It wasn’t long ago when the nearby plaza’s parking lot spent most days of the last few months being empty. That’s why I was so surprised to see people and cars everywhere when I went there last Sunday. Aside from the obvious potential problem of people getting sick, I’m not sure if I want this to become a trend for people’s finances.
Our economy probably needs us to shop irresponsibly again, but the thought that we might be back to “living beyond our means” is scary. I never understood why, but America is one of the only developed countries where the average resident consumes more than his/her income.
Some people blame the educational system for not having personal finance classes, but there are ways to learn outside of school too. It’s not like my teacher taught me how to use the toilet. I don’t know about you, but I learned because:
- I had to (out of necessity) and was told about this fact.
- It never occurred to me that there was an alternative.
- I did it enough times so I could do it without thinking.
Maybe the reason why I save while most people don’t is simple. I thought I had to save, I didn’t think borrowing was a lasting alternative and once I got used to saving, I just didn’t think about it anymore.
Toilet Training (Personal Finance Style)
If you need to toilet train yourself again, here are some tips that expand from what I talked about above:
The Need to Save Money
In case you are unlucky enough to not know the importance of saving money yet, let this post be the wake up call. You need to save for your own sake. Can you imagine what will happen if you lose your job and can’t find work for 6 months? How will you pay for your rent/mortgage? Do you know what it’s like to live in your car (assuming you own it outright)? Do you know how cold it gets at night if you live off the streets?
See those people living on the streets? Not everyone was born there. It could be hard to imagine, but some of those people use to have a good job, live in a nice home, and might even have a family once. It’s not always their fault for falling on hard times, but anyone who aggressively save can significantly reduce the chances that bad luck causes a catastrophe.
Stop Getting Further Into Debt
It’s strange that many people just borrow, borrow, and borrow some more. It didn’t matter from where either. Be it credit cards, a home equity line of credit, 401k, or others, people just keep taking out money they don’t have. I just don’t get it, but why does it seem like rocket science to buy something only if you have the means?
I know interest rates are super low right now, but do you really need that car, the TV, or even that new pair of shoes? What happened to what you already have? The funny thing is that whatever is new and shiny loses it’s shininess as soon as you buy it because that thing you just bought instantly becomes what you already have.
Next time you refinance your home, be doubly sure you aren’t taking money out just to pay for more useless possessions. And I’m not just talking about a cash out refinance either. By refinancing into another 30 year mortgage, you are lowering your payment but you are also extending the time until you are totally debt free.
Knowing What to Do with Money
Without getting into details (this is a family blog after all), you know what to do when you need to go. Money is exactly the same way. Once it becomes second nature to save, you just do it. You won’t need to think of the mechanics, you won’t question the need, and you certainly won’t wait to save.
Getting started is always harder though, so here are some common tips that always work:
- Save up all income/windfall you receive as soon as it gets into your bank accounts by setting up automated transfers.
- Treat your savings like a high security vault that requires maximum clearance before you ever withdraw.
- And best of all, lay out a logical plan (if you want, consulting with someone else could work too) so you can just follow it.
The plan won’t be perfect at first but with practice, everyone can become an expert.
Hey, no one is toilet trained when they are born either. Can you imagine people using that as an excuse to not know how to use the restroom?
{ read the comments below or add one }
Excellent article, but unfortunately will mostly go in one ear and out the other of anyone who actually needs this. People in general do not change and we have been the same since we developed a brain to think with. Good financial advice has been around for millennia (check out the Bible). Those that will hear, will hear. It is also interesting to note how important parenting is, both the good and the bad. In defense of people who do make bad financial decisions – we are all unique and that is what makes the world so interesting. If we all thought and acted the same, what a boring world!
There’s another benefit of people being different – they provide the other side with some perspective and moderate any viewpoint. If everyone thinks the same way, then the thinking will tend to go more extreme. I mean, wouldn’t everybody become miserable and eventually save every penny if every article on the web talks about nothing but saving, shaming anybody who spends a cent?
Dam good write up David . You would think that they would teach the basics of personal finance in school. It would make more money smart graduates.
Personal finance lessons would be easy to incorporate into the curriculum too. Plus, courses like math and economics could become WAY more interesting.
