Friday, February 6, 2015

Financial Planning – Part 1 – Early Learnings

Introduction

Recently a group of us were having an email conversation about financial planning.  As we got into some of the details about how we made the various decisions we did, one of the members of the group, whose opinion I highly value, made the following comment to me.  “Looks like you did a good job planning.  I would have done pretty much the same thing.  I see that you tried to create a balance of risk.  I think this is extremely important.”  Coming from him, I valued that praise.  As a result, I have been thinking back on how I came to make the plans that I did.  In this first part, I’m going to go back through my early life to relate what I learned and the decisions I made.

Growing up

Our family was certainly not rich.  None of my ancestors had ever gone to college, and none had any significant assets that they had inherited either.  I suspect that my father made only $4000-$5000 per year when I was a young child.  I know that our family property had cost approximately $7000 back in 1946 when he purchased it and he thought that was a lot of money.  While it included 23 acres, it was seven miles from town and there was essentially no traffic, even on the main highway just a few hundred feet away.

I was the first of five children.  When I was old enough to earn an allowance – in return for doing chores like setting/clearing the table, washing dishes, keeping my room clean, etc. – I earned the magnificent sum of $.10 a week.  My sister was a year younger and there was a five-year gap to the next child, so we were the only ones with an allowance at the beginning.  We got our allowance on a Saturday morning and would shortly thereafter make a trip to Martin’s – the local gas station and general store not far from our house.  They had a big wood-framed glass case just inside the front door filled with all kinds of candy.  Back then penny candy was real and some things you could get several for a penny.  I liked things like string licorice because you could make one string last a long time.  But I would only spend about a nickel of my allowance and I would save the rest.  About once every several weeks I would spend the entire nickel on a Three Musketeers candy bar (my favorite).  My sister would generally spend her entire allowance.

Sometimes we would receive larger gifts – perhaps at Christmas or birthdays – from relatives.  Getting a whole dollar bill was a real treat!  It wasn’t too many years later that my mother opened a savings account for me at a local bank.  Those were the days of passbook savings, so that meant that I had my own passbook.  A couple of times a year we would stop at the bank and I could deposit some of my hard-earned cash.  It was especially exciting when I would also get interest added – like getting extra money for doing nothing (at least that’s how it seemed to me at the time).

I was able to make a few larger purchases with my savings.  The only two I remember were a bicycle (which I rode from about age 10 all the way through my undergraduate years of college) and a telescope.  But otherwise, I just kept dutifully adding to my savings account.  As I got older, my allowance also got larger, growing from a dime to a quarter, then to $.50.  There were also occasional larger gifts, in particular a couple of US Savings Bonds for $25 (they only cost half the face value).  These were written out to my mother under the UGTMA (Uniform Gifts To Minors Act), so I couldn’t have access to them without her permission.

High School Earnings

In high school things ramped up a bit.  I had some after-school jobs that paid (such as working on my uncle’s state forest fire crew) so that gave me some additional income.  While I had some expenses related to these jobs, I banked most of it, since by then I was aware that I was going to have to save for college.  With four younger siblings, I knew that my parents would not be able to contribute much.

One year the company my father worked for had a writing contest for children/grandchildren of employees.  They ran the contest for three quarters, with two winners each time, and I was one of the six winners.  The prize was a share of stock in the company – worth about $45 at the time.  So I was now a stockholder.  Over the next several years the price went up and at one time even split, making me the eventual owner of two shares that would top out near $100 for the two.  Quarterly I would receive dividend checks – for less than $.50.  My mother always felt self-conscious stopping at the bank to deposit them in my savings account!

Upon graduation from high school, there were a number of awards/scholarships.  I won a couple of savings bonds, and also the largest award, a check for $600 from a local company.  While that may not seem like a huge amount these days, it was enough to pay for a large portion of my first year’s tuition. 

But graduation from high school marked the end of my years of simply earning and a transition to years of spending – and spending faster than I was able to earn.

Chief Learning


It’s never too early to start saving.

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