You and Your Money: It's More Than Just Numbers

Overview

Bad money habits? Financial guru Alvin Hall shows how to break them, make smarter spending and savings decisions, and glide down the path to economic security.

We spend a lot of time examining our personal relationships, but what about the one relationship that may hold the most impact of all -- our relationship with money? In the groundbreaking You and Your Money, bestselling author and television personality Alvin Hall offers brilliant money management advice grounded in a ...

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Overview

Bad money habits? Financial guru Alvin Hall shows how to break them, make smarter spending and savings decisions, and glide down the path to economic security.

We spend a lot of time examining our personal relationships, but what about the one relationship that may hold the most impact of all -- our relationship with money? In the groundbreaking You and Your Money, bestselling author and television personality Alvin Hall offers brilliant money management advice grounded in a spectacularly simple concept: our emotions determine our financial success or failure. If you've ever felt confused, guilty, or anxious about your finances, you know instinctively that money is about far more than cold numbers. Hall explores our lifelong relationship with money and discusses the way money becomes embedded in all our other relationships, with parents, children, spouses, and peers.

You and Your Money will help you understand your money management style and break those deeply ingrained bad habits. Even more powerfully, it will enable you to balance your financial and emotional lives and free yourself from conflict. Get a fresh feeling for your money issues and transform your financial life once and for all -- for a future richer in every way.

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Product Details

  • ISBN-13: 9780743279581
  • Publisher: Atria Books
  • Publication date: 2/6/2007
  • Edition description: Reprint
  • Pages: 320
  • Product dimensions: 5.90 (w) x 8.80 (h) x 1.10 (d)

Read an Excerpt

Chapter One: Money and Yourself

TEST YOURSELF. Is the relationship between yourself and money a healthy one, or is it a potential source of trouble? To find out, answer the questions below -- and be honest!

How Do You Score? There are no passing or failing grades on this quiz (or on any quiz in this book). But every "no" answer indicates an area on which you need to focus to get your financial relationships in order. For helpful advice and guidance, read on.

Know Yourself

As a TV money educator and the author of several books of money advice, I've learned that everyone needs to develop his or her own style of financial management. My way of earning, saving, spending, and investing money won't necessarily work for you, and vice versa. The first step is being comfortable in your own skin: knowing and accepting who you are, what you want, and what money means to you.

Success with money isn't matter of having a big bank account (although that doesn't hurt). The real key is your attitude toward yourself and toward the money you have. The wisdom of ancient Greece -- "Know thyself" -- remains as powerful today as ever. It's at the heart of being a smart money manager. And although it sounds simple, even obvious, "knowing thyself" can be surprisingly difficult to achieve.

Getting to Know You

Here are eight specific exercises you can do that will help you get to know your own money habits and tendencies better. You don't necessarily have to perform all eight; instead, you can pick the two or three that seem most relevant to you, and see what they can teachyou.

1. Keep a diary of your spending and the emotions that go with it. Buy a little notebook especially for the purpose, and carry it with you everywhere you go for a month. During that time, write down everything you buy, no matter how big or how small. List each purchase and its price. Include items for which you pay cash (like your morning coffee and newspaper) and items you buy with a check or a credit/debit card (like a new CD or a piece of furniture).

At the end of the day, take a moment to add a brief note describing how you feel about that day's spending. Do you feel joy? Guilt? Regret? Disappointment? Contentment? What you write will vary from day to day, of course. One day you might write, "I'm so excited about the new shoes I bought today. They'll go perfectly with the outfit I'm wearing tomorrow. I can't wait to see what my friends in the office say!" Another day you might write, "I feel bad about spending so much money on snacks and drinks today. I really meant to save that cash for the weekend. Hope I can do better tomorrow."

There will be times when keeping the diary feels like a total bore or a nuisance. You'll be tempted to quit. Don't! A full month's worth of notes will tell you a lot about your money habits, good and bad, and help you understand the ways in which your money habits bring you happiness and grief.

2. Examine your sources of income. On a sheet of paper, list everyone who provided you with any money during the past year, along with the amounts you received. A few of these sources will be obvious: the salary paid by your employer or the income from your own business, for example. Others may be easy to overlook. Did you receive any payments from the federal, state, or local government? Did your parents or other family members give or lend you money? Did you receive money from a romantic partner, an ex-spouse, or a friend? Did you do any part-time work for which you received a formal or informal payment? Did you get dividend or interest payments from stocks, bonds, or mutual funds that you own, or money from a trust account? Did you win money from a lottery, a contest, or gambling? Did you receive money as a result of a lawsuit or an insurance claim? List everything.

Once you've created the list, consider what it tells you about your present and future sources of income. How secure are the past year's sources of income? Which sources are likely to increase in the future -- and which are likely to shrink or disappear? What new sources of income can you develop? An honest evaluation of this list can help you figure out whether your future prospects are bright, or you have been living on borrowed time.

3. Analyze one credit card bill from the past year. Identify each item you bought (if you can) and measure how much pleasure it gave you. Do you remember the item? Do you remember why you bought it? Do you still have it? If so, do you still use it? In retrospect, was it worth buying? Count up the number of items you bought that were smart, satisfying purchases, and compare this to the number of items you now wish you hadn't bought. What patterns do you notice? What types of purchases do you consistently regret? Are there particular kinds of items you tend to waste money on? Which kinds of purchases consistently bring you lasting pleasure? When do you stop or cut back using the credit card, and what causes this change?

4. Count the number of purchases you made last year. A relatively easy way to do this is to request the year-end summary of your spending that most credit card companies will provide. Also review your checkbook register or checking account statements, and try to list most or all of the items you bought using cash. How many purchases did you make altogether? How does the number compare to the number of days in the year? Did you buy something every day, every two days, every three days? Is it hard for you to go through a day without spending money? If so, do you know why?

5. Examine your unconscious forms of spending. On a piece of paper, list all the automatic purchases on your credit card: gym memberships, magazine subscriptions, or any other automatic deductions. If you use an automatic banking service that provides for direct debits for regular monthly expenses, list these as well. Automatically deducted expenditures can be an inadvertent trap that can help make it easy for you to spend money without thinking about it. How many of these can you reduce or eliminate?

6. List the things you hate to spend money on. Some of these may be needless expenses you can eliminate by making a change in your life. For example, if you hate paying the costs of driving to work, perhaps you can set your alarm clock for half an hour earlier, making it possible for you to walk (if your job is close by), use public transportation, or carpool. Not only will you save money, but you might meet some interesting new people who could change your life or career.

In other cases, avoiding particular expenses may be shortsighted. I have a friend who hates to buy food in restaurants because he dislikes leaving a tip for the waiter. It's a problematic attitude, because sometimes you have to pay to get good service -- and a person who refuses ever to visit a restaurant misses out on the fun of eating out with friends. My coauthor, Karl, hates to spend money to get things fixed around the house because, as he puts it, "There's no fun in it." But if you put off patching the roof or servicing the furnace, you may end up having to make a more costly repair or replacement in the long run.

Listing your own pet hates when it comes to spending can show where your emotions may overrule your reason, leading to short-term and self-defeating thinking.

7. List your best and worst expenditures. Make a list of the five things you did with money last year that enhanced your life the most. Then make a separate list of your five worst mistakes -- money decisions that were a setback or damaged your life. What were the reasons behind each of these decisions, good or bad? What lessons can you derive from them?

There's no single right or wrong way to compile these two lists. One person's brilliant choice may be another person's disaster. For Susan, spending $3,000 on a week's holiday in the Caribbean may have been just the break she needed to clear her head after a tough year at the office, energizing her to start looking for a better job upon her return to work. For Cynthia, the same holiday may have maxed out her credit card, speeding up a dangerous spiral into excessive debt that ruined any pleasure she might have taken from her days in the sun. Only you can define your best and worst uses of money.

8. Test your money self-discipline. You can also learn more about your money psychology by experimenting with short-term behavior changes. I am testing my own self-discipline right now through a simple but surprisingly tough challenge: for one year, I am forbidding myself to buy shirts. (I have sixty shirts of all kinds and I love to get new ones.) In the past, I have tried other, similar experiments; for example, I once locked away my credit cards for a month, forcing myself to pay for everything in cash. I found that this act of self-discipline made me more aware of my own cash flow and forced me to reevaluate what I spend.

Among other benefits, such limited acts of self-denial help you to appreciate more the good things you have and increase your self-confidence by demonstrating and strengthening your ability to determine what's needless and do without it. Most important, they help you know yourself more intimately. What kinds of money behavior have the greatest hold over you? Which money habits are easy to change? Which changes really hurt? Above all, who is in control: you or your money?

The Bottom Line Most people have only a vague awareness of how they relate to money. They spend little time reflecting on how they get money, how they use it, and what sort of emotional impact money has on their lives. Devoting time to becoming more conscious of your money decisions is a crucial first step toward improving your relationship to money.

The goal of all eight exercises is the same: to help you better understand the role of money in your life. How does money bring you happiness? How does it cause you regret, anxiety, or disappointment? Which of your money habits would you like to change? Which ones would you like to strengthen? Answering these questions is a vital first step toward defining the kind of relationship you'd like to have with your money -- and taking the steps necessary to achieve it.

What's Your Price?

When I was growing up in a little town in the Florida panhandle, my wise old grandmother had a saying that I've never forgotten. "Always know your price, Alvin. Have a number in mind. Because some day, someone may offer it to you."

What did she mean by "your price"? I've thought a lot about it. I think she was referring to whatever it would take to make me truly satisfied, to meet all my basic physical requirements as well as my emotional and spiritual needs.

"Your price" may be literally a number -- a figure in dollars and cents that represents what you need to feel independent. (Hollywood moviemakers refer to the size of the nest egg they need to be able to walk away from any job using a vulgar phrase: "'f--- you' money.") It may be the amount of money you would have to have in the bank to support you for a year, or the amount of invested money you would need to generate an annual income you could live on.

Everyone defines their price in their own unique way. For some people whose lifestyles and aspirations are modest, it could be a relatively small sum. For those with grandiose desires, it could be very large. That's up to you.

"Your price" may not even be a number. It could be something else that spells happiness and satisfaction to you. It could be your dream job, the position that will tell you and the world that you've really "made it" in your career. It could be the opportunity to live in a particular place, whether that's a country home on a lake, an apartment with a view in the center of a city, or a condo near a golf course. It could be a trip around the world, a chance to meet the person you most admire, or a lifetime box at the opera.

My coauthor, Karl, worked for many years as an editor and executive at some of the big New York publishing houses. His dream then was independence -- the opportunity to work for himself, writing and editing books on interesting and important topics with people he liked and admired. That was Karl's price. Eight years ago, he achieved that goal: he went freelance and has supported himself and his family ever since, working on projects (like collaborating on this book) from his home in the New York suburbs and traveling around the country and the world to research them.

Like Karl, I'm a freelancer. Each year, I put together a combination of jobs and projects that I use to support myself. As a result, I think about my price at the start of every year. I set it at two levels. First, I calculate my living expenses for the year -- mortgage payments on my apartment, insurance, food, clothing, retirement contribution, my annual vacation with my friends in the south of France, and so on -- and determine the amount I need to earn to cover those costs. Next, I list the special things I'd like to have but don't strictly need -- things like a special holiday trip, art I'd like to add to my collection, changes I'd like to make in my apartment. I now have two figures -- my Need number and my Want number -- against which I can measure how successful my career will be this year.

As the year begins, I do all I can to reach my Need number as quickly as possible. The sooner I can line up jobs or other sources of income that will add up to my Need number (calculated on an after-tax basis), the sooner I can begin achieving some of my Wants. In some years, when the economy is sluggish and my business is challenging, it's all I can do to reach my Need number by December. In boom years, I can meet my Need number by August or September, giving me several months of income with which to indulge myself.

Having these two numbers in mind helps me make the right decisions about earning, spending, and saving money. For example, there have been times when I was offered a work assignment that I didn't much relish: teaching a particular set of training classes that I knew would be very hard work and not really interesting. But when I looked at my list of projects for the year and the expected income from each, I could see that these classes would be enough to make me hit my Need number for the year. I accepted the job offer. It wouldn't be much fun, I knew, but it would enable me to move from Needs to Wants, so that all my additional income for the year could be spent on things that brought extra pleasure to my life. The satisfaction of knowing that fact made it easy to take on a less-than-ideal assignment.