I agree with you 100% David. Students giving feedback and suggestions and business ideas. The outcome is completely unknown. Untapped potential is not being used.
Who knows. Maybe the next Microsoft or Apple will come out of these students.
Here’s another idea – we should take $100 out of the educational budget per student per year and have it automatically contribute to an S&P 500 index fund in a special tax free account for every student in America. Let them see how compound interest works after roughly 15 years (from kindergarten to college graduation) once they start working.
Classic, haha…
Yes indeed! It’s been a long time! Good to see you buddy!
MoneyNing advice is as timeless as the need to go potty 😀
Haha good one 🙂
I think there is a shortage of real personal finance experts. With the economy regaining some of its luster, people need good advice about their finance. Great piece!
Don’t forget about short term C.D.’s or Bonds, those are a great way to save and earn a higher interest on your money. The more money you invest the bigger the return. I personally know someone who took there tax money and invested into this and was able to make a living off it for months after letting the C.D.’s and interest mature for two years. There are tons of ways to save. Great Post.
Great Post David,
Your title caught my eye because we are currently struggling to potty train my 3 year old Son :-). However you drew the parallel to personal finance very nicely. It is absolutely true that saving money must be second nature. As you put it, people should not even think there is an option not to save, because in most cases their really isn’t.
It is unfortunate, but it seems to be ingrained in most of the people in this country that they can start saving tomorrow. I see it all too often at the other end. Since I focus on helping clients get out of debt, I hear stories every day of lives ruined and families ripped apart over bad money management and no savings. Sometimes, unfortunately, situations are so bad, that there is absolutely no money left for the families to even try and dig themselves out. Had they just had a little more saved up, they could have turned the corner and made it out.
Great post, I recently found your blog and am now following you on twitter as well as my RSS Reader.
You are right Chiko but you know people are like sheep. They follow what others do, and there’s probably the greed factor, the whole beating the Jones. Having a bigger house, better car, etc.
You know what, I’ve never understood it myself why people spend way more money than they actually make…it doesn’t make sense. My motto is “Don’t buy it if you can’t afford it…unless it’s an assest.”
@MoneyNing It would have been helpful for me if they did in HS. I feel like I’m playing catch up right now with my basic life finance knowledge.
vilkri: It’s easy to get many people to read it, help promote it 🙂
marci: You are right. We should start expecting and rewarding the good and punishing bad behavior. Not just in our family but with companies as well.
Kelly: If paying back your credit card bill each month is tough, I would suggest that you not use the credit card for that purchase until you actually have the cash. It’s very easy to just buy something with the plastic because you can but the consequences are sometimes too big.
Craig: I will keep that in mind if I do write a book. I too wish that one day, someone will add the personal finance curriculum to the education system.
Sounds like you have the beginnings of a great starter book on your hands. I agree, that is the best way to go, the basics (toilet training). Things are much more complicated now than used to be financially wise, it would be nice if there was more formal education involved with simple practices like this that are useful in life. But in the end you can’t make excuses, you need to act on your own.
Great advice. Most of us learn how to manage our money from our parents, but sadly our parents aren’t always great at it. Thankfully my parents were great with money, however they always spent on their credit cards (but paid off monthly) I got the first part right, but the paying it back is a little tougher.
Though I have committed to eliminating my debt and growing my savings. Thanks for the motivation.
You were pointed in the right direction tho by family/friends older than you tho – and it was an expectation by them that you would follow thru and succeed. You were encouraged and praised when the task was accomplished. And probably got a negative reaction when it was not done correctly.
I think in many cases that expectation to succeed is not there anymore.
Nor the punishment/censure when it does not happen.
While one person at a time can continue to change themself, and hopefully their family/offspring by example, until society as a whole gets past this lack of self-responsibility and this sense of entitlement, some people are never going to feel any need to succeed. Too many handouts, too many bailouts, too little self-esteem. And mainly, no expectations to succeed.
Very good post. I like the headline which made me read the entire text. I also find it kind of amazing that there is such little understanding about personal finance in our society. That is how bad money habits get formed and how they get transmitted from one generation to the next. I hope many people read your post and start toilet training themselves.
Setup a direct deposit to a savings account. Just like your 401k a portion of your paycheck should automatically allocated to a savings account that way way you do not need to think about it.