Can Budgeting Be “Fun?”

April 20, 2011

Last night, I met with a couple in one of my classes and wanted to share their insight into what they were experiencing. They had come to my Budgeting (aka “Spending Plans”) class a couple of weeks earlier, and they shared last night that they were making solid progress.

They had not only gone home and talked about a household budget, Can Budgeting Be Fun?but they had put one together and had been having regular discussions about it. I was excited for them because I know how a household budget can affect the family finances.

When I asked them how they were feeling about the past couple of weeks, the wife shared that they were having “fun” working on their budget. Now, you have to understand that during many of my budgeting classes, I explain how the critical step missing in virtually all failed budgets (written financial goals) makes budgets “meaningful,” but that even I – a budgeting professional – don’t think of budgets as “fun.”

So, when she said they were having fun, I had to ask for clarification. I was doubtful, I must admit. But, as she began explaining how they were enjoying the process of working together on a budget and feeling more in control of their finances each day, I could actually tell that she really was enjoying the whole process.

Budgeting Brings Peace of Mind and Greater ControlThe feeling of lacking control when it comes to our household finances is very disconcerting for pretty much all of us. Regaining that control really can provide us with a sense of euphoria that will have us coming back to our household spending plan again and again. In that sense, then, budgets certainly can be and are “fun.”

How about you? What are the feelings you’ve had as you’ve taken back control of your finances? Please feel free to share.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
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Defining PovertyThink

January 7, 2010

I read this past week of efforts in many countries to eradicate poverty by, as some have phrased it, “paying the poor.” The generic term for such programs is “conditional cash transfers” (CCTs), meaning that the government essentially pays cash to families in poverty that meet certain criteria, such as keeping their children in school, having regular preventative medical check ups, and attending workshops on financial skills and disease prevention.

Reportedly, the CCTs can have a widespread positive impact on reducing the income gap between the wealthiest and the poorest in that country. Today’s topic, though, is not about the pros and cons of CCTs or whether we should implement one in the US. Rather, I’d like to address the less tangible side of poverty: PovertyThink, if you will.

Financial Evolution and PovertyThink-National Financial Education Center at Debt Reduction Services IncI would describe PovertyThink as a set of beliefs, attitudes, and accepted presumptions held by individuals of ALL  income levels that prohibit them from implementing, or cause them to  take action contrary to, wisely money management behaviors, particularly with regards to building a satisfactory positive financial net worth in a capital-base economy.

Please do not misunderstand my statement. I am not referring to poverty (deficiency of money, goods or means of support) as being a choice. I am talking about people of ANY income level that subscribe (usually subconciously) to PovertyThink as a view of the financial world and, consequently, who fail to achieve financial success or independence.

Following are possible indicators of the presence of PovertyThink:

  1. Blaming others, particularly banks and creditors, for your financial woes. After all, you reason, they are the ones who have sabotaged your finances by charging ridiculously high penalty fees for bounced checks, late payments, and/or other mistakes.
  2. A strong distaste for the rich. In your mind, being rich is driving luxury vehicles; vacationing at luxury resorts; living in large homes; having mountain retreats or ocean-side cabins; having a garage full of motorcycles, ATVs, or snowmobiles; dressing in designer outfits and suits; and be able to buy just about anything else you want. You feel that those who are rich probably don’t deserve, and certainly don’t appreciate, what they have.
  3. Obsessing over the lifestyles of the rich. In spite of your feelings about the rich, you are often prone to obsess about their lifestyles and dream about what you would do if you were “rich.”
  4. PovertyThinkers play the lottery, mistakenly believing it to be their best shot at wealthPlaying the lottery. You play the lottery because it offers you the best chance of becoming rich. You feel that  the lottery is a way to become rich without having to financially injure anyone else on your way to the top, as the rich often do.
  5. Believing that finances should be fair. You hold to the belief that life should be fair for everyone and that the riches of the world should be equally available to, in not downright divided among, everyone. It galls you as completely unfair to think that the “rich” have it all and you don’t. After all, you believe that the harder a person works, the more they deserve to be rich, regardless of what they do for a living or what they contribute to society. And since you work harder than the wealthy you see on television, you feel you are just as deserving of riches as anyone.

