There’s a good reason why many people get an ‘F’ in Personal Finance 101.
I remember the time when I saw my son’s mid-term progress report and noticed that he was getting an ‘F’ in one of his classes — Physical Education, to be exact.
“How in the world does anybody fail phys ed?” I asked the Honeybee, shaking Matthew’s report card in my hand for added emphasis.
“Beats me, Len. Why don’t you ask him?”
Genius. Where would I be without the Honeybee? So I marched upstairs and confronted my son.
“Matthew, why are you getting an ‘F’ in PE?” I said in my calmest possible voice.
“Beats me, Dad. I don’t think Coach likes me.”
Of course. The old my-teacher-hates-me-and-that’s-why-I’m-getting-an-F excuse.
Needless to say Matthew and I had a nice little talk about his grade and I made it perfectly clear that he would not be finishing the year with an ‘F’ in PE. He didn’t, thank God.
In the game of life, people earn failing grades in Personal Finance 101 too.
For me, it’s all about mastering my first commandment of personal finance: spend less than you earn.
If you’re always swimming in debt and living paycheck-to-paycheck, then you’re at risk of getting an ‘F’ in Personal Finance 101.
Here are eight reasons why that’s probably so — along with a little extra credit to help improve your grade:
1. You don’t have an emergency fund.
In life you should expect the unexpected — such as the sudden loss of a job. So the last thing you want is to be caught off-guard, and forced to rely on credit cards or a loan which could get you into deeper financial trouble.
Extra Credit: Establish an emergency fund of at least three months expenses. Don’t delay; start building it as soon as you get your first pay check.
2. You don’t know how much money you have in your bank accounts.
Overdrawing a checking account by just a few cents could result in lots of expensive bank fees. That’s why it’s important to always know how much money you’ve got in all your accounts.
Extra Credit: Set your overdraft limit to $0 and your debit card will not be allowed to overdraft your account. True, you could bounce a check; but if you’re being a responsible household CFO and balancing your checkbook regularly, that shouldn’t be a problem. Also consider using money management software to help manage your finances more closely.
3. You don’t understand the difference between a want and a need.
Being able to distinguish between wants and needs is directly tied to your ability to accept personal responsibility.
Extra Credit: At the most basic level, all of us have only four or five primary needs. Those needs are food/water, clothing, shelter, transportation, and health care. Everything else is a want.
4. You don’t know how much money you spend.
It’s simple: What you save is the difference between how much you make and how much you spend — but it’s tough to save anything if you don’t know how much you can afford to save. So look at your expenses and determine exactly how much money you’re spending and where it’s going.
Extra Credit: Audit your expenses by writing down everything you spend your money on for a couple months. The trick is to be as detailed as possible; use a spreadsheet to capture even the smallest purchases. Assign categories for your expenditures such as: housing, automobile, groceries, utilities, and entertainment.
5. Your tastes exceed your spending capability.
This isn’t a problem — it’s an excuse. If your tastes starts impacting your ability to save, then you’re in trouble.
Extra Credit: Ratchet your tastes down a notch or three — and stop making lame excuses.
6. You can’t say no.
Saying “no” is a crucial skill in the world of personal finance. Those who can’t will always have trouble keeping their personal finances on an even keel.
Extra Credit: Master the art of saying no.
7. You’re an impulse shopper.
Impulse buying is a nasty habit that’s cured by careful planning.
Extra Credit: When buying groceries, make a list. Establish and adhere to a household budget. And always know exactly how much you plan on spending before walking out the door. In short: Think before you buy.
8. You worry about what others think about you.
People who are highly competitive, or worry about what others think of them, have a predilection for conspicuous consumption — otherwise known as the desire to keep up with the Joneses.
Extra Credit: Forget the Joneses; nobody cares. Besides, they’re probably broke anyway.
Photo Credit: pdugmore2001
I think you could relate all of these back to the same problem your son had. Complete indifference or lack of effort. If you don’t try and you don’t care you are going to fail.
Great post! In the past when I was getting an F in personal finance, I think it was mainly due to the face that I was indifferent to where my money went, and I just wasn’t paying close attention. My wants and needs were blurred together, and I just had no plan. thankfully things have changed!
All great points. The best part about the whole post, you can earn an A just by making a stand and follow the rules/reasons. We don’t have to settle for an F. A little work and focus can turn everything around.
And here I thought you were going to tell us how to do a jumping jack. That’s the exercise you do while lying on your back right, oops that’s a snow angel 🙂
I really like this one. Everybody is right. I discovered most of my money issues (like overdrafts and ending the month with not quite enough money to cover the rent because I spent too much bar hopping every weekend) went away as soon as I started setting aside about 15 minutes every week making sure my personal finances were being attended to.
It’s amazing what a little attention to detail can do for your money situation!
“the Joneses are broke.”
BEST encapsulation of personal finance advice I have ever seen.
I have to agree with the previous point that giving attention to personal finance as an important subject often seems to help many of the issues mentioned in this post take care of themselves. It’s good that a lot of solid personal finance advice is “good common sense.” Unfortunately, common sense doesn’t appear too common presently.
Good list Len,
It is interesting that you start out with a savings goal and follow up with a bunch of ways to control spending. Goal setting with saving (emergency fund in this case) can be a great motivator to curtail spending.
