This morning, Shae and I opened a kid’s savings account for Frugal Boy. We were able to do the entire process online in about 10 minutes including the initial funding requirement of $25. Later on, when the bank was open, Grandpa and I took Frugal Boy to a brick and mortar branch to deposit his very full doggy and piggy bank.
He looked ready to ride his money all the way to the bank.
The grand total of his little banks was $41.10. Thankfully, he was not sad about emptying out his little banks. In fact, he was kind of the opposite. When we got back to the house, he went up to Grandma and asked her for more money to fill up his now empty banks. Umm, we still have a lot of parenting work ahead of us.
In the future, any cash gifts Frugal Boy receives will go into his savings account. Any checks will continue to go into his 529 College Fund unless otherwise requested. In another year or two when he better understands the concept of money, we will probably switch all of his gifts towards his savings account.
Thank you to everyone that has gifted Frugal Boy with money over the years. We are trying to teach him how to be frugal and know the value of a dollar.
Shae and I hosted Thanksgiving this year and my parents handed me an envelope filled with banking receipts covering years of my childhood. It could have just as easily been shredded, but since I have it, I might as well delve in and examine some of the financial going ons of my childhood. I have vague recollections of particular financial events, such as diligently depositing birthday and Christmas gift money, but now I have the receipts to piece it all together.
Then
It all started when I was 3 months old. My parents opened up my first bank account. Gee, thanks Mom and Dad. Back in the olden days, there was no online banking. So I had a Savings Register to record transactions in.
Opening up the register, you can see the first deposit, and subsequently, how old I am.
That $310.00 adjusted for inflation would be equivalent to $660 in 2016. Thanks Grandparents, uncles, aunts, and family friends for pitching in for my financial future.
Over the years, the balance steadily grew. I particularly like the 4th or 5th grade me that deposited $25 of ‘prize money’ in 1998.
I have no memory of what contest I won back then, but an interesting thing begins to happen around that time period. The handwriting changes, and some of the entries are being made by a little boy.
Around junior high school, middle school, or whatever you call 6th, 7th, and 8th grades, I had saved up enough money, at my parents behest, to start meeting the minimum requirements of Certificates of Deposits, or CDs for short. I do remember my Dad always shopping around the 4 or 5 banks in town looking for the best CD rates. I also remember him on a trip up to Grandma Schenk’s house once bemoaning the fact that she did not shop around rates and was leaving money on the table by being loyal to the same bank forever.
Anyway, in ’00, there is a receipt of a CD being closed.
At age 13, the saver mentality had been thoroughly beaten into my head by my parents and I had approximately $3,000 to my name, the bulk of which was tied up in a CD.
Birthday’s and Christmas’s kept rolling by year after year, and year after year I would write a fistful of thank you notes to grandparents, uncles, and aunts before dutifully marching down to the local bank and depositing checks and cash. At some point my Dad made me go alone and stopped helping me fill out the deposit slips. Of course I was terrified, but it was a good sink or swim lesson.
My Dad kept optimizing the best savings rates for me and kept the bulk of my savings locked up in CDs.
This particular CD was kept open for 2 years before being closed. The grand total of interest earned over that two years was $231.47.
In 2004, I began working and earning money for myself. The pay was negligible, but the real payoff was learning the value of a dollar. Performing a mind numbingly boring task for hours on end to collect a small paycheck gives one plenty of time to think. Suddenly, that new flashy item being marketed to you seems a little less interesting when you replace the dollar cost with an hour cost. Something that costs $50, is the same as something that costs almost 10 hours of work for someone on Indiana’s minimum wage of $5.15/hr. Yes, that was what I started at. Spending several hundred of my own dollars to take a girl to high school prom did not seem like a balanced equation. A couple of hours of fun was not worth the 50 hours of work required.
Finally in ’06 as a senior in high school, I opened up my first solo bank account. I was now 100% in charge or my own finances. The rest as they say is history.
Now
Now the tables have turned. I am in the role of Dad, and Frugal Boy and Frugal Fetus are in the role of child. Just like my parents handled all the finances when I was born and slowly relegated duties to me over the years, Shae and I are doing the same with our children. Frugal Fetus doesn’t know it, but he/she already has a college savings plan opened up and partially funded. In fact, since it was opened in July, it has returned 6.83% APY. Frugal Boy’s 529 college savings plan has returned 8.95% APY for the year-to-date. On a more concrete level, any cash that Frugal Boy receives he diligently stores in his doggy bank at his parents behest. Any checks are invested into his college savings. Amusingly enough, Frugal Boy already recognizes and calls out the different bank branches as we travel through town. I think he is almost ready to graduate to his first real bank account. We will probably open a PNC ‘S’ is for Savings account for him. It has 0 fees for age 18 and under account holders and uses Sesame Street characters to encourage kids to save.