The same kind of thinking may apply to you, even if you work at a regular job rather than freelancing. You may be faced with a decision such as a new job offer, a special assignment from the company you work for, or the chance to compete for a promotion. Should you take the plunge, even if you are uncertain as to whether the new situation will be a comfortable one? The answer may depend on your price. Sometimes, taking on a difficult or even unpleasant job for a year or two may be the right decision -- if it means achieving your price, and a possible lifetime of future satisfaction.

The Bottom Line Know your price and keep it always in the back of your mind. Only if you know your price can you be working toward achieving it and measuring every important decision against the question: What choice will help me get closer to my price? It's an important part of knowing yourself, in terms of your deepest personal desires and the financial implications they have.
Three Money Fantasies

So far, you've examined your relationship to money by looking at real-life situations. Now it's time to take a different approach: to use a bit of fantasy to gain further insights into what money means to you.

Imagine yourself in each of the following three scenarios. These are "thought experiments" (in the phrase made famous by scientist Albert Einstein) that can help you better understand your approach to money. Devote fifteen minutes to each experiment. Read the description below, then jot down on a piece of paper all the thoughts, ideas, and fantasies that fill your mind as a result. I predict you'll find them very revealing.

1. The Windfall. Imagine suddenly receiving a gift of half a million dollars. What would you spend it on? Would you devote some of the money to helping family, friends, or charity? Would you use it to start a business, or to invest? Would you go on a shopping spree or book a dream vacation? Would you pay off your credit card bills or the mortgage on your home? Don't just fantasize vaguely: draw up a list of your expenditures, including your best estimate of the number of dollars involved for each.

Also think about how you would change your life if a lot of money fell into your lap. How much of the windfall would you try to preserve? How long would it take you to run through it? How soon would you have to go back to work? Would you consider moving to another part of the country or the world? Would you make any changes in your family relationships (such as getting married -- or divorced)?

The results of this thought experiment will expose some of your deep-rooted dreams, desires, and ambitions. Your answers may include aspirations that you think about every day and others that you rarely allow yourself even to imagine.

What's the point? Well, you may not really be in line for a half-million-dollar windfall, but maybe you should consider reorienting your life so that you can pursue some of the fantasies this experiment has brought to the surface. You probably won't achieve them overnight. But maybe over the next five or ten years you can make some of those dreams come true.

2. The Setback. Imagine if you lost your job (or your other main source of income) due to being laid off, the sudden and unexpected absence of a spouse, or the elimination of a government support program. What would you do? How would you search for a new job? How long do you think it would take to find a new source of income? How much money do you have in the bank or in investments to tide you over? Where and how would you cut back on your lifestyle to make that money last as long as possible? How much of your spending could you cut back on and still be happy? How long would your savings last? How would your relationships with your family and friends be affected? How quickly would you begin to panic?

This thought experiment is likely to make you feel a bit anxious. That's all right -- remember, it's only an experiment. But the kind and degree of anxiety you feel is important. Does the very idea of a setback make you feel extremely frightened? Do you fear you'd run out of options in just a few weeks or days? Or, conversely, do you feel relatively confident that you would find a new source of income quickly? The answers may lead you to rethink your saving strategy, your career plans, and your other assumptions about how you support yourself.

Also consider how you react to the idea of trimming your expenses. Does the thought of having to live on 75 percent of your current income unnerve you? How about 50 percent? Do you feel a sense of shame or anger when you imagine having to talk to family and friends about your setback? Again, the answers may be revealing. If having a wad of cash in your pocket or purse is your main source of a sense of self-worth, you need to reconsider your emotional dependency on spending.

3. The Disaster. Imagine if you had to start your life all over again tomorrow. Imagine if your job, your savings, your possessions, and all your relationships were taken away and you were left with nothing but your education, your natural gifts, and a (paid) hotel room in a strange city for a month. How would you rebuild your life? What kind of job could you find? What kind of job could you tolerate? What kind of home would you seek? How would you look for new relationships, new activities, new interests? Would you be bitter over what you'd lost? Or would you find it a stimulating challenge to create a new life starting from scratch?

This experiment is designed to measure your sense of personal resilience. How much confidence do you have in your inner resources -- your strength of will, your emotional stamina, your self-confidence, your intelligence? How dependent are you on external props such as your job, your home, your bank account, your friends, and your family?

Of course, it's not likely that this disaster scenario will happen to you; most people are never tested to this extreme (although it does happen -- just ask the thousands of New Orleanians who lost everything when Hurricane Katrina struck). But it's a bracing mental exercise to imagine how you would tackle such a challenge.

The Bottom Line Engaging in thought experiments like these can be fun and revealing. And each of these scenarios actually happens to people in real life -- perhaps more often than you might think. Speculating about them can be a useful preparation for dealing with the ups and downs that life is apt to throw your way. Even more important, taking your money fantasies seriously will teach you more about the relationship between you, yourself, and your money...a connection that's crucial for you to understand if you want to get your financial house in order.
Money Personalities: Balanced and Unbalanced

In my years of talking to people about personal finances and listening to stories about how they think about and handle money, I've discovered several distinct patterns of behavior in relation to money -- characteristic ways of dealing with money that recur again and again in people's lives. I think of these patterns as money personalities. Based on the exercises I've recommended, you may find that a portrait of your own money personality is beginning to emerge.

In the pages that follow, I describe some of the most common money personalities I encounter in my work. Does one of these portraits sound familiar?

The Entitled

How many times have you justified an impulse purchase by saying to yourself, "I deserve it"? And how often have you said to a friend who is trying to decide whether or not to hand over the plastic, "Oh, go on -- you deserve it"? If you use this language frequently, your money personality is what I call the Entitled.

Don't misunderstand. I'm not saying that you are not a perfectly lovely and deserving person -- of course you are! But the underlying sense of entitlement can be very dangerous. In fact, when I ask the subjects on my television show about what the phrase "I deserve it" really means, they frequently look at me blankly, as if they've never thought about it at all.

If you find yourself using "I deserve it" to justify purchases you know you shouldn't make, ask yourself the following four questions. I even suggest that you memorize and recite them, like a mantra, every time you find yourself about to indulge your sense of entitlement.

1. What exactly have I done to "deserve" this treat? If you've shown up to work on time, gotten the kids off to school, and handled routine emergencies or crises, then you have simply met the requirements of daily living. And as any employer will tell you, "meeting requirements" does not earn you a bonus!

2. How long will it be before I "deserve" another treat? Next month? Next week? Tomorrow? Be honest! If you are treating yourself to special indulgencies more often than you should, put the brakes on. You are moving from feeling you "deserve" to spend money to making shopping and spending the source of your identity: "I shop, therefore I am." And that is a pretty shallow identity to have.

3. What percentage of my monthly mortgage payment am I spending on impulse buying? Suppose your mortgage payment is $800, and the total amount of your monthly impulse purchases at the mall or in shops in your town is $200. Then you've spent 25 percent of the money you could have set aside to reduce your mortgage burden. If you keep your impulse buys to less than 10 percent of your mortgage payment, your overall debt is much more likely to remain under control.

4. How long will it take me to earn this purchase, given my after-tax hourly wage? Think about how long it will take you to earn the cost of that nonessential treat from your current after-tax wages. Is the momentary pleasure worth all the hours or days at your desk, on your feet, or on the phone that it will take you to earn the money to pay for the item? You may be enslaving yourself to your own sense of entitlement.

"I deserve it"? Maybe so. But even more, don't you deserve -- and want -- a life free from the anxiety caused by uncontrolled spending and debt?

The Bottom Line People with an entitlement personality fail to think through and act upon what matters most to them in life -- that is, the values they care about most deeply. Instead, they are thinking and behaving as if they care more about the short-term pleasure from buying something than about a lifetime of security, enjoyment, and happiness. The spiraling descent into debt that too many people experience comes not so much from stupidity or lack of willpower as from a disconnection between their real values and their behavior.
The Dreamer

For me -- and, I think, for most people -- financial happiness means, above all, a sense of security. But some people act as though happiness comes from spending more than they can afford -- to impress others, to feel important and powerful, and to enjoy the thrill of consumption. Unfortunately, this pleasure is usually short-lived, a dream of happiness rather than the real thing. People who fall into this trap have the money personality I call the Dreamer.

True-Life Tale: Living the Dream

I once worked with a young man I'll call Ron who felt he was living an entrepreneurial dream come true. Ron, who had formerly worked as an assistant record producer, had developed an imaginative and unique business concept: he rented a fully-equipped recording studio, hired (at daily rates) a backup band of competent musicians, and, for a fee of around $5,000, would help an amateur singer create a professional-quality CD with two songs and even a short music video. Obviously, only well-heeled would-be rock stars could afford such an indulgence, but there were enough potential customers around to make Ron's business quite successful and lucrative, netting him some $100,000 a year -- what he called his "six-figure dream."

So far, this is a success story. But Ron promptly set about undermining his own future prospects by refusing to invest in the future growth of the business. For example, he might have considered buying a studio rather than renting one at a costly markup. He might have opened a second and a third location in nearby cities. He might have explored the business possibilities of other, similar concepts: in addition to "rock star for a day," what about "fashion model for a day" or "soap star for a day"? One or more of these ideas might have set Ron on the path of being a truly successful entrepreneur with long-term prospects for financial security and a chance at "seven figure" wealth.

Instead, driven by his Dreamer personality, Ron took all the profits out of his budding business and spent them on personal treats: a flashy sports car, a handsomely equipped McMansion, vacations at fancy resorts in the Caribbean and Mexico. Not only did he spend all of his business income, but he ran up significant credit card debt, putting his finances in real jeopardy.

When I pointed out these lurking dangers to Ron, he actually agreed with me. He commented, "Funny, isn't it, how a showy car and nice vacations get to seem like necessities? The income I'm making now would have seemed like all the money in the world a couple of years ago. Now it's not quite enough."

Ron realized, at least in his head, that there was no guarantee that the good times would continue. But he imagined that, if his current business ever suffered a decline, he would quickly come up with a second concept and a third. He didn't understand the reality that most businesspeople eventually come to recognize: that the world's greatest entrepreneurs consider themselves lucky to come up with one or two great ideas in a lifetime, let alone a steady stream of them. The ease with which Ron had parlayed his project into a profitable business made him feel as if the realities of business competition had been suspended for his benefit.

Ron's pleasant dream of life as the next Richard Branson came to its inevitable end. When an economic downturn hit in 2001, the number of people willing and able to spend big bucks to fulfill their rock star dreams declined dramatically. Compounding the problem, two of Ron's most important employees (a keyboard player and a drummer) formed their own band and moved to Europe, and he struggled to find adequate replacements for them. Today Ron's income is less than half of what it was a few years ago, and he has moved back in with his mother. The next big entrepreneurial idea? He is still searching for it.

The Bottom Line Don't fall into the trap of believing your most fantastic dreams. Strive to view your life, your accomplishments, and your challenges in an objective, realistic light, based on knowledge, research, and feedback from people you trust. Then develop your plans, goals, and actions in accordance with who you really are -- not who you'd like to imagine yourself being.
The Risk-Taker

Like the Dreamer, another money personality that involves a flight from reality is that of the Risk-Taker. Of course, anyone who starts a business is taking on some degree of risk, and the prudent entrepreneur does what he or she can to minimize that risk. But the Risk-Taker loves risk for its own sake. Uncertainty creates an adrenaline rush that many people find addictive. Some Risk-Takers express their love of danger in physical ways: they become fighter jet pilots, NASCAR drivers, or mountain climbers. But others prefer financial risks. They launch businesses that have almost no chance of succeeding, invest in highly speculative ventures, or devote their energies to the classic form of financial risk-taking -- gambling.

True-Life Tale: Living for the Risk-Taker's High

One young man I met, whom I'll call Peter, had gone seriously into debt because of his reckless gambling on horses, dogs, cards -- anything one could possibly bet on. The debts were very real -- over $40,000, equivalent to a year's after-tax salary. But somehow they didn't seem real to Peter. He frankly told me, "Money is just numbers to me. It means nothing."

What was real to Peter was the excitement he got from his betting -- at least, when he won. Peter even compared the ecstasy of a winning bet to sexual orgasm. The momentary release of energy was so thrilling that Peter was willing to gamble away his future in pursuit of it.

