Old-School Finance Lessons

Posted by: Rod Kurtz on July 9, 2007

As hard as it is to admit sometimes, Mom and Dad usually do know best. From relationships to finances, Mom and Dad kept it simple and benefited because of it.

It used to be that people paid with cash; when the cash ran out they didn’t—and couldn’t—buy anything else until they acquired more cash. Over the past few decades, the way we spend has gradually changed, starting with paper checks and eventually getting to the point where we are essentially a cashless society. We now use credit and debit cards, online payments, and more to get what we want when we want it, regardless of whether or not we have the resources to pay for it.

This shift to a cashless society has produced some startling trends:
• Recent studies show that one in five Americans lives paycheck to paycheck.
• The average U.S. household has an average of 12.74 credit cards.
• According to the Bureau of Economic Analysis, personal saving as a percentage of disposable income was a negative 1.1% in 2006 (representing $102.8 billion in overspending nationally).

A lot of our parents and grandparents used to place cash in multiple envelopes for household budgetary needs ($50 a month for entertainment, $100 a month for clothing, and $500 a month for groceries, etc.). In my experience, this simple method of focusing on setting aside money for future expenses is still effective today. An envelope system allows you to focus on the bottom line, or in other words, on money allocated for specific activities and necessities as opposed to simply focusing on whether or not your check will clear.

Steven B. Smith
CEO
In2M
Draper, Utah

Post a comment

 

About

Want to improve the way you run your business? Entrepreneurs, academics, and consultants from diverse industries offer practical advice on a variety of topics each business day.

To submit a tip for consideration, first check our archive of previous tips to make sure you're not repeating a tip someone has already contributed. Then send the tip to Small Business channel contributor Michelle Dammon Loyalka. Because of the volume of material she receives, she may not respond to each individual.

BW Mall - Sponsored Links

Buy a link now!