To help you understand where I come from and my point of view, I thought it would be helpful if you learned more about me [1]. My introduction to money, working, taxes, and retirement accounts has all influenced where we are today and how I handle money.
Growing Up
I grew up in a family of four in a suburban Midwestern town. My parents both worked, my mom as an accountant and my dad as a small business owner. I got an allowance and was encouraged to save my money. My parents never had any debt, except a mortgage which they paid off early.
Family Business
One of the best parts of being in a house that has its own business is that you get “hired” to do a lot of work…. and you learn a lot. I can remember licking stamps and mailing invoices in grade school. That turned into more as I got older, answering phones, helping with the books, etc. My first introduction to spreadsheets was having to enter my dad’s sales, which he kept manually in a ledger book, into the computer so my mom could complete the monthly and quarterly reports. Saturday morning at my house usually consisted of billing the customers and entering and depositing all the checks from the week.
Introduction to Stocks
My little brother was actually the first one to purchase stock on his own. He learned about it at school in fourth grade; my mom helped him buy Disney. At the time I was in seventh grade and more interested in depositing my money into a savings account, because it earned interest. I preferred to watch it grow as I added to it. And to be honest, I didn’t *quite* understand how his shares worked. I did, however, watch him diligently check the newspaper to see how his stock was doing.
AÂ couple years later he announced how much money his Disney stock was now worth (up about 33% from when he bought it). I pulled out my passbook for my savings account and was shocked. He had earned a considerable amount more than I had, but I had worked much harder for my money. All he had to do was look at the newspaper (and later I found out, he didn’t even have to do that part!)
At that point I realized I needed to figure out how to do a better job making my money work for me. I spent time researching and determined that a mutual fund, not a stock, was a better investment for me. I read an article about a fund manager, where they included a picture of his dog. I was sold. Anyone who had a dog, must in fact know what they were doing with picking stocks, right? I purchased my first mutual fund from the Montag and Caldwell family.
Working and Taxes
I got my first job outside the family business at 16 working at JCPenney. Before picking up my first paycheck, I calculated how many hours I worked and how much my check would be. You can imagine my disappointment when I got my check and there were taxes withheld! In addition, they didn’t pay me for the work the week leading up to my check. Of course my dad has always paid me for all work done through payday. My mom explained how tax withholding worked, and after checking around with my friends (who we always assume to be the experts), yes everyone had money withheld, but we would “get it back” at tax time. Then she explained the payroll process where payday is somewhat behind.
My mom, since she is an accountant, always completed my taxes. At tax time (after consulting with the “expert” friends again) I was prepared for a refund. After all, one friend said his sister bought a Nintendo, or something like that with her refund. Would I get that much? Maybe more? There was so much anticipation…. my mom then informed me that I owed money. What? That couldn’t possibly be, everyone else was getting money!
Turns out, I had investments in my name that I didn’t know about. My parents were saving for my college education using mutual funds that were throwing off capital gains left and right. Again I was mad. How could my hard-earned money that I made be used to pay tax on an investment that I didn’t know about or have access to? Although, looking back, I am thankful that my parents chose to save for my college education; we are doing the same for our children [2].
My first IRA
My mom came up with a solution to avoid paying the tax. I could open an IRA, deposit my money there and “skip out” on the tax. Brilliant! I was sold. Later, I was able to convert it to a Roth IRA [3]when it was first available. I think this was the first time that I learned that talking to my friends about money was not getting me anywhere. It was clear that my mom really was the expert and she knew a lot about money.
Luckily, I was exposed to stocks, taxes and retirement accounts at an early age. It has give me one of the most powerful advantages with money: starting young. I realize that many people aren’t given such a great opportunity. It’s one of the reasons that I am so interested in helping educate others in personal finance.
As I was finishing this story up, Moolanomy had a timely article for me to share my story in: Giveaway: Share Your Investing Story for a Chance to Win a Book. Here’s hoping I win!