Each Friday, The Simple Dollar reviews a personal finance book.
I picked up The Money Trap because it offered a distinct and interesting perspective on poor personal finance management. Instead of simply viewing it as a series of simple bad habits or bad moves that can easily be corrected, this book views bad money management as an addiction.
Gallen’s basic premise is that people who tend to always spend what they earn (or, even more dangerously, spend more than they earn) are addicted to spending and materialism, and that this addiction is just as dangerous as an addiction to a narcotic. Thus, Gallen’s approach to solving money problems is much like the ones that would be used to combat any addiction – with a few interesting twists because of the pervasiveness of money in our society.
Let’s dig in and see whether there are any revelations inside.
Poking Around The Money Trap
The Impossible Dream
The Money Trap opens with some interesting discussion about how, as a society, we’ve come to believe too much in the power of money to solve all of our problems. Quite often, we attempt to use money to fix things that money can’t fix, and that is the most futile endeavor of all: “using an external source to fill internal needs.” Gallen really does an excellent job of framing the spending habits of the average American as an addiction (actually, a small handful of different addictions), and his argument is that recovery from this addiction takes on many of the same tenets as recovering from an addiction to a substance.
Gallen argues here that most money disorders break down into four main categories: overspenders, workaholics, money obsessives, and underearners. He cites overspending as the most obvious and most widespread one – unsurprising, because that’s the one most of us likely thought of when we first heard about this book. I found the other three to be actually more interesting, though, because they take the idea of addiction in less obvious directions – books like The Overspent American deal with overspending very well already. Gallen also offers up a ton of warning signs that you may have some form of money disorder, of which I found “obsessive involvement with investments, savings, and strategies for financial security.” Am I guilty of that one just by having this blog? Are you, dear reader, fueling my addiction? This could be a compelling entry all by itself.
Gallen gets autobiographical here and the overtones were similar in many ways to my own road to financial armageddon. Both of us dealt with money issues when we were younger, took away from our youth some really poor concepts of money, and both realized eventually that our relationship with money was poisonous and that we needed some major change.
As I noted above, the addiction to overspending is a disease very well covered in The Overspent American, but Gallen does a strong job here reviewing it, cutting right to the core very quickly. Overspending, in the end, has nothing to do with money – it has to do with feelings. People who feel that the money they earn can’t support them are under constant pressure, and that pressure often exerts itself in a lot of unhealthy ways: panic attacks, stress (and all that comes with it), and inevitably more spending. One common problem: people often spend based on how they think a person with a certain salary should live – unfortunately, often that image is outdated. They spend based on how a person with a certain salary fifteen years ago might have lived, but that’s not the reality today.
Workaholics often bury their actual addiction under a mountain of socially acceptable excuses: ambition, competition, a strong work ethic, family responsibility, desire for promotion, and so on. The truth, though, is that people who are constantly chasing such things are often actually addicted to their job – they can’t get enough. I have a friend who is like this – he is constantly obsessing over his job for various “reasons” that seem to change all of the time, but he seems to rarely have appropriate time for his family – not even taking a full week off for the recent birth of his child, for example.
One might argue that this is the disorder that many personal finance bloggers have, as it would be easy to see a money obsession in the words that many bloggers write. The truth is that this is a subtle problem, but a lot of people have it. They daydream about the big payday and they spend a lot of time micromanaging their money to squeeze out a few nickels. I often think of people who practice credit card arbitrage in this category – they play a very obsessive game to earn $50 from shifting around credit card balances. Am I a money obsessive? I don’t think so – most of my personal finance thinking is expressed in this blog in some form or another and I likely wouldn’t think about it nearly as much without The Simple Dollar around to encourage it. That doesn’t mean it’s not a real problem for some.
This is the disorder in the book that’s most likely to make people angry. I think, in this chapter, Gallen is actually speaking directly to one of my commenters, Minimum Wage. Gallen argues that people who don’t earn much money are often subject to a disorder in their self esteem, where all they see are the flaws in themselves and thus don’t believe they can earn more – or even deserve to earn more. Some people convince themselves that this is acceptable because they’re not “selling out;” this is often coupled for a general disdain for earning money and capitalism. This is a really interesting and controversial take, one that is likely to deeply incense a lot of potential readers – and one worth discussing in great detail.
Money and Couples
What if one person in a couple expresses one of these disorders? Or, even worse, both members express a money disorder? Gallen argues here that the real key to dealing with the obvious chafing that occurs when one person in a partnership exhibits an addictive behavior is communication, and lots of it. If you think your partner has one of these disorders, talk about it. Seek out the root causes. I found It Pays to Talk to be a brilliant book for opening the door to difficult financial conversations such as these.
