If you’re a regular reader of The Simple Dollar, you’re probably not the person I’m writing about here. Instead, this article is probably appropriate for your brother or your sister or that friend of yours down the street.
All of us know someone in our lives that has all of the equipment they need to be a financial success. They have their wits about them, they’re earning a solid income, and yet still there’s something that’s keeping them from being a financial success – and that’s a fear of money management. They’d rather do almost anything than deal with or think about money issues. Not only is it boring to them, it’s often as scary as can be.
I can think of at least two people who are near and dear to me that fall into this category. One of them makes over $100K a year. The other one is the best Trivial Pursuit opponent I’ve ever played against. So I know quite well that a fear or a dislike of money management can occur even with the brightest people.
Here are the five pieces of advice I’d give them.
1. Ask someone you trust for help.
If you’d rather do anything than take a serious look at your money, don’t do it alone. Ask for help. Start with your spouse, but if you’re unmarried, look at a close family member or a close friend that you deeply trust. Some characteristics to look for are: living below their means, a calm demeanor, and trustworthiness.
Open your entire financial situation to them and ask for help in setting up an easy-to-follow plan. Ask them if they’ll do it, then schedule an afternoon when they’ll help you with it. One good way to do this is to cap it off with a tasty dinner. A gift might also be appropriate if they help you set up such a plan.
If you don’t have someone in your immediate circle that seems appropriate to entrust with this, then check out the fifth item on this list.
2. Spend a little less.
This is one of the biggest keys to modern financial success. Cut back on your spending, just a little. Instead of stopping at the coffee shop every day, pick up a free cup at the office a few days a week. Cut back on your soda and instead drink a little water. Pull out your light bulbs and install some CFLs or LEDs, especially in places where you don’t need good, direct light (like in closets).
One of the biggest things that tends to trip up people is the idea of shopping for entertainment’s sake. If you tend to go shopping when you’re together with friends, find something else – anything else – to do. Shopping for entertainment is a brutally effective way to get behind financially – even if you don’t spend anything, you’re conditioning yourself to believe that you need stuff like this.
3. Make as much as you can automatic.
Make sure your bank has online bill pay, then make as many bill payments as you can automatic. Just enter your account number for each bill, the address to send it to, the amount you want to pay, and the date each month and the bill will be paid automatically.
This is a very valuable tactic to use. Not only does it save substantial time once you get it set up (time you no longer have to spend worrying about it), it also saves on stamps that you’d have to use for paying those bills. You also don’t have to make yourself remember when the bill is due, and you won’t miss that due date any more because the bill is being paid automatically before it’s due. For people who’d rather do anything than pay bills, this tactic’s a winner in every sense of the word.
4. Put your money in places where you can just forget about it until you need it – and do it automatically.
For most people who are afraid of personal finance management, it’s very hard to actually initiate a plan to save money. It’s much easier to just put it off and treat it as a “someday” thing.
Don’t. It’s incredibly easy to get started right now and have the whole thing done automatically. Then, in a few months, you’ll begin to have some real savings built up – and you didn’t have to sweat it a bit. Just sign up for a high-interest online savings account like ING Direct (which I like), E*Trade, HSBC Direct, or one of their competitors. Set up that savings account to automatically transfer a small amount each week from your checking account – say, $25 or $50. Then just walk away and forget about it, until something comes along when you need a wad of cash. Then check that balance – and smile. Your finances aren’t tricking you any more – you’re in control.
5. If you need investing help, get a fee-only financial advisor.
If you’ve got a substantial amount of money but don’t know what to do about investing it (or you don’t have anyone you know that you can trust with basic financial questions, a la tip #1), it’s well worth your while to talk to a financial advisor. Get a fee-only advisor – one that does not earn commissions on the investments they recommend. Call a few and ask them whether they’re fee-only or not. Investopedia has a solid guide for finding a good financial advisor.
So, in a nutshell, spend a little less, save a little more (and make it automatic), and ask for help. You don’t have to do this all yourself – there are people out there who can help you with your financial situation.
Feel free to read through the comments – I’m sure many regular Simple Dollar readers will have plenty of good advice.