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Introduction
Welcome to your Personal Financial Management Course!
Before we begin you will need to gather some financial records. First, have copies of your pay stubs or other accurate documentation of what money comes into your bank account each month. If this number varies from month to month, make an average of the last six months.
Then, gather paperwork for your monthly bills such as mortgage/rent and utilities like electric, gas, water, sanitation, telephone, and maintenance. Also collect any receipts, credit card bills, records of car payments and anything else you spend your money on during the day, week, or month. Please take the time now to gather this documentation, it is very important to your success in this in this course.
Please take the time to gather the suggested paperwork, blank paper, a pencil or pen, and a calculator.
Money and Values
Do you ever feel like you are throwing your money away? Well, at least if you had thrown it away, you could look for it.I am not going to tell you how to make more money, but I will help you learn how to stretch your money.
Many people find success in looking for good buys, cutting down on careless spending, especially credit card spending, and coupon clipping. These are all viable options, and ones you may already be doing or may be interested in learning about. But for now we will focus on one guaranteed way to help stretch your dollars. What is that you ask? Well, it's writing down a spending plan!
A spending plan can help you look realistically at your income and how you have been spending it. Another word for spending plan is budget, but this word seems to have a negative connotation attached to it, so I prefer to use the neutral term spending plan. We all spend, but do we plan?
Before we get into the specifics of creating a spending plan, lets look at the psychology of spending.
Psychology of Spending
There are many things a person needs to live. In Maslow's Hierarchy of Needs, these are called physiological needs, such as air, food, water, and sleep. Without these things, a person could not live. Much of our spending accounts for these needs. However, and this is the key, a person's values helps shape this spending.
For example, a person needs food to live. But what is he eating? Where is he eating? Does he look closely at grocery store ads and buy items only when they are discounted? Or does he buy high, prioritizing organic and locally grown products? One is not better then the other. They simply show a person's values. To one eating is only a need, so they take the opportunity to pinch their pennies. To the other, eating means much more, and therefore they decide to spend a little more, but will need to tighten up in another area of their budget.
We make choices about how we spend our money, and whether we realize it our not, these choices are often based on our values. What is most important to us. If you live alone, you most likely make your spending choices independently. But, if you live with someone else, you are probably sharing expenses. It is necessary to think about what is important to you, and what you value most, so you can "put your money where you mouth is." So to speak.
We will now take a money and values quiz:
How do you know what your values are? Have you ever thought about them? Have you ever put them in words? This following quiz might help clarify the issues. Don't worry—there are no failing grades or scoring system. Just be honest with your answers. The function of this quiz is simply to open your eyes to exactly what you value in relation to money matters.
Money Values Quiz
-1.
-1.1. When a sales clerk gives you too much change, you:
-1.a. Pocket the change.
-1.b. Point out the error and return the excess.
-1.c. Donate the excess to charity.
-1.
-1.2. When a neighbor gets a new car, you:
-1.a. Think it should have been you who deserved it rather than your neighbor.
-1.b. Think it's great that your neighbor was able to buy it, and wish her well.
-1.c. Don't give it a second thought.
-1.
-1.3. When you read about young kids shoplifting comic books, you think:
-1.a. It's only child's play, and they'll grow out of it.
-1.b. It's terrible, and they should be punished.
-1.c. It's too bad they got caught.
-1.
-1.4. The state lottery is up to $25 million, so you:
-1.a. Withdraw money from your savings account to buy tickets to increase your odds of winning.
-1.b. Spend the same $1 you do every week for fun.
-1.c. Don't do anything because you need your money for other things.
-1.
-1.5. Your credit card bill has a balance that you can't pay in full, so you:
-1.a. Continue to shop and don't give the bill a second thought.
-1.b. You charge only absolute necessities until you've paid off your bill.
-1.c. You charge up a storm because there's still a way to go on your credit limit.
6. A portion of your town is damaged in a storm. Fortunately, your house is okay, so you:
- Are glad you've been spared, and that's that.
- Donate your time and money to helping your neighbors.
- Increase your homeowners insurance.
7. When you were young, you broke a neighbor's window and had to pay for the repair. When your child asks you about it, you:
a. Deny it.
b.Acknowledge it and encourage your child to learn from your mistakes.
c. Minimize the event, saying it was a long time ago.
-1.
- You want a big-screen TV (who doesn't?) so you:
-1.a.Buy it on credit and worry about how you'll pay for it later.
-1.b. Save up for it.
-1.c. Use the money you'd been saving for your child's college fund to buy the TV.