Money, Therapy, and Depression
Many people turn to therapy to help solve problems like these, and quite often this therapy ends in frustration. People often hope for a quick fix to their problems, and that’s not what therapy provides, especially with money-related disorders that are often buried under mountains of excuses and reasoning that you’ve made with yourself. Digging through all of that is not immediate, so if you need a quick fix, a therapist likely won’t be able to help. However, therapy can help over the long haul, if you give it time.
Money and the Recovering Addict
Here, Gallen makes the great point that people who are recovering from other addictions (like substance addictions) will often fall into a money addiction, and that a recovering addict should be very careful to avoid this. People often find themselves with a “hole” inside in some way when recovering, and they try to find something “healthy” to fill that hole. Given the consumerist nature of modern society, quite often money addictions end up filling that hole – they become obsessed with counting their money, with their job, or with their inadequacies at being a strong earner. Thankfully, addiction recovery counselors are beginning to recognize this problem and have some techniques for addressing it.
This is really the central chapter of the entire book, as it spells out the key to recovery from any sort of money disorder: clarity. Spelling out exactly where you are financially and defining a very clear and discrete spending plan is often the key to solving many money disorders, particularly those dealing with overspending. He also offers strong encouragement for people dealing with a money disorder to move exclusively to cash and off of plastic, at least for a while, because plastic offers a level of distortion that is in complete opposition to clarity.
The Spending Plan
Gallen outlines the basics of a spending plan in this chapter – very basic personal finance stuff. While I do agree with Gallen that a spending plan can be really useful for getting someone on the right financial path and causing them to really see where their money is going, I view them much like training wheels on the bicycle of personal finance. The real purpose of a spending plan, in my view, is to train you to deeply understand how your spending affects your overall financial picture – once you really understand it, it becomes much less important. A spending plan can be a powerful thing to set up and follow for a few months, just to see how your money is really flowing and how you can change that flow, but once you’ve really got a grip on it, it becomes almost automatic.
Dealing with Creditors
The Money Trap suggests that the best way to deal with creditors is with candor. Tell them flat-out that you’re trying to get your financial house in order, tell them that you’ve chopped up your credit cards, and tell them point-blank what you can afford to pay each month. Tell them this in writing, along with the first payment. Then, don’t give in to the various emotional and psychological appeals that creditors may use on you – just ignore them, for the most part. If you are in deeply desperate straits, ask for a ninety day moratorium in writing from some of the creditors. Also, don’t worry about your credit report too much for now – if you have creditors calling you, it’s likely already in trouble.
Working with the Spending Plan
Here, the book discusses keeping track of what you actually spend and using that to evolve your spending plan and also to see where the spending holes are so that you can work on them. Gallen encourages people to use a notebook to record all of their spending, then using that to make sure that you’re sticking to the spending plan. This is really a good idea if you’re trying to figure out where all of the money goes, but you have to be vigilant with it – write down everything. If you’ve never done this before, you’ll probably be shocked at how much of your money floats away on simple, little things.
The Time Plan
Gallen argues that most people with money troubles also have time troubles, especially workaholics, and he argues on behalf of a time plan. The plan he offers here is basic time management stuff. I’ve found, though, that if you’re having trouble with being a workaholic, a great book to read is Covey’s First Things First, as it does a great job of helping you define what’s really important and how you can allocate appropriate time to it, which is really what Gallen is shooting for here.
Wholeness and Continuity
This chapter takes on the “where do we go from here?” question. Where does a person with a money disorder go once the initial crisis has passed? There is some danger of relapsing, so the real challenge is to set goals that can keep the motivation going and continue to break down that false relationship with money. Much of the talk here sounds a lot like the talk in Your Money or Your Life, which is a good thing, in my opinion. A normal, healthy relationship with money comes down to setting goals and working to achieve them.
Savings, Retirement, and Well-Being
Here, Gallen offers up a final few nuggets of direct financial advice: start an emergency fund and do some automatic investment for retirement, but don’t overdo it. The key is to live life to the fullest, not to move down a different road of money obsession. Just save enough to keep yourself safe, and you’ll be fine.
Buy or Don’t Buy?
Having read a small mountain of personal finance books in the last two years, I tend to be most interested now in the ones that offer some sort of unique perspective. There are a lot of personal finance books out there that just repeat the same old material – and, frankly, those books bore me to death.
I think that’s a big part of why I liked this book. While there were pieces that seemed directly related to other personal finance books, Gallen regularly offered some interesting insights and perspectives. Even though he was often looking at issues that seem pretty mundane, the perspective of treating money problems solely as an addiction or a disorder enabled some fresh looks at the problems – and plenty of food for thought for me for a while. In fact, if you judge a book by how many notes it convinced me to write down, The Money Trap was an unquestioned success.
Is it the “ultimate” personal finance book? No. Is it a very good book, particularly if you’re getting a sense that there’s something deeply wrong with your money and/or your work? Yes, it is. Pick this one up if any of the problems mentioned in the review really resonate with you. If not, you’ll probably learn more from another personal finance book.