Worried About Bills, Investments and Work?
We Americans are a financially anxious lot. While much of that anxiety comes from living paycheck to paycheck, which the vast majority of Americans do, we're also anxious about our investments, balancing work and family, etc. Money is the No. 1 issue couples fight about, and spending is the No. 1 thing we hide from our spouses.
Enter Eric Tyson, author of Personal Finance for Dummies (Wiley, 2006) and Mind over Money: Your Path to Wealth and Happiness (CDS Books, 2006), who explains that much of this anxiety can be addressed through spending some productive energy thinking about and talking about money.
So if you're anxious about your spending, your investments and balancing work with the rest of your life, what can you do to develop better spending, investing and other financial habits to make the most of your money and your life?
Tyson offers the following 10 tips for developing the best money habits:
1. Don't Think That a Budget Is the Best Way to Save More
Telling people to reduce their spending is like telling an overweight person to just lose weight. Easier said than done. "The fundamental problem is that following a budget or a diet is simply unpleasant and often doesn't attack the root causes (what you choose to read, watch and emulate) of the problem," Tyson writes. "That's why I don't think budgets are the solution for most people."
2. Do Track Your Spending
Get out your checkbook register, credit card statements and anything else that will help you detail where you spend your money in a typical month. Track these cash purchases for a week or two in a small notebook that you carry with you. Determining where your money has been going should help you to identify some fat to cut. "This approach works because you're not planning all of your spending in advance – which is a near impossible and utterly joyless task," Tyson writes. "What you are doing is examining your general spending and then making focused and targeted cuts."
3. Replace Your Credit Cards with Debit Cards
"If you've had a tendency to carry debt balances month-to-month on credit cards, cut those up and instead get a VISA or MasterCard debit card, which are accepted by all merchants who take credit cards," Tyson says. "The difference is that a debit card is connected to your checking account, which prevents you from spending money that you don't have and carrying costly debt balances month-to-month."
4. Change the Way You Approach Purchases
To change your consumption habits, you must first change your mindset about shopping. Typically this involves changing shopping from a source of entertainment, a distraction from other problems and/or an impulse decision to a simple means to an end – acquiring a product that you feel you need and want. "To get a better handle on how you should make consumption decisions, observe friends and relatives who are thrifty and try learning some of their better spending habits," Tyson writes. "Don't shop with people who share your spending problems or who've often accompanied you on shopping sprees in the past."
5. First Pay off Consumer Debt, and Then Start Saving
Don't begin a saving program until you've paid off your consumer debt. You're very unlikely to earn an investment return, after taxes, that exceeds the relatively high interest costs on credit cards and other common consumer debt. "When you can afford to set some money aside in savings, make your saving automatic by setting up a direct-deposit payroll deduction with your employer (or using automatic checking account transfers to an investment account if you're self-employed)," he writes. "That way, you're free to spend what's leftover, and you don't need to drive yourself and other family members crazy tracking every expenditure."
6. Consider Your Investment "Wants"
Investing is clearly more complicated than just setting your goals (when do you want to retire, how much of your kids' college costs do you desire to pay and so on) and choosing solid investments. You should also consider what you want and don't want to get from the process of investing. Is it a hobby or simply another of life's tasks, such as maintaining your home? Do you desire the intellectual challenge of picking your own stocks or would you be content with entrusting some of those decisions to others? Deciding how you feel about these considerations will shape your approach to managing your investments. Don't just ponder these questions on your own. Discuss them with family members, too – after all, you're all going to have to live with the investment decisions and results.
7. Learn How to Cope with Inevitable Investment Setbacks
Slow down and pull back from stressful situations and news before making future decisions. As with everything in life, recognize what you can and cannot control. Don't waste your time or energy by closely following things that you have no control over. Tyson is a big fan of the Serenity Prayer. It might help you to post this someplace where you'll see it daily, especially if you try to exert too much control over every little aspect of your investment portfolio, or your life in general. (Grant me the Serenity to accept the things I cannot change, the Courage to change the things I can, and the Wisdom to know the difference.)
