Managing your money takes time, effort, initiative, and more than a little knowledge, but the most important aspect to successfully manage your personal finances is ATTITUDE. What is the proper attitude to have? I think it’s one that fiercely guards your resources and doesn’t allow anything to drain them away. Though that attitude must be balanced with a spirit of giving and the willingness to enjoy the simple things, basic money management begins with your heart, gets filtered between your ears, and executed with your wallet.
1. Believing that “future Ron” will be wealthy.
Wealthy enough to take care of everything from children’s weddings and college educations to paying off credit cards each month. Today I’m playing catch up. I’m working to increase my Roth IRA contributions so that I’ll have a little more for retirement, I’m very concerned with the kids education even though I have pretty hefty 529 plans on all three. I always thought I would be in a different financial situation than I’m in now. Don’t get me wrong. I make a very good living and I’m in much better than average financial shape, but where would I be today if I had simply better planned for the future?
Procrastination IS planning, it’s just planning to fail … later.
My advice: Start planning your future today, with the next decision you face. Plan your future. Map out where you are right now and where you want to be. Then put your plan into action.
2. Saving with my right hand and spending with my left.
For far too long I prided myself on having a savings account. Most people I knew didn’t have one but I did. The problem was that every deposit I made was followed by a withdrawal. I had my wheels in the sand and wasn’t going anywhere. I didn’t have any control over my spending and it showed by my acclaimed savings account getting riddled with excessive withdrawal fees. Savings accounts are not what the bank considers “transaction accounts” and they tack on a fee for having too many withdrawals. It quickly eats into whatever interest you earn and starts devouring your principle.
Out of control spending is a symptom of a much deeper problem. My problem was a lack of contentment with my situation at the time. I alleviated that lack of contentment by buying stuff, mostly with high rate credit cards. Since stuff never makes you happy, I was going into deeper and deeper debt for nothing.
My advice: Learn the lost art of contentment. Don’t just buy something because you want it. Today, our slogan isn’t I came, I saw, I conquered. Our national saying is I saw it, I wanted it, I bought it with Citibank. Learn to be satisfied with your current situation. Do you really need another iPod? Do you really need a new espresso machine? Do you really need a digital SLR camera? Really, really REALLY “need” it? Will your life be incomplete without it? Really?
3. Shunning frugality.
I never considered the word until a few years ago. Frugal was one of those attitudes that I associated with cheap. It meant that someone bought the cheap store brand cola to the church social. It meant eating oatmeal every day with no butter, milk, or sugar in it and nothing but beans for supper. It meant that someone wouldn’t get the AC in their car fixed and drove around in the 105 degree heat with the windows rolled down, calling their AC system a 465 – 4 windows at 65 miles per hour. Those aren’t “frugal,” they’re just plain cheap. And I’ve done all of them.
In reality frugality is maximizing every dollar. It’s avoiding wasteful expenditures and seeking ways to reduce costs. If I can reduce my living costs just $200 per month, over the course of 25 years (the amount of time until I retire) I can earn about $190,000 at an 8 percent interest rate. If I could make it $250 and realize a gain of 9 percent, it would zoom up to $280,000. Those dollars are in addition to anything else I’ve saved. Remember that a penny saved is MORE than a penny earned (because of taxes).
People fret about earning an additional half point on a bank CD but ignore their ability to put real money into their pocket by practicing a little frugality.
4. Paying high interest debt.
I’ve already told you the story about How I Experienced the Double Edge Sword of Credit, so I won’t rehash it here. Suffice it to say that I made some very dumb, selfish financial moves when I was much younger and I’m still feeling the repercussions today.
Paying high interest debt is a drain on your soul. It is so disheartening to see that you made a $275 payment last month and only $31.58 went to principle, the rest ($243.42) went to interest.
My advice: Avoid paying interest like it was the plague. Since most people don’t know what the plague was, avoid it like the flu!
5. Spending every penny as soon as I received it.
When I first got married, $5 could buy you a very nice lunch. So what did I do? My co-workers and I would go out to eat every day. $5 here and $5 there. My wife was doing the same thing. At the end of our first month of marriage, I prepared to “pay the bills.” I can still remember walking out of that room and her asking, “How much do we have left?” My reply was, “about $50.” I’ll never forget the shock on her face as she asked where it all went. I showed her how much we were spending on meals and we made the decision to severely restrict our dining out.
But, as the years went by, I would get raises and bonuses and guess what happened to them? They were spent on vacations, more stuff, bills that should have been paid for by an emergency fund, and eating out. I spent virtually every dollar I made, without thinking about the future at all. I never allowed the power of compound interest to make my money work for me, no, I was too busy eating it, spending it, wearing it, giving it as a gift, driving it, living in it, decorating the house with it, and wasting it on frivolous stuff.
My advice: Invest at least half of every bonus you get, if possible.
All of these mistakes could have been prevented with just a simple attitude shift. Don’t let them happen to you!