Peter's gambling addiction divorced him from reality in other ways, too. When I met him, he had no idea about the seriousness of his debt problem. He blithely told me, "I can get a mortgage or a car loan any time I want. And I can pay off my debts with no problem." Both statements were false. I discovered the first untruth by making a few phone calls to lenders, who reviewed Peter's financial status and quickly replied, "There's no way we can lend money to this guy." The second untruth became apparent when Peter decided to try paying off his debts -- only to creep back to the dog track and the casino, and end up in worse shape than when he started.

The Bottom Line Some forms of risk-taking can become addictive. If your Risk-Taker's personality has begun to interfere with your ability to face real life and manage it constructively, you have a problem. Don't let it slide; work on turning the problem around before it's too late. The financial guidance offered throughout this book will help.

The Shopping Addict

Shopping Addicts are people for whom shopping is a major pastime, maybe even their chief occupation in life. They wander around malls, looking at store windows hoping to stumble across something that will bring them a thrill they equate with happiness. They leaf through magazines and mail-order catalogs, hoping to be enticed by some treasure they never heard of but which, once they've discovered it, they now can't live without. They spend hours clicking through pages on eBay and other Internet shopping sites, titillated by the fact that the loot of the world is available to them at the click of a button.

I think people become Shopping Addicts not because they are preoccupied with the things they want, but because they don't think enough about the things they want. Because they rush into purchases without thinking, they end up buying things that really don't serve any purpose for them or meet any deep-rooted need. Disappointed, they start window shopping again, like alcoholics who keep returning to the bottle even though the pleasure of drinking has long since faded.

I understand the problem because I used to be a Shopping Addict myself. It took me years of learning and painful experience to overcome the syndrome. Today, I have my addiction under control. And one way I keep it under control is by the painstaking way in which I approach the experience of shopping.

Back when I was a Shopping Addict, I used to buy things constantly. (No wonder I often ended up buying things I didn't really want or need.) Today, I think a lot about the things I want before I buy them. Between the time I first develop a yen for an item and the time I buy it, months or even years may elapse. During that time, I read about the item, examine it in stores, study comparative products, try out the item in a friend's home, and get price quotes from a variety of sources. By the time I feel ready to buy, I know exactly which item I want, what color and size I want, where it will go in my home, and how much money I'm prepared to pay.

Thus, when the long-planned purchase finally arrives, there are rarely any unpleasant surprises. Instead, the experience feels like the fulfillment of a dream -- it's very satisfying and makes me feel good for years to come.

This is the story behind one of my personal treasures, my Bang & Olufsen stereo. For years I'd heard about the exceptional quality of this brand of audio equipment, and I'd admired its good looks. But I hesitated to spend what a B&O stereo system cost. So I saved my pennies, read stereo magazines and guides, and seized every opportunity I could to listen to music on B&O equipment. (I'm sure the salespeople got tired of seeing my face in the B&O showroom in New York and thought I was never going to buy anything.) Finally, as my thirty-fifth birthday approached, I decided the time was right. I'd saved enough money, and I felt I knew enough about my tastes in music and my home decorating preferences to pick a style of stereo that would fit my lifestyle.

I've loved my stereo ever since the day I brought it home. It has brought me pleasure for over ten years, and I haven't thought of replacing it once, which actually has made it a bargain. And I'm sure that if I'd rushed into buying it the minute I heard of it, without waiting for it and knowing exactly why I wanted it, I wouldn't have enjoyed it nearly as much, or as long.

The Bottom Line If you are a Shopping Addict, you need to break the cycle of unsatisfied spending. Slow down! Take the time to really think about the things you want, and buy them only when you are ready, both financially and psychologically. As a result, you'll buy fewer things, but enjoy them much, much more.
The Defiant Ones

Those I call the Defiant Ones are angry at the world. They express this anger through an aggressive attitude toward money. They spend in accordance with the philosophy of "Live fast, die young," letting money run through their fingers as if there's no tomorrow.

What makes the Defiant Ones so angry? When I talk with them, they describe a deep-rooted belief that life is unfair. They talk about how (unnamed) others have gotten the best jobs, the nicest houses, the fanciest cars, and so on, without deserving them. They're convinced that the social and economic systems are rigged through nepotism, favoritism, and political preference. That's what prevents the truly worthy people -- like themselves -- from getting their just desserts.

Some of the Defiant Ones have an even broader sense of resentment, blaming not just society for their suffering but the universe at large. They talk about the cruel tricks of fate they've observed around them: "My old man retired when he turned sixty-five. He planned to move to Longboat Key in Florida. Bang! He had a heart attack two days later and dropped dead. Never had a chance to spend a dime of his retirement money. I won't let that happen to me."

Driven by anger and bitterness, the Defiant Ones take a willful pleasure in squandering their resources. Paychecks vanish in a few days at the bar, club, or racetrack. Inheritances, even large ones, get spent within months. The Defiant Ones laugh at the idea of saving for the future; after all, with their fatalistic outlook on life, they don't really believe there will be a future.

What happens when a Defiant One, against all expectations, manages to survive past the age of self-sufficiency? You might expect him to be chastened and to wish he'd done a better job of planning for old age. Not a bit. Instead, the Defiant One sees longevity as an act of revenge against the society that has so cruelly neglected him: "Let the government take care of me. Why shouldn't they? I got screwed all along the way. I deserve a little handout in the end."

Unfortunately, fate has one last disappointment in store for the Defiant Ones. The comfortable retirement package they think should be provided by the government never materializes. Too late, the Defiant Ones realize that they were responsible for their own future. In the regretful words of baseball legend Mickey Mantle, whose youthful carousing wasted millions and even damaged his health, "If I'd known I was going to live this long, I might have taken better care of myself!"

The Bottom Line Living life to the fullest is an admirable goal. But it should be driven by enjoyment and delight, not by anger and bitterness. If your spending on today's pleasures has reached the point where it is endangering tomorrow's necessities, stop and reconsider. In the end, the Defiant Ones are the real losers.
The Parasite and the Fixer

The Parasite is continually looking for someone else to solve his or her money problems, someone who will take over the finances, providing a steady stream of money and a calm, adult hand to manage it. Surprisingly often, the Parasite actually succeeds in finding such a provider. I call this person the Fixer, someone who feels driven to solve the problems of the world, starting with the financial problems of a loved one.

A classic example of the Parasite-Fixer couple are Tony and Sheila. Tony is good-looking, charming, smart, but terrible with money. He uses his charm to overcome his financial weakness by persuading his girlfriend (Sheila is the latest) to take on the money responsibilities: "You know my credit rating isn't very good. How about signing off on that loan I need?"

It's not hard to see what motivates the Parasite; after all, he or she gets a free ride on someone else's hard work and responsibility. But what turns someone into a Fixer? I think the Fixer likes the sense of importance, maturity, and virtue that comes with the role. Sheila likes to say, "Poor Tony would be helpless without me," and although she sometimes complains about having to bail him out, she secretly relishes the fact that being his Fixer makes her the center of Tony's universe.

That's why people with the Fixer personality seem to gravitate to Parasites -- or even encourage otherwise normal friends and lovers to become Parasites. As the poet W. H. Auden put it: "The friends of the born nurse / Are always getting worse."

Of course, I'm not speaking here about couples or families where one partner has an unavoidable or temporary dependence on the other -- for example, a stay-at-home mom with small children to care for, who relies on her husband's income to support the family. I'm describing healthy, otherwise self-sufficient adults who simply refuse to take financial responsibility for themselves, and their partners who willingly take on that responsibility for them. It's ultimately a destructive connection for both parties: the Parasite becomes increasingly dependent and helpless, while the Fixer's resources are increasingly drained for the benefit of another person.

The Bottom Line Are you involved in a relationship of unnecessary or excessive financial dependence? If you find yourself repeatedly stuck in the role of either the Parasite or the Fixer, the first step toward freeing yourself is to recognize the problem.
The Hoarder

As I've discussed, one of the powerful emotional meanings of money is security. Money in the bank means freedom from fear about tomorrow, and the sense of inner peace that comes with it. I'm a great advocate of financial self-discipline and saving, because these are keys to achieving the security we all crave in life.

The Hoarder takes this wisdom to an extreme. Having tasted the natural and genuine pleasure that comes from watching a bank account or an investment portfolio grow, he falls in love with it to the point that it's the only pleasure money brings him. The Hoarder stops enjoying going out for dinner or a show, buying a present for a friend, picking out a new suit of clothes, or fixing up his apartment. Whenever he is forced to spend a little money, the image of winged dollars flitting away from his bank vault drains away any enjoyment from the new things he is buying.

Eventually, the Hoarder develops a twisted sense of economic reality. In this, he resembles a person with an eating disorder. Just as a young woman with anorexia may be convinced she is grossly fat even though her weight is below normal, the Hoarder feels poor even when his bank account is very healthy. The average person, unfortunately, underestimates how much money he or she will need for retirement; the Hoarder overestimates it, and refuses to feel secure no matter how big his retirement account becomes. When this happens, the Hoarder may become a miser.

The Bottom Line Saving is a good thing, but it's not the only good thing to do with money. If your desire to save has grown to the point where you find it impossible to take any other pleasure from your money, you may be turning into a Hoarder. Lighten up! Take a little of your hard-earned cash and splurge on a new flat-screen television, a holiday trip, or a night out with friends. Money, like life, is meant to be enjoyed.
The Ostrich

Avoidance is the central component of the Ostrich money personality. An Ostrich doesn't like to know the specific details of his financial situation, and so he avoids knowing them. His philosophy might be summed up as, "See no evil, hear no evil, speak no evil -- and my money problems will just take care of themselves."

As a result, the Ostrich ignores, hide from, or denies the full reality of his financial status. He has no budget and never looks at the monthly bank statements, overdraft notices, or credit card bills. As for balancing his checkbook, he'd rather face a root canal without novocaine.

The Ostrich has usually mastered a host of excuses and rationales for his avoidance habit: "It's all too complicated and too much to deal with." "I just don't have the time." "It's so boring." "I just can't seem to remember when my bills are due." Some Ostriches actually talk as if ignoring the realities of money is a more refined, spiritual, morally high-toned way of life -- as if they shouldn't have to clutter their beautiful minds with money issues. And so they will not do so. But the Ostrich forgets which part of his body is high in the air while his head is buried in the sand.

Of course, the excuses offered by an Ostrich are empty and dishonest. In reality, he buries his head to get away from a combination of feeling inadequate, annoyed, and anxious.

The Bottom Line The Ostrich needs to manage the emotions that cause him to flee from reality. One way he can begin the process is by choosing a time of day or week when his emotional tolerance is highest and then tackling a single small financial task -- for example, sitting down with the checkbook and paying off one or two bills. Repeat this step every day for a month, and the situation will have greatly improved, bringing with it a marked reduction in the fear that drives Ostrich-like behavior. The key is to find ways to lift your head out of the sand, if only periodically, until you get your financial house in order.
The Overwhelmed

Some of the smartest people I know exhibit this money personality. The Overwhelmed are people who are accustomed to mastering challenging topics and developing impressive skills for dealing with them, but who find personal finance simply too intimidating.

True-Life Tale: Seeing the Forest but Not the Trees

Daniela is a bright and talented young woman with two college degrees and a mantel full of prizes for her work as a magazine editor. When we met and Daniela heard about my role in financial education and training, she literally shuddered: "Ooh! I can't bear to think about money. Just the idea makes me feel out of control." And she quickly tried to change the subject to fashion, music, history, politics -- anything but personal finances.

Later, when I got to know Daniela better, we talked a bit about why she dreads the topic of money. There are many reasons: the emotional baggage she attaches to money issues; her curious view that you need to understand everything about money before you can do anything with it; the inability of Daniela's parents to talk about money with their children; and the complexity of modern global economics. In combination, these factors make money matters seem impossibly difficult to Daniela. And rather than allow herself to feel "dumb," she chooses to flee to the safety of topics she is comfortable with.

Unfortunately, sliding into the ranks of the Overwhelmed can trigger a vicious cycle. This is what happened to Daniela. Being anxious about money matters led her to ignore her checking account statements -- she simply stuffed them into a beautiful handmade wicker basket rather than look at them. She also avoided thinking about her spending patterns and about her gradually growing pile of credit card debt. But Daniela is not a stupid woman; deep inside, she realized she was getting into financial trouble, even though she chose to ignore it. So denial led to anxiety, which led to further denial and a deepening sense of failure.

