Rewards and Punishments

We are now on part five of this series: Rewards and Punishments.

This is a difficult thing for most heads of families to deal with. You need to give your spouse some control over you for a Rewards and Punishments system to work effectively.

First let's get some definitions for this particular system to work most effectively

• Reward Something that you like, which you receive for doing a behavior that needs to be encouraged. (i.e. I just cleaned the house before my wife got home so I was rewarded with a backrub.)
• Punishment Something that happens to you as a result of failing to do an action, or doing a wrong action, intended to discourage wrong behavior. (i.e. I left dirty socks on my wife's pillow, so I got to sleep on the couch.)

The key to getting rewards and punishments to work for your finances is to have preset rewards and punishments for each person in the family who handles family money. Whether that be just the parents, or the parents and a responsible child who can do the family grocery shopping, or other adults in non-traditional families.

So let's say that there are just 2 people who have some stewardship over the family money. Set up rewards and punishments for each person, here are some examples:

Michael (who loves watching football and hates doing the dishes)

• Reward for spending less than $30 a week on lunch is: 2 hours of uninterrupted TV time.
• Punishment for going over the $40 budgeted for lunch each week is: Dish duties every night for the next week.

Julie (who will buy any clothing if it says on sale, and doesn't like to wash the windows)

• Reward for spending less than $40 on clothing for 3 months is: $200 shopping spree during a holiday sale.
• Punishment for spending more than the $180 budgeted for clothing is: "earn back" the money spent at the price of $0.35 per window before she can go shopping again.

These should be tailored for each person, but also be adjustable so that any action that's an improvement will get some kind of reward. Also, generally the rewards that cost little to no money are better off than those that cost a lot of money.

What are some kinds of rewards that you might consider using, is there anything your spouse could use as a punishment which would help motivate you to avoid mistakes?

Eliminate the Debt Factor

I will start with a basic situation first with this one to show how crippling debt can be.

Imagine a family with 5 credit cards, and 2 car loans. We'll say that each card has a $1000 balance and minimum payments of 2% or $20 to each card every month, so total payments of $100 a month for the credit cards. The cars both have monthly payments of $300, for a total of $600, and a grand total of $700 a month.

$700 a month in minimum payments, and this doesn't talk about a mortgage or student loans which many people will also have.

Now the average family in America makes $40000 a year, so this family with $700 in debt is spending about 21% of it's income on minimum payments. Everyone should ask the question, What could I do with that extra $700 a month?

How do I get rid of that debt? after all I'm paying the Minimum.

The key is to pay as much more than the minimum as you can comfortably afford, lets say an extra $200. Simultaneously you stop using credit cards. This prevents your debt from increasing. With that $220 ($200 + $20 minimum payment) a month you will have one card paid off in 5 months. Now you have a spare $220 to put towards the next card $240 will pay it off again in 5 months with some change left over. Your third card gets paid off in 4 months with change left over and so on.

Reward yourself after you pay off a major debt. Take the family out to eat or something, thank them for their efforts. It is important that they feel good about eliminating debt so they don't make the same mistakes you did.

Once you have all your debt paid off, you are in a great position to save, set up a CESA (Coverdell Educational Savings Account) for your kids, or set it aside in a money market for a downpayment on a new home, or make an Emergency Fund. The more money you can put towards the debt, the faster it will be gone, consider cutting back on shopping, eating out, cigarettes, and alcohol if you want to see the most dramatic results.

Know Yourself (Get on Board)

"So, who controls the finances in your new family?"

My grandmother asked me this question about a week after the wedding, and I am glad that I had an answer for her, I do. Of course, she asked me why my wife didn't have control too, and in our case it is because she is afraid of money. The important thing here is that we figured this out before we got married. We tried to combine our budget about 3 months before the wedding, and had more arguments than ever before or since (So far).

What we learned about ourselves.

• Our hot button issue is money
• Our financial discussions end in stalemate (a tied argument)
• Budgets really stress my wife out
• Allowances do not.

What did we do?

Since I worked at a Credit Union at the time, I was getting a large amount of financial planning advice, budgeting tips, strategies, etc. This made it clear to both of us that when it came to handling the finances I would be the better choice, especially long-term. However, since I can decide to spend large amounts of money rather randomly, as part of this control, I am required (it's in writing) to inform my wife about these purchases and show her that we can afford it.

Before we got to this point though, my wife had to get past the idea of not having control over her money, and this should be key to any family: You don't get paid anymore, your family does. This doesn't mean give your kids everything they want, it means that your family controls what you earn. Even though one of you earns more, all the money is equally everyone's.

Once we had figured out how much we spend on things (WOW we dine out a lot!) and where our sources of conflict are, (You spent HOW MUCH? on a new computer!) we were able to get on board with the idea of a combined budget designed to meet the needs and some wants of our family.

Ways to get on board

• Have the hard money conversations immediately, letting them go leads to bad things.
• Look up statistics for divorces caused by money problems (You don't want a divorce do you?)
• Plan on doing something both of you enjoy after you talk.
• Discuss things you would both like to do and promise to plan for those things in the future
• You love each other, and this is the simplest way to get the best for each other.
• Remember, a budget is not a law it's a living document subject to change.

What are some other ways you use to get excited about budgeting?