To Matthew: listen to your dad. He isn’t kidding about the chain gang stuff!
Oy Ye Vay! My son gives the same darn excuses!
The last one (number 8) is one I see lots of people struggling with. But keeping up with the Joneses can cause financial headaches.
Maybe we should ask ourselves, “Do I want to look rich, or actually BE rich?”
I’ve been talking to a lot of friends about your number one point: 1. You don’t have an emergency fund. As a recent college graduate how long does it usually take to set up an emergency fund? Seems to be tricky to save up 6 months of salary your first couple years at a job.
Think smaller. An entire month’s salary is overwhelming especially when starting off. Think about a goal of $500 or $1000 with saving X dollars per paycheck. Most people can find $25 a paycheck. It may take you a while but you will at least have some emergency fund. As you earn more add more.
Smaller is fine for a recent college grad. You probably don’t have a house that might need expensive replacements. Chances are you won’t have a large family to support with dental care, broken eye-glasses, etc.
I’ll have to co-sign (I know, bad thing to do right!?) Kyle’s comment. The thing to note is once you do wake up, you’ll have nobody to blame but yourself.
Yeap, those who don’t fail, don’t try!
Very good list, and I also got a chuckle out of the story with your son. In addition to the lack of effort and attention is the sense of entitlement I see in many people. I know a woman who is a single mother and hit up her friends for money to replace the engine in her SUV. I declined to participate because even though I have a lot more money than her, I have a 9 year old car that’s worth maybe $2000, and hers is worth about $30K. Her engine cost more than my whole car. She really needed to scale down to a vehicle she can afford instead of repeatedly getting in financial trouble. This breaks your rules #1, 3, and 5.
I will admit that peer pressure is real though. I’ve had many people mock my car, and if I cared, I would run out and get a fancier one.
hey Len
Matthew probably thinks he is Manny Ramirez! As long as he can hit, who give a sh*t! So maybe you can cut him some slack!! haha!
yeah dad. i agree with mr.credit card. cut me some slack! rotfl !! 🙂
Reading your article, I’ll be honest and say I was a major F myself as I checked off way too many of your top 8 reasons… luckily I’ve also been lucky to crawl my way out of those weaknesses or laziness and been holding on tightly to the reins of my finances since then.. Great job on the article! ;p
It’s not how you start the school year, it’s how you finish. Glad you were able to bring your personal finance grade up!
Len, Politically, I don’t always see eye to eye with you. But I surely respect your views and this is such an important, yet basic outline of how to work with money that I have to say, “Well done!” Being a retired teacher, I really appreciated the beginning of this piece and that could possibly be the basis for reason #9. “You’re blaming someone else for what you haven’t done.”
Thank you, Steve. Yes … your suggestion for #9 is right on target. I hate that one too!
The biggest issue I see everyday is people living beyond their means. People who make $60k per year will want to buy a car worth $60k or more and live in a big house to try and impress their peers
Oh man I was getting a big fat “F” on personal finance 101 for years!!! I only started studying for the class a little over a year ago and I finally was able to pass (with a C+). I’m now on Personal Finance 102 or whatever the next level is called and I am determined to get an A++. My GPA is terrible right now because of all those F grades but I’m determined to get my Personal Finance degree with a decent GPA and move on to my Masters and finally my Ph.D.
This list is great and right on point; it is exactly where I was about a year ago.
I love your attitude, Aldo! But please … don’t be too hard on yourself! If I had to guess, I’d bet you’re earning a good solid A in 101 (or 102) now. 🙂
You are probably right. I am studying pretty hard and doing well now. Thanks for the work you’re doing by the way.
Terrific article and very worthwhile read.
One point I need to make is that if you are married or in a long term relationship, God help you if you are not on the same page about finances, housing, life goals, etc etc. Then, you get an expensive do over to try try again. Get on the same page, if possible.
Thanks, Paul. And you are correct; frankly, I don’t see how some couples who aren’t on the same page about their finances actually remain married.
If one lives without caring much about money per se, one can live for the joy of life per se. Follow rule no 1, then forget money and pursue your dreams.
Agreed, Dave. But for most people, that’s easier said than done.
Len, you’re my favorite part of the stacking Benjamin show. I really look forward to hearing from you at the end of the week I was more than a little annoyed with that woman when she lit into you like that. Today I was catching up on episodes and heard you won’t be back on but maybe occasionally. I just want you to know I think that sucks and I really found a lot of value and you being on there. I don’t know what happened but I know I’ll never be happy listening to that harpy again. Whatever you do I hope you find the very best in it.
Ethan
The Joneses can (Makes upwards gesture Aunt Doris would know with the sound effects), I just don’t care what others have or are doing.
I learned a long time ago that I would not be happy unless I lived life my way. I’d much rather sit out on the porch and listen to Mr. Dave tell tall tales than spend money on something I don’t want or need. Okay, I’d tell some jokes and lies too. 😀
hahaha I can say “No” like a needle hung on a record player.
Although I never had the urge to keep up with the Joneses, I was 30 years old before I finally realized that I was also happiest when I stopped trying to please everybody, all the time. That was a huge epiphany for me.