Helping Adult Daughter with a Budget

[PandaBear]

Hi Everyone,
My adult daughter just bought a condo and actually just asked me today to help her with a budget. I am rather surprised! She tends to be independent and I wasn't expecting this.

I am sharing two styles of budgeting with her....one the old fashioned "envelope" method, using savings sub accounts (kind of like YNAB style also-which I will share with her) and one a more general savings style.

She has been pretty good with her money......she has a job with a pension and is maxing out her TSP. No debt except her new home and 6k owed on a car (which she has been paying off quickly, paying excess on the loan)

I have two questions (one factual and one opinion based)
1. She makes about 106k per year. In addition to her TSP (Federal government job at the VA), can she put money in an IRA? Roth or regular?
2. Any advice on giving advice to a young adult on budgeting?

Thanks!

 

[ivinsfan]

So did say ask you about advice as to how her budget should look (spending advice)


Or did she ask you the best way to set up her own budget by herself?



Two vastly different things.

 

[Brat]

Budget: I suggest she make a list of got-to-pay bills. For example, fixed obligations would include insurance, property taxes, car, HOA, and mortgage payments. Then water, sewer bills. Internet service is virtually a utility today and that may be linked to cable tv. Total that up and multiply by 1.05 to account for unexpected increases. She is likely paid bi-weekly so total these obligations and divide 26. Subtract that from her net pay. What is left is discretionary.

 

[bclover]

My sons tend to be good with savings if you get the money out of their grubby little hands. lol, I admit I was that way also. so for me it was getting them to be more aware of their spending.

luckily they did see my late husband and I with our household budgeting. but my general piece of advice Igave them was this.

1) Very few people can get what they want, when they want it all the time. Going to every eagles home game and buying beers will have an effect on the other things you want to do.

2) no matter how much or how little you make you have to save. pay yourself first.


Now my young adults are pretty normal, they've done some really dumb financial moves (800.00 tattoes) but nothing catastrophic. I do think we've scared them off of credit cards so that's something. lol

 

[PandaBear]

So did say ask you about advice as to how her budget should look (spending advice)


Or did she ask you the best way to set up her own budget by herself?



Two vastly different things.

I am not giving her advice on how much to spend. She wants help in learning a budget (like an envelope or YNAB style). My dh uses a style of budget that is fixed spending, savings and discretionary. She wants a more rigid budget that looks at all areas of spending. That’s what I’m helping her with. She may or may not choose to use all my ideas (I assume), she just wants to learn the system.

An example would be “gift giving”. I am suggesting she budget some amount each month so when she is buying gifts (wedding, holiday, birthday), she has some set side. Or “dog”. Setting aside money each month to pay for the pet insurance, agility classes etc). I’m not commenting or suggesting how she should spend her money, but rather how to budget for it.

Does that make sense?

 

[caninelover]

Not really additional advice, but I would coach her on thinking about her other life goals. Does she want to get married someday? Then put some aside for a wedding (unless you're going to pay). Does she want to travel? Set aside a special budget for that. Does she want to ER? Decide on what timeframe of ER is realistic for her. Does she want a bigger house someday? Don't forget to budget for selling costs as well as costs to buy the bigger home. How long does she plan to drive her car? Once her loan is done start saving for the next one.

Etc etc - but seems like she is already pretty responsible and you're giving her solid advice on budget mechanisms. Just make sure she considers the future as well.

Congrats, she seems like she's off to a great start in life.

 

[PandaBear]

Not really additional advice, but I would coach her on thinking about her other life goals. Does she want to get married someday? Then put some aside for a wedding (unless you're going to pay). Does she want to travel? Set aside a special budget for that. Does she want to ER? Decide on what timeframe of ER is realistic for her. Does she want a bigger house someday? Don't forget to budget for selling costs as well as costs to buy the bigger home. How long does she plan to drive her car? Once her loan is done start saving for the next one.

Etc etc - but seems like she is already pretty responsible and you're giving her solid advice on budget mechanisms. Just make sure she considers the future as well.

Congrats, she seems like she's off to a great start in life.

Thanks for the suggestion. I will think about how to approach ER, perhaps in a more general sense.

 

[YakGrl]

As a new homeowner, please make sure she includes a maintenance fund for repairs that will occur. That will be less than a home but she will have appliance/electric/plumbing and maybe HVAC to maintain and she probably is not accustomed to that.
Furnishings and decorating can also add up fast with a new home.