In time, Daniela's unfounded belief that money is "too complicated" for her to cope with became a self-fulfilling prophecy, as small financial problems mushroomed into enormous ones.

Fortunately, there's a simple solution for people like Daniela. It comes with realizing that money is no more complex than child-rearing, gourmet cooking, house repair, or many other topics. The key is to break it down into manageable, bite-size pieces -- the same way we learn about everything else in life.

Don't try to master everything related to personal finance, from budgeting and saving to stock analysis and asset allocation, within a few days or even weeks. Instead, start small, learning what is most important to you at that time, whether it's mortgages, credit cards, 401(k) plans, or mutual funds. Spend some time every month over a period of a few years learning the basics of money management as and when you need to understand them. Each step along the way will bring immediate rewards, and at the end of the process you'll have developed a comfort level with money and other financial information that will enable you to develop a suitable personal financial plan that lets you create your own happy economic future.

The Bottom Line If you're among the Overwhelmed, don't despair! The rest of this book will help you master the complexities of personal finance in manageable, easy-to-digest chunks.
The Balanced Personality

All the money personalities we've sketched so far reflect a lack of financial balance. Some, like the Risk-Taker and the Shopping Addict, overemphasize the excitement to be gained from spending money with few or no controls; others, like the Hoarder, overemphasize the sense of security to be gained from having a growing savings account; and still others, like the Overwhelmed, have allowed themselves to be paralyzed by a single, natural emotion (anxiety about their lack of financial expertise) to the point where they can't confront their money issues at all.

The ideal, of course, is a money personality that has achieved a degree of balance, one where no single impulse, desire, or need has taken control of your attitudes and behavior. Instead, you are in command, able to recognize the good and the bad in each of your money habits, and able to choose which of your instincts to obey in any given situation.

Here are some of the other characteristics of the Balanced Personality:

  • When it's appropriate to say "no" to a particular temptation, you can do that with only a minimal amount of regret; when it's appropriate to say "yes," you can do that with complete enjoyment (and only a minimal amount of guilt).
  • You're able to allocate some of your income for immediate spending, some to save for longer-term projects, and some to invest for your retirement.
  • You can talk about financial matters openly with your spouse, partner, and children, and you don't have any inordinate difficulty in saying things like "We can't afford that," "I'm not comfortable with that decision," or "It's really important to me that we take this step."
  • You can make financial decisions that differ from those made by your friends and family without feeling pressured, guilty, insecure, or otherwise diminished.
  • You think about the long-term consequences of your current financial decisions, and you make money choices based not on extreme emotions (greed, resentment, jealousy), but on what will bring you the greatest satisfaction in the long run.
  • You are not afraid to make financial mistakes, recognize them, and learn from them without beating yourself up over them.

Does this way of life sound appealing to you? If it does, then you're ready to tackle the rest of this book, where my mission will be to help you achieve the Balanced Personality.

Facing Up to Reality

The first step in achieving the Balanced Personality is to recognize the reality of your current money situation. Everything you've read so far has been designed to help you with that recognition, beginning with a deeper understanding of your current money personality. Now it's time to begin facing the realities of your present financial position -- something millions of people find extremely difficult to do.

Are you one of the many people (like Daniela) who shy away from even thinking about their personal finances? Have you started stashing your unopened bills and bank statements in a drawer and ignoring them? And each time you open that drawer, does the threatening pile of papers seem to have increased, as if the bills are secretly procreating in the darkness? If this applies to you, you may be afraid to face your financial problems. And you are hoping that the old "out of sight, out of mind" trick will give you some relief.

If you are one of the many people who has allowed a gulf to open up between the reality of your life and the money decisions you make, don't despair. There are specific, concrete, practical steps you can take to close that dangerous gap. Here are some ways to get a better grip on financial reality.

Break your financial problems down into manageable pieces. First, you have to open that drawer or remove the cover from your handmade wicker basket, take those bills and overdue notices out, and make yourself start doing things that will alleviate the stress of the situation. Sit down and calmly divide the big problem into a series of smaller, more easily achieved objectives. For example, if you are in arrears on your high-priority debts -- things like mortgage payments, rent, taxes, condo or coop fees, phone, utilities -- place the worst one at the top of the list. If credit cards are your problem, organize them according to their interest rates, starting with the highest rate.

Tackle your problems one step at a time. Second, each day you must work on resolving one problem or achieving one step toward the resolution of a part of your financial difficulty, regardless of how painful or dispiriting it might be. For example, one such step might be to call your credit card company, explain the difficulties you are having in paying your bills, and ask for help in developing a repayment plan. Another step might be to give up a bad habit, like smoking or gambling, and reallocate the money you would have spent on the habit toward a debt-reduction fund. Still another might be to ask your boss about overtime work so that you can increase your income.

Each day of your life, take at least one step, no matter how small. Write the action you are going to take to solve the problem on a card and carry it with you until it's completed. Better still, tackle the task first thing in the morning. Don't put it off. The longer you do, the harder it will be to motivate yourself.

Pat yourself on the back. When you have accomplished your assigned task for the day, cross it off your card using a celebratory color. Place the card somewhere you will see it many times each day. Let it be a reminder to you that you can solve your problems by breaking them into smaller steps and achieving each step one day at a time. Enjoy the feeling of accomplishment -- and then prepare the next day's card.

Imagine how satisfied you will feel if, at the end of every day, you have removed one more straw from the proverbial camel's back -- your back. It may not be easy at first, but eventually you will hit your stride and be able to solve two or three problems every day.

Ignoring your financial problems is more dangerous than most people think. If you do so, you are blindly letting the situation get worse, slowly but surely giving your creditors control of the money you earn today and tomorrow, as well as control of your stress levels, your day-to-day happiness, and ultimately your future financial security.

True-Life Tale: Bad News, Go Away!

Like most people, you've probably thought, "If only I could earn a few more dollars, all my problems would be solved." But there are some people who can't seem to get out of debt no matter how much income they have.

I once counseled a couple I'll call Fred and Mary Stevenson. The Stevensons were nice people, but hopelessly addicted to spending -- and unwilling to face the reality of what debt was doing to them and their family.

When I first met the Stevensons, Fred was a marketing manager with an Internet-based company. Mary's job centered on caring for their three kids, aged four, six, and nine -- and shopping. Mary was a demon shopper. She regularly prowled the stores looking for clothes, toys, gadgets, appliances, food, furniture -- almost anything and everything that you can imagine. In Mary's life, shopping occupied the place held for other people by work, school, hobbies, or even religion.

When I visited their home, the evidence of Mary's overshopping was everywhere. The kids' closets contained many cute outfits with the tags still on them; they had never been worn and now were already on the verge of having been outgrown. The shelves in the family room were overflowing with CDs and DVDs no one had ever listened to or watched. The refrigerator was stocked with food no one would ever eat; Mary admitted that she often ended up throwing away up to one-third of the food she bought every week.

Fred wasn't much better. I spotted two brand-new kayaks in their backyard. When I asked about them, Fred explained that he'd just bought them (for some $350 each on sale) because the family was planning a lakeside vacation and they thought they might like to try a new sport.

This kind of uncontrolled spending would merely be unfortunate if the family were highly affluent. But the Stevensons were not. In fact, just three years before they'd lost their home when Fred was laid off.

"Don't you worry that something similar might happen again?" I asked them. "After all, many Internet companies like the one Fred works for have gone out of business in recent years."

Mary just waved her hands. "Oh, I don't like to think about things like that," she declared. "I'm an optimist. I assume things will always work out."

Hearing about Mary's willful, deliberate refusal to face reality gave me a chill. I sensed that bad things were in store for this family. Sure enough, while I was in the midst of my counseling sessions with the Stevensons, Fred got word that his company was cutting back drastically -- and he was being laid off. Unless he could quickly find a new job, they'd be unable to pay their mortgage, and within a few months they'd lose their home again.

This bad news seemed to shock Fred and Mary into a belated recognition of reality. When dunning letters demanding payment started to arrive from credit card companies and banks, Mary began to realize the depth of the problems they'd created for themselves. When I asked her how she felt, she replied, "I feel frightened -- like a five-year-old kid with an angry dad." Her comparison was a significant one. A small child expects her parents to mediate between her and the harsh realities of life. Mary had been living as if she were still a child. Now that the facts of debt were hitting home, it was as if the cocoon of parental protection were gone. It was time to grow up.

I worked with Fred and Mary to develop a plan for saving their home and their family. While Fred searched for a new job, we developed a spending budget and a savings plan that would rein in their terrible money habits. Within a few months, the Stevensons had at least a toehold on financial security, though a precarious one. It will take them several more years of struggle to overcome the damage they've done to their future by their years of recklessness.

The Bottom Line You can run from financial reality, but you can't hide. The sooner you face the facts about your money situation, the sooner you can begin transforming a dangerous problem into a manageable one and ultimately into a state of happiness and security.

The Fear Factor

When I talk about budgeting with people on my television show, they often react in the same way people do when they hear the word "diet." They think, "If I start a diet, I'll never be able to eat pizza again. I'll never be able to have dessert. I'm going to starve to death." And as a result, they never start dieting, despite the health risks and unhappiness caused by carrying around those twenty extra pounds.

Sometimes people have a similar feeling about money. Perhaps they believe they're inept about money. Perhaps they believe they can't ever earn enough to live in the style to which they aspire. So they just figure, "Why start budgeting? It's hopeless and overwhelming." Instead, they just keep spending, leaning on credit cards, unsecured loans, cash advances, or loans from family and friends -- the financial equivalent of uncontrolled eating.

Dr. Emily Stein, a New York-based psychologist who has provided therapy to thousands of individuals and families with a wide range of emotional problems -- many of them related to personal finance -- believes that this kind of reality-avoidance is often a result of fear: fear of being unworthy, of being unable to do what's required. She comments, "Imagine feeling that you could never earn the money needed to let your family dress like others in the neighborhood, to have a house as nice as the neighbors', or to take a vacation as pleasant as the ones your friends take. For some people, facing these facts may be too frightening. They prefer to deceive themselves. We call this an avoidance/avoidance complex, but in lay terms you might think of it as choosing the lesser of two evils. In effect, the person who flees in reality is saying, 'I'd rather overspend than face the terror of not being able to earn enough money.'"

Such fear is human and understandable. But it's a serious mistake to allow it to control your life. If you are feeling paralyzed by fear of financial reality, how can you master it? Here are a few suggestions.

Share the problem. Almost any problem seems more manageable when it is shared. Rather than trying to face down your financial demons alone, let family and friends offer the help they probably are eager to give. If you are afraid to talk about the money bind you are in because you think your spouse, lover, siblings, parents, or friends will be angry or reject you, think again. Most people are more understanding and supportive than our fears suggest. And the chances are good that the people close to you already sense that a problem exists -- and are waiting for an opportunity to talk with you about it.

Separate the problem from your underlying fears. Many people, even those who have achieved success in school, on the job, or in their personal relationships, have deep-seated feelings of inadequacy. Perhaps due to childhood hurts or rejections, you may have an inner voice that tells you, "You are bad, you are unlovable, you are unworthy." This negative inner voice intensifies our financial fears by mingling the real problems with a worry that, if the truth comes out, we will be utterly rejected and alone in the world. Such feelings of inadequacy are commonplace. But they don't change the reality of your financial problems. Try to put your money issues into realistic perspective; don't make them worse by imagining that they will determine your ultimate value as a human being.

Talk to a psychological counselor. If your anxiety, fear, or shame is overwhelming, find an expert who can help you control those emotions. Such counseling need not be prohibitively expensive. In many communities there are clinics or mental health centers where a friendly, supportive counselor may be consulted for a modest charge. And some members of the clergy are trained in psychological counseling as well.

Seek professional financial help. You may also benefit from working with a financial professional on your problems with debt, overspending, or other money management issues. Putting your money woes into a realistic perspective with the help of a professional can help you overcome the paralysis that exaggerated fears may cause.

The Bottom Line Don't let fear paralyze your efforts at getting your financial house in order. There are many ways to reduce your money anxieties to a manageable level. Take advantage of them.

Take-Aways

1. Know yourself. Only a person with a clear understanding of his or her own needs, desires, fears, strengths, and weaknesses as they relate to money can develop a realistic financial plan that will lead to a truly satisfying life.