If you are taking this class with a spouse, please use this as an opportunity to learn about each other. Take the quiz separately, and then compare answers when finished. If you have markedly different views when it comes to values, you should discuss these differences and find a way to arrive at some common ground. Differences in values and money does not have to be a thorn in your relationship's side. If you are open and flexible with one another, it is possible to find a place to meet and share together in a spending plan.
Personal Story
Kyle and Camille both work part-time and go to graduate school full-time in Boston, Massachusetts. They are just beginning their life as budgeters and decided to share some of their experience with you. Camille says:
When my husband and I decided to make a budget, we realized it was going to mean changing the way we thought about money and spending. Before we started budgeting, we used money to help make our lives more convenient at the moment. For example, we would come home from a long day at work, and neither of us wanted to cook, so we would go out to eat. When we were bored on a Saturday night we would spend money on a movie. When we felt like we needed something like clothes, new haircuts, make-up, books, etc. we would just go out an buy them. No questions asked. By the end of the month, we would be completely out of money, and our hopes of ever saving enough money to make bigger purchases, like family vacations, seemed impossible. When we created a budget, it helped us to realize that there was more to our finances than what was in our bank account at the moment. Budgeting helped us to see the big picture of our finances, and helped us to understand what we needed to do to meet our goals of paying off credit cards and going on vacation.
Let’s talk some more about Money and Values
Why do you think you spend your money the way you do? If you and your spouse were both given $50, would you spend it differently? Why? Well, because people are different, people have different ideas about what is important.
The deep-seated beliefs you have about what is important and special are called values. Your values are created from your experiences growing up, at home, at school or church, and in your community. All your life you have had and will have choices to make. Whether you know it or not, you make these choices based on your values. And your values are used when you have to choose how to spend your money.
Let’s take another quiz on money and values:
Instructions: The following statements are arranged in pairs. Read each pair and write down the number of the statement that you consider more important to you, personally. Be honest with yourself. Each statement will appear several times. Even if the decision is hard, don't skip the responsibility of choosing. Remember, life is full of choices.
It is more important to me:
1 – To have people like me.
3 – To be able to do the things I want to do.
______
8 – To have as many of the good things of life
as I can.
9 – To be able to do things well.
______
4 – To do new and different things often.
8 – To have as many of the good things of life
as I can.
______
4 – To do new and different things often.
6 – To contribute to the happiness of my family.
______
1 – To have people like me.
7 – To do what is right according to my beliefs.
______
2 – To do things for my family and others.
8 – To have as many of the good things of life
as I can.
______
2 – To do things for my family and others.
9 – To be able to do things well.
______
2 – To do things for my family and others.
5 – To have friends.
______
3 – To be able to do the things I want to do.
6 – To contribute to the happiness of my family.
______
5 – To have friends.
6 – To contribute to the happiness of my family.
______
3 – To be able to do the things I want to do.
9 – To be able to do things well.
______
1 – To have people like me.
8 – To have as many of the good things of life
as I can.
______
4 – To do new and different things often.
9 – To be able to do things well.
______
7 – To do what is right according to my beliefs.
9 – To be able to do things well.
______
1 – To have people like me.
6 – To contribute to the happiness of my family.
______
3 – To be able to do the things I want to do.
4 – To do new and different things often.
______
1 – To have people like me.
4 – To do new and different things often.
______
3 – To be able to do the things I want to do.
5 – To have friends.
______
6 – To contribute to the happiness of my family.
7 – To do what is right according to my beliefs.
______
6 – To contribute to the happiness of my family.
9 – To be able to do things well.
______
6 – To contribute to the happiness of my family.
8 – To have as many of the good things of life
as I can.
______
2 – To do things for my family and others.
3 – To be able to do the things I want to do.
______
7 – To do what is right according to my beliefs.
8 – To have as many of the good things of life
as I can.
______
4 – To do new and different things often.
5 – To have friends.
______
2 – To do things for my family and others.
4 – To do new and different things often.
______
2 – To do things for my family and others.
6 – To contribute to the happiness of my family.
______
5 – To have friends.
7 – To do what is right according to my beliefs.
______
1 – To have people like me.
2 – To do things for my family and others.
______
4 – To do new and different things often.
7 – To do what is right according to my beliefs.
______
1 – To have people like me.
5 – To have friends.
______
5 – To have friends.
8 – To have as many of the good things of life
as I can.
______
1 – To have people like me.
9 – To be able to do things well.
______
3 – To be able to do the things I want to do.
7 – To do what is right according to my beliefs.
______
5 – To have friends.
9 – To be able to do things well.
______
When you have written down one number for each pair, count how many times you chose each number. Write this number down.
