Since the New Year, I’ve enjoyed receiving your questions and have decided to tackle a few here on my blog. If the questions keep pouring in, I think I’ll make this a regular weekly post. To kick us off, here are answers to three of your most burning questions dealing with financial problems. Keep ’em coming! Just email me at farnoosh@farnoosh.tv 

• Pay off debt (excluding mortgage)
• Invest in 401(k)
• Fund a 529
• Create a savings of $1,000
• Create a savings of 3-5 months salary

At the top of my to-do list would be to pay off debt and save – at the same time. I know we all have a limited amount of money to spare and it feels we have to make a choice between saving and paying off debt, but I like to advocate for a hybrid approach – especially if you have absolutely no savings to begin with.  Start by saving as much as you can – $10 a day or $50 a week – and placing as much as you can towards your highest interest rate credit cards first. Do this automatically, too. There’s no sense in trying to ration your money yourself. Let the electronic powers of your bank account complete this task for you every month – on the same day.  Once you have that $1,000 saved up, congratulations! You probably now have the confidence and inspiration to reach an even higher goal – like that three to five months salary tucked away.  The secret is to continue taking baby steps. Once your debt is gone, pretend it’s still there and rather than make those monthly payments towards your debt, allocate them towards savings to accelerate the rate of growth.

With regards to saving in your 401(k), this is something that you should set up immediately with your human resources or benefits manager at work. Try to integrate this into your financial plan, as you are paying off debt and saving, too. The key here is also to automate savings. Trust me,  you won’t feel it – and you’ll rapidly accumulate savings especially if your employer provides a match. You’ll also benefit from the tax deduction every year. The ideal savings amount is 10% of your income in a 401(k).

Finally, investing in a 529 plan, which is a state-sponsored tax-advantaged savings vehicle for college expenses, is important – though not as important as saving for a rainy day and retirement. It may sound selfish, but you need to make sure you have your financial bases covered before investing aggressively in your child’s college education. It’s one thing to put away a small amount every month with the money you have left over…but don’t avoid your own savings or debt pay-off to satisfy the 529 plan.  The fact is – college lasts four or five years, while retirement lasts 30+. And between attending an affordable school, scholarships, grants and working part-time, your child should be able to help pay his or her way through school, as well.  The financial burden is not all yours. Do as much as you can, but don’t compromise your other financial needs because of it.

While home ownership has been branded as an essential part of “The American Dream,” it’s not something you ever want to rush into, especially if it will mean stretching your finances thin. Without a lot of savings and a lot of student loan debt, I would suggest renting for a little while longer until you can build a better financial profile that will make you a strong candidate for a mortgage. You want to take advantage of the best terms and interest rates. To do this you need to prove to banks that you have stable income, great credit, ample savings and minimal debt. I wouldn’t recommend a “starter home,” unless it would be something you could very easily and readily afford. But it sounds like whatever money you have coming in for the next couple of years, at least, can go a long way in helping you boost savings and get your loans under control.

My first tip is to be mindful of how you spend and shop.  Studies show that kids learn the issues of spending first, such as the relative costs of things like games, candy and toys.  To that end, use cash more than credit when they’re around. Using a credit card can be more convenient, but do you ever explain as you swipe what a credit card is? Do they understand that an ATM isn’t a machine that disperses free money? Do the kids understand that you’re making a promise to pay for all the items before the end of the month? Don’t underestimate the educational power of using cash. It teaches kids that money has its limits.  When they see you pay $50 for groceries and then ask you for ice cream during the car ride home, you can explain that you used up all your cash at the grocery store, so you’ll need to make dessert at home.  The cash is gone, simple as that. Credit cards, on the other hand, have the tendency to make money appear endless.

It’s also important to demonstrate that you’re price comparing while shopping. We tend to shop in a hurry or neglect to involve our kids in the decision-making process. I remember my parents taking me furniture shopping with them – as we’d go from store to store…to store – all with the mission of finding the best deal. It was nauseating for the 8-year old me, but the message of why you need to price compare came across loud and clear.  The same drill occurred when my parents went house hunting. I would overhear their discussions and watch as they financially sized up each home.  Next time you take your kids on a shopping excursion make sure to explain why you’re buying what you’re buying, especially big-ticket items.  Is it a need or a want? How have you compared prices? Why did you ultimately go with the choice you did

As much as possible, avoid money arguments without resolve. We can all remember at one point or another our parents having financial differences. And while we’re all sort of hard-wired to find our financial opposites (studies have proven this), know that it’s okay to engage in conversations/debates/mild arguments over money with the kids around. But don’t drop the subject and let the argument turn into silence. If you can respectfully debate and come to a resolution in front of the kids, that can be really healthy and helpful. I just finished reading a great book called Nurture Shock by Po Bronson and Ashley Merriman and the authors point to a ton of research that shows how witnessing conflict resolution helps kids understand how to compromise and reconcile. Who knew?

And a final thought related to allowance: Rather than paying your kids to do chores, consider having them earn their allowance by identifying and solving problems around the house. Writer and dad Jake Johnson recently posted on TheMedium.com how he’s offering his son, Liam, an allowance to “pay attention to the world around him, identify a problem that needs fixing, and propose a solution.” Father and son then negotiate a payment. “For instance, during the fall, Liam noticed the yard was full of dead leaves. He approached me with the proposition to clean up the leaves for payment. We negotiated a $10 fee. He did a great job and made $10 in a couple hours, which is pretty good money for a kid.” Love that.