2. Test and develop your self-discipline. Use financial exercises to enhance your ability to control your spending behaviors.

3. Face reality. Avoid the pitfall of believing a fantasy image of yourself and your life.

4. Beware the power of emotionally addictive behaviors. Gambling, drugs and drinking, and other forms of risk-taking can destroy your life both financially and psychologically.

5. Recognize how fears may paralyze your efforts at financial self-improvement. If necessary, get financial help to overcome those fears.

Copyright © 2007 by Alvin Hall

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Table of Contents


Introduction: Your Money Connections     1
Money and Yourself     7
Money and Your Parents     49
Money and Your Siblings     79
Money and Your Career     109
Money and Your Peers     143
Money and Your Partner     167
Money and Your Children     197
Money and Your Retirement     237
Money and the End of Life     273
Afterword: Money and the Meaning of it All     297
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First Chapter

You and Your Money

It's More Than Just the Numbers
By Alvin Hall

Atria

Copyright © 2007 Alvin Hall
All right reserved.

ISBN: 9780743279581

Chapter One: Money and Yourself

TEST YOURSELF. Is the relationship between yourself and money a healthy one, or is it a potential source of trouble? To find out, answer the questions below -- and be honest!

How Do You Score? There are no passing or failing grades on this quiz (or on any quiz in this book). But every "no" answer indicates an area on which you need to focus to get your financial relationships in order. For helpful advice and guidance, read on.

Know Yourself

As a TV money educator and the author of several books of money advice, I've learned that everyone needs to develop his or her own style of financial management. My way of earning, saving, spending, and investing money won't necessarily work for you, and vice versa. The first step is being comfortable in your own skin: knowing and accepting who you are, what you want, and what money means to you.

Success with money isn't matter of having a big bank account (although that doesn't hurt). The real key is your attitude toward yourself and toward the money you have. The wisdom of ancient Greece -- "Know thyself" -- remains as powerful today as ever. It's at the heart of being a smart money manager. And although it sounds simple, even obvious, "knowing thyself" can be surprisingly difficult toachieve.

Getting to Know You

Here are eight specific exercises you can do that will help you get to know your own money habits and tendencies better. You don't necessarily have to perform all eight; instead, you can pick the two or three that seem most relevant to you, and see what they can teach you.

1. Keep a diary of your spending and the emotions that go with it. Buy a little notebook especially for the purpose, and carry it with you everywhere you go for a month. During that time, write down everything you buy, no matter how big or how small. List each purchase and its price. Include items for which you pay cash (like your morning coffee and newspaper) and items you buy with a check or a credit/debit card (like a new CD or a piece of furniture).

At the end of the day, take a moment to add a brief note describing how you feel about that day's spending. Do you feel joy? Guilt? Regret? Disappointment? Contentment? What you write will vary from day to day, of course. One day you might write, "I'm so excited about the new shoes I bought today. They'll go perfectly with the outfit I'm wearing tomorrow. I can't wait to see what my friends in the office say!" Another day you might write, "I feel bad about spending so much money on snacks and drinks today. I really meant to save that cash for the weekend. Hope I can do better tomorrow."

There will be times when keeping the diary feels like a total bore or a nuisance. You'll be tempted to quit. Don't! A full month's worth of notes will tell you a lot about your money habits, good and bad, and help you understand the ways in which your money habits bring you happiness and grief.

2. Examine your sources of income. On a sheet of paper, list everyone who provided you with any money during the past year, along with the amounts you received. A few of these sources will be obvious: the salary paid by your employer or the income from your own business, for example. Others may be easy to overlook. Did you receive any payments from the federal, state, or local government? Did your parents or other family members give or lend you money? Did you receive money from a romantic partner, an ex-spouse, or a friend? Did you do any part-time work for which you received a formal or informal payment? Did you get dividend or interest payments from stocks, bonds, or mutual funds that you own, or money from a trust account? Did you win money from a lottery, a contest, or gambling? Did you receive money as a result of a lawsuit or an insurance claim? List everything.

Once you've created the list, consider what it tells you about your present and future sources of income. How secure are the past year's sources of income? Which sources are likely to increase in the future -- and which are likely to shrink or disappear? What new sources of income can you develop? An honest evaluation of this list can help you figure out whether your future prospects are bright, or you have been living on borrowed time.

3. Analyze one credit card bill from the past year. Identify each item you bought (if you can) and measure how much pleasure it gave you. Do you remember the item? Do you remember why you bought it? Do you still have it? If so, do you still use it? In retrospect, was it worth buying? Count up the number of items you bought that were smart, satisfying purchases, and compare this to the number of items you now wish you hadn't bought. What patterns do you notice? What types of purchases do you consistently regret? Are there particular kinds of items you tend to waste money on? Which kinds of purchases consistently bring you lasting pleasure? When do you stop or cut back using the credit card, and what causes this change?

4. Count the number of purchases you made last year. A relatively easy way to do this is to request the year-end summary of your spending that most credit card companies will provide. Also review your checkbook register or checking account statements, and try to list most or all of the items you bought using cash. How many purchases did you make altogether? How does the number compare to the number of days in the year? Did you buy something every day, every two days, every three days? Is it hard for you to go through a day without spending money? If so, do you know why?

5. Examine your unconscious forms of spending. On a piece of paper, list all the automatic purchases on your credit card: gym memberships, magazine subscriptions, or any other automatic deductions. If you use an automatic banking service that provides for direct debits for regular monthly expenses, list these as well. Automatically deducted expenditures can be an inadvertent trap that can help make it easy for you to spend money without thinking about it. How many of these can you reduce or eliminate?

6. List the things you hate to spend money on. Some of these may be needless expenses you can eliminate by making a change in your life. For example, if you hate paying the costs of driving to work, perhaps you can set your alarm clock for half an hour earlier, making it possible for you to walk (if your job is close by), use public transportation, or carpool. Not only will you save money, but you might meet some interesting new people who could change your life or career.

In other cases, avoiding particular expenses may be shortsighted. I have a friend who hates to buy food in restaurants because he dislikes leaving a tip for the waiter. It's a problematic attitude, because sometimes you have to pay to get good service -- and a person who refuses ever to visit a restaurant misses out on the fun of eating out with friends. My coauthor, Karl, hates to spend money to get things fixed around the house because, as he puts it, "There's no fun in it." But if you put off patching the roof or servicing the furnace, you may end up having to make a more costly repair or replacement in the long run.

Listing your own pet hates when it comes to spending can show where your emotions may overrule your reason, leading to short-term and self-defeating thinking.

7. List your best and worst expenditures. Make a list of the five things you did with money last year that enhanced your life the most. Then make a separate list of your five worst mistakes -- money decisions that were a setback or damaged your life. What were the reasons behind each of these decisions, good or bad? What lessons can you derive from them?

There's no single right or wrong way to compile these two lists. One person's brilliant choice may be another person's disaster. For Susan, spending $3,000 on a week's holiday in the Caribbean may have been just the break she needed to clear her head after a tough year at the office, energizing her to start looking for a better job upon her return to work. For Cynthia, the same holiday may have maxed out her credit card, speeding up a dangerous spiral into excessive debt that ruined any pleasure she might have taken from her days in the sun. Only you can define your best and worst uses of money.

8. Test your money self-discipline. You can also learn more about your money psychology by experimenting with short-term behavior changes. I am testing my own self-discipline right now through a simple but surprisingly tough challenge: for one year, I am forbidding myself to buy shirts. (I have sixty shirts of all kinds and I love to get new ones.) In the past, I have tried other, similar experiments; for example, I once locked away my credit cards for a month, forcing myself to pay for everything in cash. I found that this act of self-discipline made me more aware of my own cash flow and forced me to reevaluate what I spend.

Among other benefits, such limited acts of self-denial help you to appreciate more the good things you have and increase your self-confidence by demonstrating and strengthening your ability to determine what's needless and do without it. Most important, they help you know yourself more intimately. What kinds of money behavior have the greatest hold over you? Which money habits are easy to change? Which changes really hurt? Above all, who is in control: you or your money?

The Bottom Line

Most people have only a vague awareness of how they relate to money. They spend little time reflecting on how they get money, how they use it, and what sort of emotional impact money has on their lives. Devoting time to becoming more conscious of your money decisions is a crucial first step toward improving your relationship to money.

The goal of all eight exercises is the same: to help you better understand the role of money in your life. How does money bring you happiness? How does it cause you regret, anxiety, or disappointment? Which of your money habits would you like to change? Which ones would you like to strengthen? Answering these questions is a vital first step toward defining the kind of relationship you'd like to have with your money -- and taking the steps necessary to achieve it.

What's Your Price?

When I was growing up in a little town in the Florida panhandle, my wise old grandmother had a saying that I've never forgotten. "Always know your price, Alvin. Have a number in mind. Because some day, someone may offer it to you."

What did she mean by "your price"? I've thought a lot about it. I think she was referring to whatever it would take to make me truly satisfied, to meet all my basic physical requirements as well as my emotional and spiritual needs.

"Your price" may be literally a number -- a figure in dollars and cents that represents what you need to feel independent. (Hollywood moviemakers refer to the size of the nest egg they need to be able to walk away from any job using a vulgar phrase: "'f--- you' money.") It may be the amount of money you would have to have in the bank to support you for a year, or the amount of invested money you would need to generate an annual income you could live on.

Everyone defines their price in their own unique way. For some people whose lifestyles and aspirations are modest, it could be a relatively small sum. For those with grandiose desires, it could be very large. That's up to you.

"Your price" may not even be a number. It could be something else that spells happiness and satisfaction to you. It could be your dream job, the position that will tell you and the world that you've really "made it" in your career. It could be the opportunity to live in a particular place, whether that's a country home on a lake, an apartment with a view in the center of a city, or a condo near a golf course. It could be a trip around the world, a chance to meet the person you most admire, or a lifetime box at the opera.

My coauthor, Karl, worked for many years as an editor and executive at some of the big New York publishing houses. His dream then was independence -- the opportunity to work for himself, writing and editing books on interesting and important topics with people he liked and admired. That was Karl's price. Eight years ago, he achieved that goal: he went freelance and has supported himself and his family ever since, working on projects (like collaborating on this book) from his home in the New York suburbs and traveling around the country and the world to research them.

Like Karl, I'm a freelancer. Each year, I put together a combination of jobs and projects that I use to support myself. As a result, I think about my price at the start of every year. I set it at two levels. First, I calculate my living expenses for the year -- mortgage payments on my apartment, insurance, food, clothing, retirement contribution, my annual vacation with my friends in the south of France, and so on -- and determine the amount I need to earn to cover those costs. Next, I list the special things I'd like to have but don't strictly need -- things like a special holiday trip, art I'd like to add to my collection, changes I'd like to make in my apartment. I now have two figures -- my Need number and my Want number -- against which I can measure how successful my career will be this year.

As the year begins, I do all I can to reach my Need number as quickly as possible. The sooner I can line up jobs or other sources of income that will add up to my Need number (calculated on an after-tax basis), the sooner I can begin achieving some of my Wants. In some years, when the economy is sluggish and my business is challenging, it's all I can do to reach my Need number by December. In boom years, I can meet my Need number by August or September, giving me several months of income with which to indulge myself.

Having these two numbers in mind helps me make the right decisions about earning, spending, and saving money. For example, there have been times when I was offered a work assignment that I didn't much relish: teaching a particular set of training classes that I knew would be very hard work and not really interesting. But when I looked at my list of projects for the year and the expected income from each, I could see that these classes would be enough to make me hit my Need number for the year. I accepted the job offer. It wouldn't be much fun, I knew, but it would enable me to move from Needs to Wants, so that all my additional income for the year could be spent on things that brought extra pleasure to my life. The satisfaction of knowing that fact made it easy to take on a less-than-ideal assignment.

The same kind of thinking may apply to you, even if you work at a regular job rather than freelancing. You may be faced with a decision such as a new job offer, a special assignment from the company you work for, or the chance to compete for a promotion. Should you take the plunge, even if you are uncertain as to whether the new situation will be a comfortable one? The answer may depend on your price. Sometimes, taking on a difficult or even unpleasant job for a year or two may be the right decision -- if it means achieving your price, and a possible lifetime of future satisfaction.

The Bottom Line

Know your price and keep it always in the back of your mind. Only if you know your price can you be working toward achieving it and measuring every important decision against the question: What choice will help me get closer to my price? It's an important part of knowing yourself, in terms of your deepest personal desires and the financial implications they have.