On the surface, these beliefs seem harmless enough. In fact, #3 and maybe even #4 seem to you to be attitudes that should actually motivate someone towards financial success. So how do these points above, collectively identified as PovertyThink, actually do more financial harm than good? Let’s address them one at a time:

  1. Blaming others gets us no where. Blaming the umpire or referee for a bad call, in fact, can get you thrown out of the game.  Blaming others for our financial woes just means that we’re throwing ourselves out of the financial game. What should we do, by contrast? Accept responsibility for (and the consequences of) our mistakes. This may mean additional fees, high interest rates, and more work for us in the short term. However, once we recognize that we often get ourselves into financial troubles, we also recognize that we are responsible (and capable) of getting ourselves out of them. No one else wants us to succeed like we do. It’s time to hunker down and approach our financial challenges with more focus, patience and wisdom. Lashing out only turns would-be friends to long-term foes.
  2. Beware of misconceptions regarding what it means to be rich and what it means to be wealthyThose who dislike the rich the most are often those who want to become rich the most themselves. Unfortunately, they also usually have a warped sense of what it means to be rich. For those in the grips of PovertyThink, being rich is a lifestyle or a certain amount of income. If someone earns, say, $100,000 a year, well, they may be defined by a PovertyThinker as rich. It’s considered whether the same person earning $100,000 a year is spending $110,000 a year, is deep in credit card debt, or is staring foreclosure in the face because they can’t take care of their mortgage payment. The same could be said (and often is true) for a large percentage of people who drive the fancy cars, live in the opulent neighborhoods, and dress and accessorize themselves in the most expensive fashions. PovertyThinkers assume that the rich are greedy and have oppressed others while they earned their riches. The irony is that those who live the luxurious lifestyles tend to have noticeably smaller net worths as a percentage of their income than most millionaires, who buy used, American-made cars and live in modest homes. This PovertyThink tenant is, therefore, based upon inaccurate assumptions.
  3. PovertyThinkers are often seen buying or reading magazines about celebrity lifestyles. They know what brands of clothing celebrities wear, what types of vehicles they drive, where they vacation, which celebrities have their children in a private school and where that school is located, etc. Because many of the truly wealthy typically shun the spotlight, there is no magazine that gives an accurate description of what a real millionaire’s lifestyle is like. So, PovertyThinkers use transitive arguments to equate celebrities (who tend to earn large sums of money) with millionaires (who, outside of their primary residence, have a net worth of $1M or more in assets such as investments, accounts, business ownership, and real estate). Unfortunately, not all celebrities are (or stay) millionaires, and only a very small percentage of millionaires ascribe much importance to the extravagant lifestyles of many celebrities.
  4. Every week, we can read of or watch on television the report of the latest multi-million dollar lottery winner somewhere in the US. PovertyThinkers will see a dream come true for the winner, because they think in terms of amounts and dollars. In reality, many lottery winners (even some of the multi-million dollar jackpot winners) end up spending and/or giving away ALL of their winnings within a few years. Some huge jackpot winners have notoriously ended up living in trailer parks or with family members because they did not have a true appreciation of how much money they had won. They figured that since they were millionaires, they could give away or spend whatever amount they chose. They soon learn, though, that even a million dollars is a finite sum.
  5. The idea that reward should be directly tied to effort is not new, though it is pervasive. “Johnny got an A for effort.” However, it is a fundamental reality that effort is only one of several factors that our society rewards financially. Others include competence, creativity, productivity, personal affinity, loyalty, and on and on. To base someone’s financial compensation solely upon effort is to deny the importance of the other factors. Such an inflexible practice would lead to stagnation in productivity and innovation. Unfortunately, PovertyThinkers who fixate on the importance of effort tend to shun or ignore opportunities around them to solve problems and create solutions that could otherwise lead them toward greater compensation and reward. Developing an entrepreneurial work ethic or style, even if one works as an employee for someone else, creates an entirely new way of considering the value of work as it relates to their income.