 

[nwsteve]

What seemed to work amazingly well for our DD was the spreadsheet DW made for her. It was just a basic structure but obviously easy for DD to make her own.
I think the "pic is worth a thousand words" saying captured how seeing the math turned on DD's "light bulb" DD enhanced and relied heavily on it until her marriage and she used it as a foundation with her new hubby.

 

[ivinsfan]

Budget: I suggest she make a list of got-to-pay bills. For example, fixed obligations would include insurance, property taxes, car, HOA, and mortgage payments. Then water, sewer bills. Internet service is virtually a utility today and that may be linked to cable tv. Total that up and multiply by 1.05 to account for unexpected increases. She is likely paid bi-weekly so total these obligations and divide 26. Subtract that from her net pay. What is left is discretionary.

I would include an emergency fund as a got to catagory..add up the got to pay monthly multiply by 6 and pick a number to set aside monthly.Just have something in her regular budget

 

[wannabefire]

OP. - you lost me at “has a job with a pension”

 

[Midpack]

I use a well developed DIY spreadsheet. YNAB is a great idea. I’ve heard good things about the Mint app for budgeting too. https://www.nerdwallet.com/article/finance/best-budget-apps

I’d think the big opportunity for you>daughter would be to carve out an appropriate chunk for saving & investing for FI.

 

[socca]

Suggest that she buy a two-drawer filing cabinet with built-in rails for hanging folders. In the top drawer go asset and income items; in the bottom drawer go liability and expense items. Conceptually, you want the top drawer to be growing faster than the bottom drawer .

Sure, down the road she'll want a more elaborate system (an electronic version using spreadsheets, software, etc.), but the two-drawer filing cabinet is an essential first step. Heck, after 35 years I still have two drawers in one of several tall filing cabinets used for this purpose.

 

[jazz4cash]

There is a YouTube channel called The Budget Bounce. The creator has developed a set of spreadsheets similar to Dave Ramsey’s Zero Based Budgeting program (Every Dollar). She sells the spreadsheets. If you can get past the drama of the creators deep debt dilemma it might appeal to younger folks that are into YouTube and spreadsheets.

 

[Jenna]

Highly recommend JL Collins Book, The Simple Path to Wealth.

 

[FANOFJESUS]

Highly recommend JL Collins Book, The Simple Path to Wealth.

That and the book I Will Teach You To Be Rich.

 

[Jerry1]

I would get her on Quicken and focus the first year on a few simple tasks. First - record everything. Second, max out any company contribution to a retirement account.

The first thing, I think, is so very important. Recording everything helps her gain a real understanding of where her money is going without the constraints of a "budget". Once she sees where her money is going, you'll have a much different conversation with her in, say, a year. She's young and making money. There's no need to be in a big hurry. A year or two to set up the base for a good future is time well spent.

 

[pb4uski]

Another Quicken advocate here. Most of our kids generation put almost everything on credit cards. Very easy to import transactions and the categorize them. While it has been years since I used it Quicken has very good budget capabilities too as I remember. Well worth the investment.

I download all of our credit card transactions every few days or so and once you've categorized them once many of them will be the same category when they come in again.. like an electric bill for example.

 

[SecondCor521]

I would ask her two general kinds of questions:

1. What is her current goal(s) and motivation(s) for spending? What is she trying to achieve or avoid? What problem is she trying to solve?

2. How does she prefer to do things? Is she detail oriented and wants to manage things down to the penny every day, or does she high-level oriented and and just wants the general gist of things? Does she prefer zero-based budgeting or a save some/necessary bills/OK to spend the rest approach? Does she want to use paper, spreadsheets, or the cloud?

Then I'd try to use the answer to those sorts of things to help her craft a solution that meets her needs (#1) in a way that works for her (#2).

I'd probably also consider trying to inject my parental advice about how she should save for retirement or think about the future more or whatever. But "time and place" come into play. For me and my DD19, I'm currently more in a trust-building and relationship-building mode, where helping them address their needs is foremost, and getting the advice in the ears (where it may not work at the moment) is secondary. But your relationship might be in a different place since your DD is probably older than mine.

Personally I use Quicken but don't budget and don't have sinking funds. I spend cautiously to always have extra money when needed approach. When my DD19 asked about budgeting a while ago I did some of the above questions, and ended up recommending Every Dollar because it was simple, free, ZBB, and Internet-based. If they had given me different answers I would have recommended something different.

 

[PandaBear]

Thanks for all the new comments. I will definitely utilize all the information shared.