Three Money Fantasies

So far, you've examined your relationship to money by looking at real-life situations. Now it's time to take a different approach: to use a bit of fantasy to gain further insights into what money means to you.

Imagine yourself in each of the following three scenarios. These are "thought experiments" (in the phrase made famous by scientist Albert Einstein) that can help you better understand your approach to money. Devote fifteen minutes to each experiment. Read the description below, then jot down on a piece of paper all the thoughts, ideas, and fantasies that fill your mind as a result. I predict you'll find them very revealing.

1. The Windfall. Imagine suddenly receiving a gift of half a million dollars. What would you spend it on? Would you devote some of the money to helping family, friends, or charity? Would you use it to start a business, or to invest? Would you go on a shopping spree or book a dream vacation? Would you pay off your credit card bills or the mortgage on your home? Don't just fantasize vaguely: draw up a list of your expenditures, including your best estimate of the number of dollars involved for each.

Also think about how you would change your life if a lot of money fell into your lap. How much of the windfall would you try to preserve? How long would it take you to run through it? How soon would you have to go back to work? Would you consider moving to another part of the country or the world? Would you make any changes in your family relationships (such as getting married -- or divorced)?

The results of this thought experiment will expose some of your deep-rooted dreams, desires, and ambitions. Your answers may include aspirations that you think about every day and others that you rarely allow yourself even to imagine.

What's the point? Well, you may not really be in line for a half-million-dollar windfall, but maybe you should consider reorienting your life so that you can pursue some of the fantasies this experiment has brought to the surface. You probably won't achieve them overnight. But maybe over the next five or ten years you can make some of those dreams come true.

2. The Setback. Imagine if you lost your job (or your other main source of income) due to being laid off, the sudden and unexpected absence of a spouse, or the elimination of a government support program. What would you do? How would you search for a new job? How long do you think it would take to find a new source of income? How much money do you have in the bank or in investments to tide you over? Where and how would you cut back on your lifestyle to make that money last as long as possible? How much of your spending could you cut back on and still be happy? How long would your savings last? How would your relationships with your family and friends be affected? How quickly would you begin to panic?

This thought experiment is likely to make you feel a bit anxious. That's all right -- remember, it's only an experiment. But the kind and degree of anxiety you feel is important. Does the very idea of a setback make you feel extremely frightened? Do you fear you'd run out of options in just a few weeks or days? Or, conversely, do you feel relatively confident that you would find a new source of income quickly? The answers may lead you to rethink your saving strategy, your career plans, and your other assumptions about how you support yourself.

Also consider how you react to the idea of trimming your expenses. Does the thought of having to live on 75 percent of your current income unnerve you? How about 50 percent? Do you feel a sense of shame or anger when you imagine having to talk to family and friends about your setback? Again, the answers may be revealing. If having a wad of cash in your pocket or purse is your main source of a sense of self-worth, you need to reconsider your emotional dependency on spending.

3. The Disaster. Imagine if you had to start your life all over again tomorrow. Imagine if your job, your savings, your possessions, and all your relationships were taken away and you were left with nothing but your education, your natural gifts, and a (paid) hotel room in a strange city for a month. How would you rebuild your life? What kind of job could you find? What kind of job could you tolerate? What kind of home would you seek? How would you look for new relationships, new activities, new interests? Would you be bitter over what you'd lost? Or would you find it a stimulating challenge to create a new life starting from scratch?

This experiment is designed to measure your sense of personal resilience. How much confidence do you have in your inner resources -- your strength of will, your emotional stamina, your self-confidence, your intelligence? How dependent are you on external props such as your job, your home, your bank account, your friends, and your family?

Of course, it's not likely that this disaster scenario will happen to you; most people are never tested to this extreme (although it does happen -- just ask the thousands of New Orleanians who lost everything when Hurricane Katrina struck). But it's a bracing mental exercise to imagine how you would tackle such a challenge.

The Bottom Line

Engaging in thought experiments like these can be fun and revealing. And each of these scenarios actually happens to people in real life -- perhaps more often than you might think. Speculating about them can be a useful preparation for dealing with the ups and downs that life is apt to throw your way. Even more important, taking your money fantasies seriously will teach you more about the relationship between you, yourself, and your money...a connection that's crucial for you to understand if you want to get your financial house in order.

Money Personalities: Balanced and Unbalanced

In my years of talking to people about personal finances and listening to stories about how they think about and handle money, I've discovered several distinct patterns of behavior in relation to money -- characteristic ways of dealing with money that recur again and again in people's lives. I think of these patterns as money personalities. Based on the exercises I've recommended, you may find that a portrait of your own money personality is beginning to emerge.

In the pages that follow, I describe some of the most common money personalities I encounter in my work. Does one of these portraits sound familiar?

The Entitled

How many times have you justified an impulse purchase by saying to yourself, "I deserve it"? And how often have you said to a friend who is trying to decide whether or not to hand over the plastic, "Oh, go on -- you deserve it"? If you use this language frequently, your money personality is what I call the Entitled.

Don't misunderstand. I'm not saying that you are not a perfectly lovely and deserving person -- of course you are! But the underlying sense of entitlement can be very dangerous. In fact, when I ask the subjects on my television show about what the phrase "I deserve it" really means, they frequently look at me blankly, as if they've never thought about it at all.

If you find yourself using "I deserve it" to justify purchases you know you shouldn't make, ask yourself the following four questions. I even suggest that you memorize and recite them, like a mantra, every time you find yourself about to indulge your sense of entitlement.

1. What exactly have I done to "deserve" this treat? If you've shown up to work on time, gotten the kids off to school, and handled routine emergencies or crises, then you have simply met the requirements of daily living. And as any employer will tell you, "meeting requirements" does not earn you a bonus!

2. How long will it be before I "deserve" another treat? Next month? Next week? Tomorrow? Be honest! If you are treating yourself to special indulgencies more often than you should, put the brakes on. You are moving from feeling you "deserve" to spend money to making shopping and spending the source of your identity: "I shop, therefore I am." And that is a pretty shallow identity to have.

3. What percentage of my monthly mortgage payment am I spending on impulse buying? Suppose your mortgage payment is $800, and the total amount of your monthly impulse purchases at the mall or in shops in your town is $200. Then you've spent 25 percent of the money you could have set aside to reduce your mortgage burden. If you keep your impulse buys to less than 10 percent of your mortgage payment, your overall debt is much more likely to remain under control.

4. How long will it take me to earn this purchase, given my after-tax hourly wage? Think about how long it will take you to earn the cost of that nonessential treat from your current after-tax wages. Is the momentary pleasure worth all the hours or days at your desk, on your feet, or on the phone that it will take you to earn the money to pay for the item? You may be enslaving yourself to your own sense of entitlement.

"I deserve it"? Maybe so. But even more, don't you deserve -- and want -- a life free from the anxiety caused by uncontrolled spending and debt?

The Bottom Line

People with an entitlement personality fail to think through and act upon what matters most to them in life -- that is, the values they care about most deeply. Instead, they are thinking and behaving as if they care more about the short-term pleasure from buying something than about a lifetime of security, enjoyment, and happiness. The spiraling descent into debt that too many people experience comes not so much from stupidity or lack of willpower as from a disconnection between their real values and their behavior.

The Dreamer

For me -- and, I think, for most people -- financial happiness means, above all, a sense of security. But some people act as though happiness comes from spending more than they can afford -- to impress others, to feel important and powerful, and to enjoy the thrill of consumption. Unfortunately, this pleasure is usually short-lived, a dream of happiness rather than the real thing. People who fall into this trap have the money personality I call the Dreamer.

True-Life Tale: Living the Dream

I once worked with a young man I'll call Ron who felt he was living an entrepreneurial dream come true. Ron, who had formerly worked as an assistant record producer, had developed an imaginative and unique business concept: he rented a fully-equipped recording studio, hired (at daily rates) a backup band of competent musicians, and, for a fee of around $5,000, would help an amateur singer create a professional-quality CD with two songs and even a short music video. Obviously, only well-heeled would-be rock stars could afford such an indulgence, but there were enough potential customers around to make Ron's business quite successful and lucrative, netting him some $100,000 a year -- what he called his "six-figure dream."

So far, this is a success story. But Ron promptly set about undermining his own future prospects by refusing to invest in the future growth of the business. For example, he might have considered buying a studio rather than renting one at a costly markup. He might have opened a second and a third location in nearby cities. He might have explored the business possibilities of other, similar concepts: in addition to "rock star for a day," what about "fashion model for a day" or "soap star for a day"? One or more of these ideas might have set Ron on the path of being a truly successful entrepreneur with long-term prospects for financial security and a chance at "seven figure" wealth.

Instead, driven by his Dreamer personality, Ron took all the profits out of his budding business and spent them on personal treats: a flashy sports car, a handsomely equipped McMansion, vacations at fancy resorts in the Caribbean and Mexico. Not only did he spend all of his business income, but he ran up significant credit card debt, putting his finances in real jeopardy.

When I pointed out these lurking dangers to Ron, he actually agreed with me. He commented, "Funny, isn't it, how a showy car and nice vacations get to seem like necessities? The income I'm making now would have seemed like all the money in the world a couple of years ago. Now it's not quite enough."

Ron realized, at least in his head, that there was no guarantee that the good times would continue. But he imagined that, if his current business ever suffered a decline, he would quickly come up with a second concept and a third. He didn't understand the reality that most businesspeople eventually come to recognize: that the world's greatest entrepreneurs consider themselves lucky to come up with one or two great ideas in a lifetime, let alone a steady stream of them. The ease with which Ron had parlayed his project into a profitable business made him feel as if the realities of business competition had been suspended for his benefit.

Ron's pleasant dream of life as the next Richard Branson came to its inevitable end. When an economic downturn hit in 2001, the number of people willing and able to spend big bucks to fulfill their rock star dreams declined dramatically. Compounding the problem, two of Ron's most important employees (a keyboard player and a drummer) formed their own band and moved to Europe, and he struggled to find adequate replacements for them. Today Ron's income is less than half of what it was a few years ago, and he has moved back in with his mother. The next big entrepreneurial idea? He is still searching for it.

The Bottom Line

Don't fall into the trap of believing your most fantastic dreams. Strive to view your life, your accomplishments, and your challenges in an objective, realistic light, based on knowledge, research, and feedback from people you trust. Then develop your plans, goals, and actions in accordance with who you really are -- not who you'd like to imagine yourself being.

The Risk-Taker

Like the Dreamer, another money personality that involves a flight from reality is that of the Risk-Taker. Of course, anyone who starts a business is taking on some degree of risk, and the prudent entrepreneur does what he or she can to minimize that risk. But the Risk-Taker loves risk for its own sake. Uncertainty creates an adrenaline rush that many people find addictive. Some Risk-Takers express their love of danger in physical ways: they become fighter jet pilots, NASCAR drivers, or mountain climbers. But others prefer financial risks. They launch businesses that have almost no chance of succeeding, invest in highly speculative ventures, or devote their energies to the classic form of financial risk-taking -- gambling.

True-Life Tale: Living for the Risk-Taker's High

One young man I met, whom I'll call Peter, had gone seriously into debt because of his reckless gambling on horses, dogs, cards -- anything one could possibly bet on. The debts were very real -- over $40,000, equivalent to a year's after-tax salary. But somehow they didn't seem real to Peter. He frankly told me, "Money is just numbers to me. It means nothing."

What was real to Peter was the excitement he got from his betting -- at least, when he won. Peter even compared the ecstasy of a winning bet to sexual orgasm. The momentary release of energy was so thrilling that Peter was willing to gamble away his future in pursuit of it.

Peter's gambling addiction divorced him from reality in other ways, too. When I met him, he had no idea about the seriousness of his debt problem. He blithely told me, "I can get a mortgage or a car loan any time I want. And I can pay off my debts with no problem." Both statements were false. I discovered the first untruth by making a few phone calls to lenders, who reviewed Peter's financial status and quickly replied, "There's no way we can lend money to this guy." The second untruth became apparent when Peter decided to try paying off his debts -- only to creep back to the dog track and the casino, and end up in worse shape than when he started.

The Bottom Line

Some forms of risk-taking can become addictive. If your Risk-Taker's personality has begun to interfere with your ability to face real life and manage it constructively, you have a problem. Don't let it slide; work on turning the problem around before it's too late. The financial guidance offered throughout this book will help.