So what’s the answer for PovertyThinkers? Since becoming a financial educator, I’ve always felt that the formula for personal finance success has more to do with motivation than with numbers, math, or school grades.  PovertyThinkers, if left to themselves, often have to hit rock bottom or experience some other sort of life changing event before taking the decision to make changes. Otherwise, not surprisingly since this is coming from a financial educator, I believe education is key. Whether through workshops, webinars, conversations, or reading materials, learning about others who have broken the PovertyThink cycle and learning how they did so can provide the hope and belief that makes such individual progress possible.

Such stories are not hard to find. Most of us just don’t look for them or don’t recognize them in the context of breaking the PovertyThink cycle. A large percentage of rags-to-riches stories (excluding lottery winners and those who inherit their money) are case studies in overcoming PovertyThink.

Have a fantastic day!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on January 13, 2011 at 11:45 am  Leave a Comment  
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Paradigm Shift in Personal Finance Attitudes: Millionaire Lifestyles

December 10, 2010

National Financial Education Center at Debt Reduction Services Inc-Personal Finance Evolution from Debt to WealthI generally have the pleasure of facilitating three to seven personal finance classes each week, usually around the Treasure Valley of southwest Idaho. Many of those classes are for high school students in an economics or a personal finance course.

Inevitably, whether I’m discussing budgeting, credit, avoiding debt, or effective consumer spending behaviors, questions or comments come up about wanting to be rich.

In a previous post (“What It Means to Be Rich“), I discussed what I believe is a good definition of wealth, as well as some important tips for reaching the level of being wealthy. Today, though, I’d like to share thoughts about the “millionaire lifestyle” that so many of our youth (and many in our adult population) so desperately want to live. Thanks to the extravagance of many in the entertainment, professional athletics, and other high-profile industries trumpeted in magazines and publications proclaiming themselves to be the luminaries of and guides to the lifestyles to which we, as patriotic American consumers, ought to aspire, many young people have a warped sense of who the wealthy are and how the overwhelming majority of them live.

To many of the students in the classes I visit, wealth is all about spending. There is little concept of how the wealth was created or of the finite characteristic of wealth. Too often, wealth is only for fulfilling today’s appetites for thrills, frills, and glitz designed to attract attention.

Such a view of wealth discredits the hundreds of thousands of millionaires who, typical of most in their group, have spent decades dedicating themselves to their business, their employment, their investments, and the management of their own money in order to reach such an achievement. And when they wake up one morning, look over their finances, and discover that, not including their primary residence, they have a net worth of over a million dollars, they do not then go out and begin buying fancy cars and designer clothing. It is not their habit.

One of my favorite series of books that help to enlighten us on the “secret” lifestyles of the rich is the “Millionaire Next Door” books by Thomas Stanley and William Danko. They may not be the most compelling of readings, but the substance of their surveys should shake long-held, though misguided, attitudes and beliefs too many of us and our children cling to.

Some of the most interesting findings:

  1. Most millionaires never purchase new cars. They buy and drive used cars.
  2. Most millionaires have never spent more than $55,000 (in 2010 dollars) on a new car.
  3. Most millionaires live in homes worth less than $300,000 (in 2010 dollars)
  4. The most common make and model of a millionaire’s primary mode of transportation back in 1996 was a used Ford Taurus, not a Mercedes or a Lexus or a BMW.

High school students in my personal finance workshops get a kick out of that last one, especially when I ask who, in the class, drives a Ford Taurus. It seems there’s always at least one or two, so I congratulate them as likely being on their way to becoming a millionaire.

My hope is that eventually, we can collectively teach our young people to value life as an experience and not as a race to collect and show off as much superfluous STUFF as our incomes will permit.