Now you are ready to rank your choices. Find the statement and number you chose the most times and put No. 1 next to it. Write No. 2 next to the statement you chose the second highest number of times. Continue to rank all the statements.
Your choices should be a clue to some of your values. Look at the statements you ranked No. 1, No. 2, and No. 3. You decided these were the three most important values from the list of nine. Are they what you really want them to be? Do they indicate some characteristics that you would rather not have?
We will now show some personality characteristics that are related to the nine value statements. Check to see what characteristics match the values you ranked as important for your life.
Table 2.
Statement Number / Characteristics / Your Rank1. / Self esteem, pride, recognition, conceit, prestige, appreciation, admiration, respect.
2. / Unselfishness, consideration, helpfulness, kindness, charity, service.
3. / Selfishness, inconsiderateness, independence, indifference.
4. / Curiosity, desire to learn, thrills, fickleness.
5. / Companionship, hospitality, admiration, generosity.
6. / Family unity, harmony, unselfishness, peace, contentment, love.
7. / Strength of character, morality, high ethics, scrupulousness, virtue.
8. / Selfishness, worldliness, material comfort, ease, convenience, pleasure. (Depends
on what you mean by "good things.")
9. / Pride, recognition, standard of excellence, achievement, success.
How you use money will reflect some of your values. Even if two people spend the same amount of money on the same item, their individual values leading to that decision may be different. For example, John and Jack both spent the same amount of money on a pair of jeans. John bought the jeans because of their style, their fit, and how they looked on him. His value leading to this decision was to look his best. Jack, on the other hand, wanted the jeans because all of his friends were wearing that particular style. He wanted to be accepted by the group. It is also possible to have a combination of two or more values influencing your decision.
In the following exercise, list three ways you spent money in the past month. Carefully and honestly evaluate what values caused you to spend money on each item.
Money and Values Exercise
Please list three things you spent your money on in the last month. Carefully evaluate what values caused you to spend your money this way.
1. Value?
2. Value?
3. Value?
Do these values represent who you want to be?
How do you want to change?
How do you want to remain the same?
Financial Personalities
If I were to ask you what personality type you were, you might say “outgoing”, “shy”, “serious”, or “silly.” But what would you say if I asked what financial personality type you were? Would you know what to say? Did you know there was even such a thing?
We all deal with money on a very regular basis, and over time, beginning in our childhood and still continuing on today, we develop certain attitudes and feelings about money. This relationship to money helps form your financial personality, which in turn strongly affects you and your family’s financial wellbeing.
Please listen carefully as I explain different financial personality traits, and see if you can find yourself in anything I describe. Understanding your personality will provide insight into how and why you react to money the way you do. With this insight you can better approach your financial weaknesses and strengths.
One financial personality tends to be afraid of addressing financial issues. You could call them the Financial Ostrich. These people don’t think about retirement, building a savings, or creating a will. They are scared of talking about money, so they ignore these important responsibilities. If you think this is you, I understand how you feel. It is a safety mechanism to avoid things that bring us stress and anxiety. Try to think about small things you can do to help make talking about budgeting, saving, and other “hot topics” less scary to you. Will you feel safer if you do it casually over a nice meal? Do you need to set some guidelines beforehand with a spouse, to prevent arguing or bickering? Be patient with yourself and others while you learn to look at money head-on.
Another type of personality gets easily overwhelmed by all of the financial choices that need to be made. For example, they know saving is good, but they do not know where or how to start. Should they begin with retirement or their child’s college education? Should they focus on the here and now, or the future? Learning to take it one day at a time, knowing that any decision is better than no decision, will help these personality types.
One financial personality is the Procrastinator. These individuals have good intentions, but get easily distracted by other things and fail to make good long-term financial goals. They have a hard time saving, but an easy time spending.
Then there is the Peacock. The peacock is very concerned with how he or she looks to others. They have a hard time making wise financial decisions, and instead spend money on houses, cars, clothes, and electronics, to insure they look good for others. This overspending is a sure way get into financial trouble.
You also might recognize the Compulsive Spender. People react to stress in their lives very differently. Some people overeat, some people drink, and some people spend money. They do not buy items because they need it or want it, but they do it in response to an emotion they are experiencing. Spending money gives them a quick adrenaline rush. They may know it isn’t a good idea, but they rationalize their behavior. If you think this might be you, remember to ask yourself what the real issue is when you are emotionally spending. Also, in the meantime, while you “figure that out”, only spend money that you have. Money that you have budgeted for that purpose. If you spend money you do not have on unplanned splurges, you are only hurting yourself and your family.