There are a number of savings programs available for kids. Here is a roundup of some of the more popular ones.
Shae and I have kicked around the idea of buying investment real estate for several years. Today, we finally pulled the trigger. In all truthfulness, the moment came several months ago when we submitted a bid on an apartment building. It has just taken until today to finalize all of the legalese. Buying real estate isn’t for the faint of heart!
So what is so special about real estate as an investment tool. In one simple word, ‘leverage’. Putting someone else’s money to work for yourself is relatively easy in the world of real estate. Mortgages are advertised by virtually every bank, credit union, and even insurance salesmen! Right now, we are living in an almost unprecedented environment of cheap borrowing. The prime mortgage rate for a 30 year fixed rate loan is hovering around 3.5%. In fact, that is the rate we secured. I remember when I was a kid and you could have a savings account earn more than that.
We have talked together for years about what type of property we would want, why that would best achieve our goals, and how we would want to operate it. For us, residential housing, aka apartments, with a buy and hold strategy was a natural fit. Earlier this year, we got serious again about getting out of the armchair and into the field. We ran numbers on dozens of different properties for sale. I adapted a simple back-of-the-napkin model from BiggerPockets.com and used that to get a better idea of how different properties sized up to one another. Eventually, we started to get a feel for our local market. There were some abysmal numbers out there, a lot of mediocre ones, and some that seemed too good to be true. We started calling realtors and visiting places in person. Sometimes the numbers lined up with what we saw in person. For example, one place had an amazing rate of return on paper, but in person it was obvious that it was a high turnover, hard to collect rent type of place. When the tenants have smashed holes in the drywall, you run the other way as fast as your legs can carry you!
Eventually, we spotted an attractive looking quadplex that ticked off all our checkboxes. It had a simple geometry, was purpose built for apartments, good neighborhood, and was taken care of by a respectable owner. The ask price was 170k. We offered 151k. Other buyers put in bids, counteroffers ensued, and we eventually won with an offer of 156k. Below you can see our napkin investment math.
Monthly Rent through Total Expenses are on a monthly basis. The CAP RATE, or capitalization rate, would be the investments rate of return. Leverage is what makes the work worth it though. CASH-on-CASH is the rate of return that we are forecasting for the profit, cashflow/year divided by the cash to close. In essence, we made an investment of 45k dollars and expect to make 6k a year in profit. Of course, only time will tell how well it actually performs, but at some point you just have to jump in and start swimming. The other huge benefit of real estate is depreciation, but I’ll get into that closer to tax season.
Frugal Boy got a doggy bank for Easter and he loves to put money into it. He even has a couple of dollar bills from a card given to him.
I am pretty sure that he doesn’t understand money, or the fact that it can be traded for more practical 2 year old things. If he did understand, he’d probably be trying to get that deposited money back out, but that is a lesson for another day. Right now, Shae and I are content to start building a habit of putting money in a ‘safe’ place.
Another life skill that we have been working on is grocery shopping.
He is good at not running into things or people, but we are still working on the concept of “Yours and Not Yours” or “The Stores vs Ours”. Those red grapes are awfully tempting, and he would frequently try to dash up and grab a couple while we were busy. He also thought that a gallon of not-butter should be placed in the cart, along with a carton of eggs.
Yesterday we went to the Peoria Zoo, Riverfront Museum, and Children’s Playhouse. All of the Peoria museums were having a membership swap day, so it was free admittance if you had a membership at any of them. We used our Prairie Wildlife memberships to gain access.
It was a cold day and the indoor places were packed with people. So instead of eating shoulder to shoulder with the crowds we employed a travel trick and went where the people weren’t.
Packing a picnic lunch is always a good life skill to learn.
Speaking of food, Frugal Boy has started to associate running with a good thing. About a month ago, when his aunt visited, Shae and I took our morning run with the jogging stroller as an opportunity to get donuts from our local bakery. Ever since then, Frugal Boy asks for donuts when we go on our morning run. We indulged him again yesterday. Hopefully exercise is now permanently associated with good things.
Do you keep a change jar? I am about to take ours in to the bank and have them sort/count it (for free of course). How much change fits into a 1 gallon paint bucket? Shae thinks 51.69. I am optimistic and think 73.29. What do you think?
[Update]
After taking it to the bank and having it counted the total amount for a full gallon bucket of change was <drum roll…………..> $375.19! I had been reading online about how some people fill up the 5 gallon water jugs and take those in. They usually get somewhere between $1-2k. What I really want to know, is how do they lift the jugs up?
