For any normal adult living in America today money ranks right up there next to oxygen. Without money you cannot eat. You have no place to sleep. You cannot drive. You have no freedom. If you dont have money, you are forced to live in a homeless shelter or on the street. If you have ever been to a homeless shelter, you can understand why that is not an appetizing option. It is this simple reality that causes adults to be so concerned about money.
Most teenagers do not understand the importance of money. They also do not understand the amount of money that is required to live a normal life. This occurs for a very simple reason. Parents provide teenagers with everything. Teenagers, therefore, live in a dream world. The moment you exit this dream world and have to live life yourself, your opinions about money will change dramatically.
Just what does it takes to live a normal life in America. Once you understand this, adults and everything about them begin to make a lot more sense. Here are some cold hard facts:
IF YOU DONT PAY THE RENT, YOU ARE HOMELESS
It turns out that this is the central reality from which adults derive all their decisions. Almost everything else adults do makes sense once you realize, understand and appreciate this fact of life. Right now you are oblivious to this fact of life because by living with your parents you are living in a dream world. Once you leave this dream world and start living on your own, you will be acutely aware of this particular fact of life. Given that central reality, you can quickly derive a second fact of life:
YOU MUST HAVE A JOB TO PAY THE RENT
No matter what you do, you need a place to live and you have to eat. Therefore, you must have a job. You have two choices when you look for jobs: good ones and all the rest. The time to start preparing yourself for a good job is during your time as a teenager when you can control things like finishing high school, going to college and so on.
Third fact of life, WORKING 60 HOURS A WEEK IN A DEAD-END, MINIMUM WAGE JOB ONLY
TO LIVE IN A CRAPPY APARTMENT WITH NO A/C REALLY STINKS ( I will explain why in tomorrows post)
EVEN IF YOU DONT CARE ONE BIT ABOUT ADULTS AND JOBS AND SCHOOL RIGHT NOW, YOU WILL ONCE YOU HAVE TO PAY THE RENT
You might not care about jobs and money now, but that is only because you dont have to. You are able to sponge off your parents as a teenager, so you dont have a care in the world. A few minutes after leaving your parents house to start out on your own you will care about a job. You will care how much you make. You will care how much rent costs. You will suddenly care very deeply, because you will have no choice. That is a fact of life. If you are looking through magazines as a teenager thinking, "Wow, when Im older I am going to drive a Corvette and live in a great big house," you need to start planning your life today. It turns out it is not as easy as you think. If it was, you would have a Corvette now.
Now lets look at your parents. What is motivating them? They are faced with these same money concerns every day. The difference is that if they mess up its not one person who ends up on the street; its the whole family. Even if you live in what appears to be an extremely safe, suburban neighborhood, you might be surprised at how precarious things might be under the covers. It really depends on how good your parents are at managing their money. Lets say that your father has an extremely good job. He is making $60,000 a year. His job covers his health insurance and gives him two weeks of paid vacation per year. You live in a nice, four-bed-room home. You have two cars: your mother drives a nice, two-year-old mini-van and your father drives a 1978 Dodge Dart that you despise. You have a brother (also a teenager) and a sister (10 years old). Your mother stays at home.
Lets look at a likely monthly budget for the household. Lets say that the house cost $140,000 when your parents purchased it 5 years ago. They paid $10,000 down and locked in a fixed rate 30-year mortgage at 8.5%. That means the monthly mortgage payment on it is about $1,000 per month. They pay about $40 per month for homeowners insurance and about $100 per month in property taxes. The house also needs to be maintained at a rate of perhaps $50 per month.
This covers things like a new furnace, water damage, roof repair, repainting, recarpeting, new appliances and so on. On the car side the monthly payment on the mini-van is about $400. Car insurance is about $100 per month. Car maintenance, gas, etc. on the two cars is about $200 per month. Food is running about $300 per month. Power/water/sewer/gas is about $200 on average per month. The phone plus long distance is running $80 per month. Cable is $50.
Your parents also have other goals. If they are smart, they are saving between $6,000 and $9,000 per year for retirement. They are also putting something aside to cover future college costs. They also have some kind of life and disability insurance.
Even though your father has an exceptionally good job at $60,000 per year, barely half of it ($35,000) actually makes it home. You can see taxes take a gigantic bite out of his paycheck. That is why your parents may often rant about taxes and politicians, by the way. Anytime you have someone taking $20,000 a year out of your pocket you are going to complain.
Your parents do not have an extravagant lifestyle. They live in a respectable but certainly not elaborate home in an inexpensive part of the country (the house would cost twice as much in California, for example). They have two cars, but neither is a show-stopper. They have no luxury items like a boat or an RV or a $10,000 home theater system or a cell phone. And yet, monthly expenses almost exactly match monthly income.
What this budget does not include are things like Christmas, birthdays, family vacations, dining out, movies, newspapers and magazines, ballet lessons for little Suzy, soccer equipment, school pictures, yearbooks and on and on and on. You can see exactly why your father drives a 1978 Dodge Dart. What choice does he have? Sure, he'd like a fancy car, but its impossible. You can also see why your parents are fairly tight when you ask for anything. Where, exactly, is the money going to come from? If you want a $100 pair of sneakers, that blows the clothing budget for the month. If anything goes wrong it is a big problem. If a major expense pops up unexpectedly (for example, braces or eyeglasses for one of the kids), then your parents have to borrow the money for it, and they are going to have to cut back somewhere else to pay back the loan. The most likely thing they will cut is the retirement withholding.
This explains why an extremely large percentage of adults in America (more than half) have inadequate retirement plans. The next thing they will cut is the college fund.
Why is your mother working or thinking about getting a job? To earn some extra money to cover things like Christmas and birthdays and family vacations. Why does your father sometimes complain about work but still go in every day? Because if he doesn't the whole family is in a very bad place. Note that there is no line item in the budget for "emergency savings." If your father loses his job, it is going to cause a tremendous amount of difficulty and there will not be a lot of good options.
Remember that at one point in their lives your parents were teenagers once. They had all of the dreams you have now nice cars, fancy trips, expensive stereos and so on. They wanted it all, just like you. All of it has been put aside so that the family budget will balance. Whenever you ask for an expensive Christmas gift and get it, that is a gift that your parents cannot give to themselves. It is when you begin to realize the level of sacrifice your parents made to raise you and the amount of financial juggling they did to give you what you wanted that you begin to truly respect and appreciate them. That process starts perhaps at age 20 or 25, but doesnt really hit you until you are into your 30s and raising your own family. It is not something you, nor your peers, ever realize or appreciate as a teenager.
Tomorrow we will discuss just what it takes to leave your parents home, or run away. Doesn't that sound like a great plan....stay tuned!
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