Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.
One of the best parts about writing The Simple Dollar is the opportunity I have to hear from people who have turned their life around due to better financial choices. They usually end up finding themselves on a better personal and professional path as well because they’re empowered and de-stressed due to the improvement in their financial situation.
That’s essentially the story told in this book, Hot (Broke) Messes by Nancy Trejos, a personal finance columnist for the Washington Post. In 2008, she found herself in a situation fairly similar to the one I found myself in circa 2006. She seemed to “have it all” in her life, but she wasn’t actually able to pay the bills and was deeply unhappy with certain circumstances in her life.
Much like I did, she swallowed her pride a bit and chose to publicly share the details of her financial turnaround both on the ‘net and in the form of a book. This is her story of turning her financial life around, peppered with useful information and ideas all throughout.
One: Life in DC, as in Debt City
The book opens with Nancy relating the tale of her financial bottom in June 2008, paired with a discussion of her childhood and early years where many of the elements of those financial mistakes were already put in place. Many of the themes of this story sounded eerily familiar to me, even as the details were quite different. The general theme of having a financially strapped childhood followed by a lack of understanding of how to properly utilize a somewhat larger income sounded very, very familiar, in fact.
Two: The College Years: Keeping Up with the Jane Hoyas
When she went to college from such a financially tight background, Nancy seemed to feel fairly unworthy when she arrived at Georgetown. In order to undo that sense of inadequacy, she turned to the abundance of easy-to-acquire credit cards, using them to buy the material things that the people who “belonged” at Georgetown seemed to have. Again, this is a story I can really identify with (and I should write about at length at some point…). She offers several solutions to running into credit problems in college; I strongly agree with talking to your parents if you find yourself getting into consumer debt issues during your college years.
Three: Oops! I Did It Again, and Again, and Again
Much like myself, Nancy’s early professional life involved a lot of upheaval and a lot of personal and professional situations she wasn’t quite ready to handle – and that included her finances, which were often used as a panacea to soothe her problems. After all, after a bad breakup, why not just go to an expensive spa to make yourself feel better? Of course, this is a trap – all it does is greatly extend the period of upheaval in your life. You’ll just pay extensively for it later.
Four: Personal Finance 101
Here, the personal finance advice begins in earnest: getting a checking account, keeping your credit score under minimal control, and making sure your income taxes are paid. For most of us, this kind of thing is obvious, but for a surprising number of folks, these basic steps aren’t basic at all. I’ve met many people who are completely unaware that they should be paying income taxes at all, saying things like, “I thought filing taxes was just for rich people.”
Five: Take My Hand
The real key to personal finance is goal setting, and here Nancy talks about her first go-round with setting goals in her own life as they pertain to better personal finances. Why set goals? A well-stated goal embodies something you want deeply in your life and provides a very clear way for getting there, leaving it up to you to focus on what you need to do each and every day to move towards that goal. Of course, you don’t have to do it alone – use the people around you or even a certified financial planner for assistance.
Six: The Kiss of Debt
Debt can feel overwhelming, especially when you see that you’re in debt far, far over your head. When you see balances that compare to your annual salary and interest being dumped on top of that, it feels impossible. What you need here is a plan – one that distinctly states what you need to do each and every month to move forward on that goal. It seems long and painful, but by having a plan and then utilizing every good thing that comes your way to further your progress towards that goal, you’ll find that it’s easier than you thought.
Seven: Love and Money
Financial dependence is a dangerous thing, especially outside of a marriage. If you have a relationship that isn’t based on a long-term commitment and you’re financially dependent on your partner, you’re in a precarious situation that you should avoid. If you’re in a relationship with unequal finances, do not adjust your personal spending to a higher level because there are more resources available because, when the relationship ends, you’re likely to continue those habits and find yourself in a big financial hole.
Eight: To Have or Have Not
Everybody wants some material things. The route to success is to have a grip on your spending habits (meaning you clearly understand how much you can actually afford to spend in a given month) as well as some sensible shopping habits (meaning, for example, that you shop for clothes first at consignment stores and low-end shops instead of heading to a shop where you spend $800 on a tank top). I achieve this by having an allowance, researching my purchases, and waiting around for bargains instead of “needing” something now.