The Shopping Addict

Shopping Addicts are people for whom shopping is a major pastime, maybe even their chief occupation in life. They wander around malls, looking at store windows hoping to stumble across something that will bring them a thrill they equate with happiness. They leaf through magazines and mail-order catalogs, hoping to be enticed by some treasure they never heard of but which, once they've discovered it, they now can't live without. They spend hours clicking through pages on eBay and other Internet shopping sites, titillated by the fact that the loot of the world is available to them at the click of a button.

I think people become Shopping Addicts not because they are preoccupied with the things they want, but because they don't think enough about the things they want. Because they rush into purchases without thinking, they end up buying things that really don't serve any purpose for them or meet any deep-rooted need. Disappointed, they start window shopping again, like alcoholics who keep returning to the bottle even though the pleasure of drinking has long since faded.

I understand the problem because I used to be a Shopping Addict myself. It took me years of learning and painful experience to overcome the syndrome. Today, I have my addiction under control. And one way I keep it under control is by the painstaking way in which I approach the experience of shopping.

Back when I was a Shopping Addict, I used to buy things constantly. (No wonder I often ended up buying things I didn't really want or need.) Today, I think a lot about the things I want before I buy them. Between the time I first develop a yen for an item and the time I buy it, months or even years may elapse. During that time, I read about the item, examine it in stores, study comparative products, try out the item in a friend's home, and get price quotes from a variety of sources. By the time I feel ready to buy, I know exactly which item I want, what color and size I want, where it will go in my home, and how much money I'm prepared to pay.

Thus, when the long-planned purchase finally arrives, there are rarely any unpleasant surprises. Instead, the experience feels like the fulfillment of a dream -- it's very satisfying and makes me feel good for years to come.

This is the story behind one of my personal treasures, my Bang & Olufsen stereo. For years I'd heard about the exceptional quality of this brand of audio equipment, and I'd admired its good looks. But I hesitated to spend what a B&O stereo system cost. So I saved my pennies, read stereo magazines and guides, and seized every opportunity I could to listen to music on B&O equipment. (I'm sure the salespeople got tired of seeing my face in the B&O showroom in New York and thought I was never going to buy anything.) Finally, as my thirty-fifth birthday approached, I decided the time was right. I'd saved enough money, and I felt I knew enough about my tastes in music and my home decorating preferences to pick a style of stereo that would fit my lifestyle.

I've loved my stereo ever since the day I brought it home. It has brought me pleasure for over ten years, and I haven't thought of replacing it once, which actually has made it a bargain. And I'm sure that if I'd rushed into buying it the minute I heard of it, without waiting for it and knowing exactly why I wanted it, I wouldn't have enjoyed it nearly as much, or as long.

The Bottom Line

If you are a Shopping Addict, you need to break the cycle of unsatisfied spending. Slow down! Take the time to really think about the things you want, and buy them only when you are ready, both financially and psychologically. As a result, you'll buy fewer things, but enjoy them much, much more.

The Defiant Ones

Those I call the Defiant Ones are angry at the world. They express this anger through an aggressive attitude toward money. They spend in accordance with the philosophy of "Live fast, die young," letting money run through their fingers as if there's no tomorrow.

What makes the Defiant Ones so angry? When I talk with them, they describe a deep-rooted belief that life is unfair. They talk about how (unnamed) others have gotten the best jobs, the nicest houses, the fanciest cars, and so on, without deserving them. They're convinced that the social and economic systems are rigged through nepotism, favoritism, and political preference. That's what prevents the truly worthy people -- like themselves -- from getting their just desserts.

Some of the Defiant Ones have an even broader sense of resentment, blaming not just society for their suffering but the universe at large. They talk about the cruel tricks of fate they've observed around them: "My old man retired when he turned sixty-five. He planned to move to Longboat Key in Florida. Bang! He had a heart attack two days later and dropped dead. Never had a chance to spend a dime of his retirement money. I won't let that happen to me."

Driven by anger and bitterness, the Defiant Ones take a willful pleasure in squandering their resources. Paychecks vanish in a few days at the bar, club, or racetrack. Inheritances, even large ones, get spent within months. The Defiant Ones laugh at the idea of saving for the future; after all, with their fatalistic outlook on life, they don't really believe there will be a future.

What happens when a Defiant One, against all expectations, manages to survive past the age of self-sufficiency? You might expect him to be chastened and to wish he'd done a better job of planning for old age. Not a bit. Instead, the Defiant One sees longevity as an act of revenge against the society that has so cruelly neglected him: "Let the government take care of me. Why shouldn't they? I got screwed all along the way. I deserve a little handout in the end."

Unfortunately, fate has one last disappointment in store for the Defiant Ones. The comfortable retirement package they think should be provided by the government never materializes. Too late, the Defiant Ones realize that they were responsible for their own future. In the regretful words of baseball legend Mickey Mantle, whose youthful carousing wasted millions and even damaged his health, "If I'd known I was going to live this long, I might have taken better care of myself!"

The Bottom Line

Living life to the fullest is an admirable goal. But it should be driven by enjoyment and delight, not by anger and bitterness. If your spending on today's pleasures has reached the point where it is endangering tomorrow's necessities, stop and reconsider. In the end, the Defiant Ones are the real losers.

The Parasite and the Fixer

The Parasite is continually looking for someone else to solve his or her money problems, someone who will take over the finances, providing a steady stream of money and a calm, adult hand to manage it. Surprisingly often, the Parasite actually succeeds in finding such a provider. I call this person the Fixer, someone who feels driven to solve the problems of the world, starting with the financial problems of a loved one.

A classic example of the Parasite-Fixer couple are Tony and Sheila. Tony is good-looking, charming, smart, but terrible with money. He uses his charm to overcome his financial weakness by persuading his girlfriend (Sheila is the latest) to take on the money responsibilities: "You know my credit rating isn't very good. How about signing off on that loan I need?"

It's not hard to see what motivates the Parasite; after all, he or she gets a free ride on someone else's hard work and responsibility. But what turns someone into a Fixer? I think the Fixer likes the sense of importance, maturity, and virtue that comes with the role. Sheila likes to say, "Poor Tony would be helpless without me," and although she sometimes complains about having to bail him out, she secretly relishes the fact that being his Fixer makes her the center of Tony's universe.

That's why people with the Fixer personality seem to gravitate to Parasites -- or even encourage otherwise normal friends and lovers to become Parasites. As the poet W. H. Auden put it: "The friends of the born nurse / Are always getting worse."

Of course, I'm not speaking here about couples or families where one partner has an unavoidable or temporary dependence on the other -- for example, a stay-at-home mom with small children to care for, who relies on her husband's income to support the family. I'm describing healthy, otherwise self-sufficient adults who simply refuse to take financial responsibility for themselves, and their partners who willingly take on that responsibility for them. It's ultimately a destructive connection for both parties: the Parasite becomes increasingly dependent and helpless, while the Fixer's resources are increasingly drained for the benefit of another person.

The Bottom Line

Are you involved in a relationship of unnecessary or excessive financial dependence? If you find yourself repeatedly stuck in the role of either the Parasite or the Fixer, the first step toward freeing yourself is to recognize the problem.

The Hoarder

As I've discussed, one of the powerful emotional meanings of money is security. Money in the bank means freedom from fear about tomorrow, and the sense of inner peace that comes with it. I'm a great advocate of financial self-discipline and saving, because these are keys to achieving the security we all crave in life.

The Hoarder takes this wisdom to an extreme. Having tasted the natural and genuine pleasure that comes from watching a bank account or an investment portfolio grow, he falls in love with it to the point that it's the only pleasure money brings him. The Hoarder stops enjoying going out for dinner or a show, buying a present for a friend, picking out a new suit of clothes, or fixing up his apartment. Whenever he is forced to spend a little money, the image of winged dollars flitting away from his bank vault drains away any enjoyment from the new things he is buying.

Eventually, the Hoarder develops a twisted sense of economic reality. In this, he resembles a person with an eating disorder. Just as a young woman with anorexia may be convinced she is grossly fat even though her weight is below normal, the Hoarder feels poor even when his bank account is very healthy. The average person, unfortunately, underestimates how much money he or she will need for retirement; the Hoarder overestimates it, and refuses to feel secure no matter how big his retirement account becomes. When this happens, the Hoarder may become a miser.

The Bottom Line

Saving is a good thing, but it's not the only good thing to do with money. If your desire to save has grown to the point where you find it impossible to take any other pleasure from your money, you may be turning into a Hoarder. Lighten up! Take a little of your hard-earned cash and splurge on a new flat-screen television, a holiday trip, or a night out with friends. Money, like life, is meant to be enjoyed.

The Ostrich

Avoidance is the central component of the Ostrich money personality. An Ostrich doesn't like to know the specific details of his financial situation, and so he avoids knowing them. His philosophy might be summed up as, "See no evil, hear no evil, speak no evil -- and my money problems will just take care of themselves."

As a result, the Ostrich ignores, hide from, or denies the full reality of his financial status. He has no budget and never looks at the monthly bank statements, overdraft notices, or credit card bills. As for balancing his checkbook, he'd rather face a root canal without novocaine.

The Ostrich has usually mastered a host of excuses and rationales for his avoidance habit: "It's all too complicated and too much to deal with." "I just don't have the time." "It's so boring." "I just can't seem to remember when my bills are due." Some Ostriches actually talk as if ignoring the realities of money is a more refined, spiritual, morally high-toned way of life -- as if they shouldn't have to clutter their beautiful minds with money issues. And so they will not do so. But the Ostrich forgets which part of his body is high in the air while his head is buried in the sand.

Of course, the excuses offered by an Ostrich are empty and dishonest. In reality, he buries his head to get away from a combination of feeling inadequate, annoyed, and anxious.

The Bottom Line

The Ostrich needs to manage the emotions that cause him to flee from reality. One way he can begin the process is by choosing a time of day or week when his emotional tolerance is highest and then tackling a single small financial task -- for example, sitting down with the checkbook and paying off one or two bills. Repeat this step every day for a month, and the situation will have greatly improved, bringing with it a marked reduction in the fear that drives Ostrich-like behavior. The key is to find ways to lift your head out of the sand, if only periodically, until you get your financial house in order.

The Overwhelmed

Some of the smartest people I know exhibit this money personality. The Overwhelmed are people who are accustomed to mastering challenging topics and developing impressive skills for dealing with them, but who find personal finance simply too intimidating.

True-Life Tale: Seeing the Forest but Not the Trees

Daniela is a bright and talented young woman with two college degrees and a mantel full of prizes for her work as a magazine editor. When we met and Daniela heard about my role in financial education and training, she literally shuddered: "Ooh! I can't bear to think about money. Just the idea makes me feel out of control." And she quickly tried to change the subject to fashion, music, history, politics -- anything but personal finances.

Later, when I got to know Daniela better, we talked a bit about why she dreads the topic of money. There are many reasons: the emotional baggage she attaches to money issues; her curious view that you need to understand everything about money before you can do anything with it; the inability of Daniela's parents to talk about money with their children; and the complexity of modern global economics. In combination, these factors make money matters seem impossibly difficult to Daniela. And rather than allow herself to feel "dumb," she chooses to flee to the safety of topics she is comfortable with.

Unfortunately, sliding into the ranks of the Overwhelmed can trigger a vicious cycle. This is what happened to Daniela. Being anxious about money matters led her to ignore her checking account statements -- she simply stuffed them into a beautiful handmade wicker basket rather than look at them. She also avoided thinking about her spending patterns and about her gradually growing pile of credit card debt. But Daniela is not a stupid woman; deep inside, she realized she was getting into financial trouble, even though she chose to ignore it. So denial led to anxiety, which led to further denial and a deepening sense of failure.

In time, Daniela's unfounded belief that money is "too complicated" for her to cope with became a self-fulfilling prophecy, as small financial problems mushroomed into enormous ones.

Fortunately, there's a simple solution for people like Daniela. It comes with realizing that money is no more complex than child-rearing, gourmet cooking, house repair, or many other topics. The key is to break it down into manageable, bite-size pieces -- the same way we learn about everything else in life.

Don't try to master everything related to personal finance, from budgeting and saving to stock analysis and asset allocation, within a few days or even weeks. Instead, start small, learning what is most important to you at that time, whether it's mortgages, credit cards, 401(k) plans, or mutual funds. Spend some time every month over a period of a few years learning the basics of money management as and when you need to understand them. Each step along the way will bring immediate rewards, and at the end of the process you'll have developed a comfort level with money and other financial information that will enable you to develop a suitable personal financial plan that lets you create your own happy economic future.

The Bottom Line

If you're among the Overwhelmed, don't despair! The rest of this book will help you master the complexities of personal finance in manageable, easy-to-digest chunks.

The Balanced Personality

All the money personalities we've sketched so far reflect a lack of financial balance. Some, like the Risk-Taker and the Shopping Addict, overemphasize the excitement to be gained from spending money with few or no controls; others, like the Hoarder, overemphasize the sense of security to be gained from having a growing savings account; and still others, like the Overwhelmed, have allowed themselves to be paralyzed by a single, natural emotion (anxiety about their lack of financial expertise) to the point where they can't confront their money issues at all.

The ideal, of course, is a money personality that has achieved a degree of balance, one where no single impulse, desire, or need has taken control of your attitudes and behavior. Instead, you are in command, able to recognize the good and the bad in each of your money habits, and able to choose which of your instincts to obey in any given situation.

Here are some of the other characteristics of the Balanced Personality:

  • When it's appropriate to say "no" to a particular temptation, you can do that with only a minimal amount of regret; when it's appropriate to say "yes," you can do that with complete enjoyment (and only a minimal amount of guilt).
  • You're able to allocate some of your income for immediate spending, some to save for longer-term projects, and some to invest for your retirement.
  • You can talk about financial matters openly with your spouse, partner, and children, and you don't have any inordinate difficulty in saying things like "We can't afford that," "I'm not comfortable with that decision," or "It's really important to me that we take this step."
  • You can make financial decisions that differ from those made by your friends and family without feeling pressured, guilty, insecure, or otherwise diminished.
  • You think about the long-term consequences of your current financial decisions, and you make money choices based not on extreme emotions (greed, resentment, jealousy), but on what will bring you the greatest satisfaction in the long run.
  • You are not afraid to make financial mistakes, recognize them, and learn from them without beating yourself up over them.

Does this way of life sound appealing to you? If it does, then you're ready to tackle the rest of this book, where my mission will be to help you achieve the Balanced Personality.

Facing Up to Reality

The first step in achieving the Balanced Personality is to recognize the reality of your current money situation. Everything you've read so far has been designed to help you with that recognition, beginning with a deeper understanding of your current money personality. Now it's time to begin facing the realities of your present financial position -- something millions of people find extremely difficult to do.

Are you one of the many people (like Daniela) who shy away from even thinking about their personal finances? Have you started stashing your unopened bills and bank statements in a drawer and ignoring them? And each time you open that drawer, does the threatening pile of papers seem to have increased, as if the bills are secretly procreating in the darkness? If this applies to you, you may be afraid to face your financial problems. And you are hoping that the old "out of sight, out of mind" trick will give you some relief.

If you are one of the many people who has allowed a gulf to open up between the reality of your life and the money decisions you make, don't despair. There are specific, concrete, practical steps you can take to close that dangerous gap. Here are some ways to get a better grip on financial reality.

Break your financial problems down into manageable pieces. First, you have to open that drawer or remove the cover from your handmade wicker basket, take those bills and overdue notices out, and make yourself start doing things that will alleviate the stress of the situation. Sit down and calmly divide the big problem into a series of smaller, more easily achieved objectives. For example, if you are in arrears on your high-priority debts -- things like mortgage payments, rent, taxes, condo or coop fees, phone, utilities -- place the worst one at the top of the list. If credit cards are your problem, organize them according to their interest rates, starting with the highest rate.

Tackle your problems one step at a time. Second, each day you must work on resolving one problem or achieving one step toward the resolution of a part of your financial difficulty, regardless of how painful or dispiriting it might be. For example, one such step might be to call your credit card company, explain the difficulties you are having in paying your bills, and ask for help in developing a repayment plan. Another step might be to give up a bad habit, like smoking or gambling, and reallocate the money you would have spent on the habit toward a debt-reduction fund. Still another might be to ask your boss about overtime work so that you can increase your income.

Each day of your life, take at least one step, no matter how small. Write the action you are going to take to solve the problem on a card and carry it with you until it's completed. Better still, tackle the task first thing in the morning. Don't put it off. The longer you do, the harder it will be to motivate yourself.

Pat yourself on the back. When you have accomplished your assigned task for the day, cross it off your card using a celebratory color. Place the card somewhere you will see it many times each day. Let it be a reminder to you that you can solve your problems by breaking them into smaller steps and achieving each step one day at a time. Enjoy the feeling of accomplishment -- and then prepare the next day's card.

Imagine how satisfied you will feel if, at the end of every day, you have removed one more straw from the proverbial camel's back -- your back. It may not be easy at first, but eventually you will hit your stride and be able to solve two or three problems every day.

Ignoring your financial problems is more dangerous than most people think. If you do so, you are blindly letting the situation get worse, slowly but surely giving your creditors control of the money you earn today and tomorrow, as well as control of your stress levels, your day-to-day happiness, and ultimately your future financial security.

True-Life Tale: Bad News, Go Away!

Like most people, you've probably thought, "If only I could earn a few more dollars, all my problems would be solved." But there are some people who can't seem to get out of debt no matter how much income they have.

I once counseled a couple I'll call Fred and Mary Stevenson. The Stevensons were nice people, but hopelessly addicted to spending -- and unwilling to face the reality of what debt was doing to them and their family.

When I first met the Stevensons, Fred was a marketing manager with an Internet-based company. Mary's job centered on caring for their three kids, aged four, six, and nine -- and shopping. Mary was a demon shopper. She regularly prowled the stores looking for clothes, toys, gadgets, appliances, food, furniture -- almost anything and everything that you can imagine. In Mary's life, shopping occupied the place held for other people by work, school, hobbies, or even religion.

When I visited their home, the evidence of Mary's overshopping was everywhere. The kids' closets contained many cute outfits with the tags still on them; they had never been worn and now were already on the verge of having been outgrown. The shelves in the family room were overflowing with CDs and DVDs no one had ever listened to or watched. The refrigerator was stocked with food no one would ever eat; Mary admitted that she often ended up throwing away up to one-third of the food she bought every week.

Fred wasn't much better. I spotted two brand-new kayaks in their backyard. When I asked about them, Fred explained that he'd just bought them (for some $350 each on sale) because the family was planning a lakeside vacation and they thought they might like to try a new sport.

This kind of uncontrolled spending would merely be unfortunate if the family were highly affluent. But the Stevensons were not. In fact, just three years before they'd lost their home when Fred was laid off.

"Don't you worry that something similar might happen again?" I asked them. "After all, many Internet companies like the one Fred works for have gone out of business in recent years."

Mary just waved her hands. "Oh, I don't like to think about things like that," she declared. "I'm an optimist. I assume things will always work out."

Hearing about Mary's willful, deliberate refusal to face reality gave me a chill. I sensed that bad things were in store for this family. Sure enough, while I was in the midst of my counseling sessions with the Stevensons, Fred got word that his company was cutting back drastically -- and he was being laid off. Unless he could quickly find a new job, they'd be unable to pay their mortgage, and within a few months they'd lose their home again.

This bad news seemed to shock Fred and Mary into a belated recognition of reality. When dunning letters demanding payment started to arrive from credit card companies and banks, Mary began to realize the depth of the problems they'd created for themselves. When I asked her how she felt, she replied, "I feel frightened -- like a five-year-old kid with an angry dad." Her comparison was a significant one. A small child expects her parents to mediate between her and the harsh realities of life. Mary had been living as if she were still a child. Now that the facts of debt were hitting home, it was as if the cocoon of parental protection were gone. It was time to grow up.

I worked with Fred and Mary to develop a plan for saving their home and their family. While Fred searched for a new job, we developed a spending budget and a savings plan that would rein in their terrible money habits. Within a few months, the Stevensons had at least a toehold on financial security, though a precarious one. It will take them several more years of struggle to overcome the damage they've done to their future by their years of recklessness.

The Bottom Line

You can run from financial reality, but you can't hide. The sooner you face the facts about your money situation, the sooner you can begin transforming a dangerous problem into a manageable one and ultimately into a state of happiness and security.

The Fear Factor

When I talk about budgeting with people on my television show, they often react in the same way people do when they hear the word "diet." They think, "If I start a diet, I'll never be able to eat pizza again. I'll never be able to have dessert. I'm going to starve to death." And as a result, they never start dieting, despite the health risks and unhappiness caused by carrying around those twenty extra pounds.

Sometimes people have a similar feeling about money. Perhaps they believe they're inept about money. Perhaps they believe they can't ever earn enough to live in the style to which they aspire. So they just figure, "Why start budgeting? It's hopeless and overwhelming." Instead, they just keep spending, leaning on credit cards, unsecured loans, cash advances, or loans from family and friends -- the financial equivalent of uncontrolled eating.

Dr. Emily Stein, a New York-based psychologist who has provided therapy to thousands of individuals and families with a wide range of emotional problems -- many of them related to personal finance -- believes that this kind of reality-avoidance is often a result of fear: fear of being unworthy, of being unable to do what's required. She comments, "Imagine feeling that you could never earn the money needed to let your family dress like others in the neighborhood, to have a house as nice as the neighbors', or to take a vacation as pleasant as the ones your friends take. For some people, facing these facts may be too frightening. They prefer to deceive themselves. We call this an avoidance/avoidance complex, but in lay terms you might think of it as choosing the lesser of two evils. In effect, the person who flees in reality is saying, 'I'd rather overspend than face the terror of not being able to earn enough money.'"

Such fear is human and understandable. But it's a serious mistake to allow it to control your life. If you are feeling paralyzed by fear of financial reality, how can you master it? Here are a few suggestions.

Share the problem. Almost any problem seems more manageable when it is shared. Rather than trying to face down your financial demons alone, let family and friends offer the help they probably are eager to give. If you are afraid to talk about the money bind you are in because you think your spouse, lover, siblings, parents, or friends will be angry or reject you, think again. Most people are more understanding and supportive than our fears suggest. And the chances are good that the people close to you already sense that a problem exists -- and are waiting for an opportunity to talk with you about it.

Separate the problem from your underlying fears. Many people, even those who have achieved success in school, on the job, or in their personal relationships, have deep-seated feelings of inadequacy. Perhaps due to childhood hurts or rejections, you may have an inner voice that tells you, "You are bad, you are unlovable, you are unworthy." This negative inner voice intensifies our financial fears by mingling the real problems with a worry that, if the truth comes out, we will be utterly rejected and alone in the world. Such feelings of inadequacy are commonplace. But they don't change the reality of your financial problems. Try to put your money issues into realistic perspective; don't make them worse by imagining that they will determine your ultimate value as a human being.

Talk to a psychological counselor. If your anxiety, fear, or shame is overwhelming, find an expert who can help you control those emotions. Such counseling need not be prohibitively expensive. In many communities there are clinics or mental health centers where a friendly, supportive counselor may be consulted for a modest charge. And some members of the clergy are trained in psychological counseling as well.

Seek professional financial help. You may also benefit from working with a financial professional on your problems with debt, overspending, or other money management issues. Putting your money woes into a realistic perspective with the help of a professional can help you overcome the paralysis that exaggerated fears may cause.

The Bottom Line

Don't let fear paralyze your efforts at getting your financial house in order. There are many ways to reduce your money anxieties to a manageable level. Take advantage of them.

Take-Aways

1. Know yourself. Only a person with a clear understanding of his or her own needs, desires, fears, strengths, and weaknesses as they relate to money can develop a realistic financial plan that will lead to a truly satisfying life.

2. Test and develop your self-discipline. Use financial exercises to enhance your ability to control your spending behaviors.

3. Face reality. Avoid the pitfall of believing a fantasy image of yourself and your life.

4. Beware the power of emotionally addictive behaviors. Gambling, drugs and drinking, and other forms of risk-taking can destroy your life both financially and psychologically.

5. Recognize how fears may paralyze your efforts at financial self-improvement. If necessary, get financial help to overcome those fears.

Copyright 2007 by Alvin Hall



Continues...


Excerpted from You and Your Money by Alvin Hall Copyright © 2007 by Alvin Hall. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
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