8. Shun Gurus Who Encourage Problematic Investment Behaviors and Beliefs
Many publications and programs offer some good information and advice. Problem is that some of the talking heads will lead you to take the wrong path. Especially prevalent online and on cable are pundits who advocate individual stock picking coupled with rapidly changing opinions. "Former hedge fund manager Jim Cramer, who is a self-acknowledged workaholic and frenetic trader, is a good example of someone you should not listen to and follow," Tyson says. "You can't possibly keep up with the never-ending changes in his recommendations, and the fact of the matter is that there's no documented proof that his investment picks have actually beaten the broad market averages over the long run."
9. Don't Practice Financial Envy
Our culture too often focuses on getting ahead, promotions and pay raises. But if you're going to make time for the important things in life, you must resist the temptation to be envious of those with loftier titles and salaries at your place of business and in your field. You can begin that process by realizing that there are no free lunches. Although some people are blessed with extraordinary talent and luck, you'll often find that the super-successful people in this world, with their mugs on the cover of every magazine, are workaholics. Don't emulate these workaholics to get "ahead."
10. Choose Employers and Careers Considering the Big Picture
"Over the years, I've seen many people with modest incomes make the decision to fit work into their lives rather than continuing to try to fit their lives into their work," Tyson says. "So often, though, people twist and contort their lives and priorities to meet the perceived expectations and demands of their bosses and employers." Fitting work into the rest of your life often involves choosing employers and even careers that enable you the flexibility and ability to accomplish your personal and family goals.
"With a deliberate, conscious effort you can overcome your overspending and poor investment habits and better balance your life's demands," Tyson says. "And the payoff is huge. Not only will you reap long-term financial benefits, you'll gain peace of mind and the satisfaction that comes from mastering money. And that's something you can't buy in any store."
Questions That Will Change the Way You Think About Your Financial Attitude
Taking a historic inventory of your beliefs and experiences with money isn't easy. But if you put in the time and want to challenge yourself, your money mindset and your beliefs, the process can be productive. Set aside time – about an hour should do – for some personal reflection, ideally in a place and at a time when you'll be free from distractions. Go to the library, the beach, a coffee shop or some other place that's, ideally, away from your home. Get out some paper and please answer the following questions:
- What personal experiences (good and bad) relating to money do you recall from your childhood? Did you work as a kid and teenager? What lessons did you take away from these experiences? If you didn't work, think about why you didn't and what your parents said to you about working and making money.
- What memories of your parents (or other guardians) do you have that relate to finances? Were your parents spenders or savers? What financial crises occurred and how did your parents handle them? Did money cause tension and problems at home? If you don't have many explicit recollections about money with your caregivers, what implicit messages did you take away from how they led their lives and the role that money played in them?
- What efforts did your mom and dad make to teach you about money? How much freedom and latitude did they give you with money? What lessons did you take away from this? If you had to summarize their philosophy and approach to money in a sentence or two, what would it be?
- How important were financial considerations in what you chose to study and what jobs and career you sought out? Did you pursue work based upon what interested you or what you believed you could make more money at? Were you pushed into your career by someone else for the supposed financial security you could achieve?
- Thinking back to your childhood and young adult years, what significant events happened to you and your family that impacted how you felt about money? These events could include, for example, a major illness, a parent being laid off, volunteer work you did, etc. You need not have a long laundry list of major events – the two or three most important and formative occurrences will do.
Having taken the time to reflect upon your background and how it colors how you relate to money, take the next step and spend some time consciously reflecting on your current feelings and attitudes toward money. Can you identify with any of the following?
1. Are you stressed about money?
2. Are you frequently juggling bills and trying to figure out whom to pay next?
3. Do you watch your investments daily or not look at your investment statements out of fear?
4. Are you looking for a hot investment tip that could multiply your money quickly?
5. What financial secrets are you keeping from your spouse (and others)? What would cause you feelings of humiliation and embarrassment?
Remember that there are no right or wrong answers to these questions. In working with clients, I've found that simply taking the time to think about and reflect upon one's history with money provides invaluable insights that enable people to cultivate better financial habits. Quite often, people who go through this process say things like, "I never took the time to consider why I do what I do with money or even what I'm doing." Don't beat yourself up if you can't handle developing thoughtful responses all in one sitting. Some people find these questions bring up strong memories and emotions, so you may need two or three sessions to complete this task.