Nine: You’re So Vain
One big step is to stop worrying so much about what others think of you. The next step is to focus on less expensive ways to make yourself look and feel good. You don’t need $50 bottles of shampoo when a $5 one will get your hair perfectly clean (and, in my case, I’m talking a jumbo bottle for that $5). You don’t need tons of expensive makeup when just the basics leave you looking vibrant (or none at all – so many people look better without the makeup they wear). Stop getting your beauty advice from salesmen and those who just repeat the advice of salesmen.
Ten: The Price of Fun
It is far, far less expensive to entertain at home than it is to go out for entertainment, even if you’re consistently the host. That doesn’t mean you need to become a homebody per se, but it does mean that your wallet will thank you for changing up your entertainment a little bit instead of just doing the same things over and over. Explore some new things – potluck dinners, board games, and movie nights are highly recommended by me.
Eleven: Hot Wheels
Your car is not an expression of who you are. It’s an expensive device that helps you get from point A to point B efficiently. Once you grasp this idea – and then ask yourself if you need a car at all, and if you do, what features you actually need – you’ll find yourself buying much more appropriate vehicles, which means much less financial burden and debt just for that device that helps you move from point to point. To put it frankly, I would not own a vehicle if I lived in a place with mass transit.
Twelve: Good Debt, Bad Debt
Here, Trejos makes the typical “good debt, bad debt” comparison, where she identifies some types of debt as good (student loans, a fixed rate mortgage, your first car loan) and others as bad (credit card debt, mostly). I agree with this dichotomy only to a certain extent, mostly in a sense, for example, that some types of guns do less damage than others (pellet guns versus fully automatic rifles). No debt is really a good thing in the end.
Thirteen: Sex and the City Meets The Golden Girls
Retirement often doesn’t seem like any sort of realistic concern to someone in their twenties or thirties, but the key thing to remember is that if you start to save in your twenties and thirties, you don’t have to save nearly as much for retirement than if you wait until your forties to start. You can get away with (relatively) tiny amounts of retirement savings if you start younger. That’s why the most important thing you can do with regards to your retirement savings is simply start saving – as long as you diversify what you save, you’ll be much better off than if you wait.
Fourteen: What Do You Expect When You Didn’t Expect It?
A healthy emergency fund can make all the difference between a bad event being apocalyptic or merely being a road bump. An emergency fund means cash – it doesn’t mean a credit card that’s available to you only at the whim of a bank who might cut your line of credit when you need it most. The best way to build this up is to open a savings account, then start some small automatic transfers into that account on a highly regular basis (say, weekly). Trejos also offers brief coverage of various types of insurance and unemployment benefits here.
Fifteen: Papa Don’t Preach… Unless He’s Paying My Rent
Here, Trejos covers the phenomenon of children returning to the nest when they find themselves having financial or professional difficulties after college. This tends to happen much more often in times of economic crisis. Even worse, it can be a difficult situation for both the child and the parent if it’s not dealt with in a frank fashion. The key here is candor and discussion, with both parent and child both stating what their expectations and plans are for such an arrangement. Without that, you’re begging for hurt feelings and problems down the road.
Sixteen: Show Me the Money
Near the end of the book, Trejos addresses frugality in earnest for the first time, discussing a ton of little ways (most of them fairly well known) for saving money in just a handful of pages. My favorite? Using your home to make money by renting out rooms, something we’ve discussed doing in the past and may ultimately do in the future.
Seventeen: Somewhere Over the Rainbow
The final chapter is actually a diary by Trejos of her first few months dealing with her financial recovery. It somewhat brings the book full circle, harkening back to the deeply personal nature of the first few chapters.
Is Hot (Broke) Messes Worth Reading?
This book works best when it focuses on Nancy Trejos’ story rather than trying to be a one-size-fits-all personal finance book. The first few chapters and the last chapter are thoroughly engaging and set the stage for threads that carry throughout the book, though the thread is fairly weak in the meaty middle of the book.
If you find that ideas go down better if presented in the context of an engaging story, this will be a great personal finance book for you, particularly if you’re a twenty- or thirtysomething professional female.
If you find yourself too far outside of that description, this book will still offer great advice, but there may be other books out there that click well for you.