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Education@NationalFinancialEducationCenter.org
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Published in: on December 10, 2010 at 12:10 pm  Leave a Comment  
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Top 3 Personal Finance Tips

November 2, 2010

I’ve answered the golden question many times in my classes and presentations: “What is the number one suggestion you have for financial success?” In all honesty, don’t we already live in a society that’s plenty busy and plenty complicated already? Why throw on our shoulders another five, ten or twenty financial skills to master?

Each time I answer the question, though, it’s within the context of a specific course topic, whether it’s budgeting, using credit wisely, or getting out and staying out of debt. Consequently, three different people in three different classes have heard me provide three different #1 suggestions. Today, I’ll combine my three top tips into one gloriously simple but profound blog:

  1. Write down your financial goals.It’s true that every journey starts with one step. I also love the expression, “An unwritten goal is just a dream.” However, I am not referring to massive, long-term goals. We can’t relate our day-to-day financial choices to goals that are more than 3 years away or that require more than probably $1,000. For large goals, you’ll need to break them down into monthly, if not weekly, savings required to reach the goal.Regardless of nature of your goal, you should write down the following: 1) What you want to achieve, purchase, or do with money, 2) How much money you project you will need all together, 3) What month and year you plan to achieve the goal, and 4) How much you’ll need to save each month/week/paycheck from now until the time you plan to reach the goal.
  2. Pay yourself first.Once you have suggestion #1 in place, suggestion #2 becomes both easier and more meaningful. Without #1 in place, #2 because a chore and will likely not last or produce any significant results.Set up an automated deposit, ideally directly from your paycheck but otherwise from your checking account, into your savings and investments accounts. Even if it’s just $5 per month or paycheck to start with, consistency is much more important than the amount you transfer to savings. Once the money is out of your checking account, you’ll be much more likely to live within your remaining income and will probably not even miss the money placed into savings.
  3. Pay ALL your bills ON TIME and IN FULL.So much time and energy is wasted in discussing what makes up good credit, what credit is, and what it’s used for, that many people overlook the simple fact that online payments every month is the simplest and most effective way to build a solid credit score.Before figuring out the best way to pay down debts or determining how many credit cards you should carry in order to have the best credit score, remember that credit is a reflection of your financial habits with regards to debts and accounts for which you are responsible. As such, your credit score is an indication of your credit reputation. Paying your bills on time as agreed is the surest way to protect your credit reputation. Defaulting on your payments or making a late payment is basically an indirect way of telling your creditor that paying that as you agreed is not very important to you. Consequently, they will tell other creditors of your actions (that’s what a credit report is), impacting your credit reputation.

    Although paying down debts and avoiding a “maxed out” card is nearly as important, no one can argue that on time payments (even they are just the minimum payments required by the creditor) make up the most influential portion of your credit score.

So, there you have them: my top three personal finance tips of all time. Hopefully they make your life, your parenting techniques, and your overall well being a bit easier and much less complicated.

If you have a personal finance tip or suggestion that you feel deserves a crack at the top 3, please let me know. Having taught hundreds of classes, written scores of articles, met with thousands of students, and read innumerable studies and opinions on the subject of personal finance, the one thing I know and accept is that there are always better ways to approach things. What’s yours!

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Financial Freedom

Freedom is a Journey

I read a blog asking about financial freedom and, even though it specifically mentioned how narrowminded that concept is when defined by amounts or by financially-based ideas (e.g. “getting out of debt”), I was surprises by how many comments still focused on purely financial achievements or factors.

Here was my response to what financial freedom means to me:

“Yes, financial freedom carries different meanings not only for different people but for each of us depending upon our stage in life.

“I like to share my concept of financial freedom in my workshops as follows: If you’re making your money work for you, then you’re at least on the road to financial freedom. Otherwise, if you’re still working for your money, it controls you and you are definitely not free.

“Where that road leads is up to the individual, but I certainly hope it’s headed for fulfillment outside of the financial sphere.”

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney