pruning the tree as it grows until it is fully established.

But you don’t take out a saw and start cutting off limbs from the tree for firewood.  If you start selling off assets and using your principle instead of the interest you’re generating, you will reduce the amount you get next year.  This builds on itself, requiring you sell more assets to pay for things because you reduce the number of assets you have and the income they provide.   

So once you buy an asset, do all you can to avoid using the principle.  Instead, limit your spending to the income produced, minus a little bit to allow your assets to reinvest and grow bigger while your net worth is still fairly small.  Especially leave your most important asset alone – your retirement funds.  The time when you will not be able to work anymore is coming, and you owe it to yourself and everyone else to be prepared.

Got an investing question?  Write to me at VTSIoriginal@yahoo.com or leave a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.