Pay off debt and live your life. Don't compare, contrast.
Check out the extended trailer above. These two girls are hilarious, and I love that there is finally a show about 20-something women who are broke!
“That girl is working harder than Stephen Hawking trying to put in a pair of cufflinks.” It’s gonna be good, very good.
Are you excited to see this show?
Everybody loves quizzes! Except pop quizzes on A Tale of Two Cities in high school when I never cracked open the book. You can learn a lot from a quiz, and this one is all about how you handle your money. Pick your answers honestly and sum up your points using the Answer Key.
Take the Money Quiz! How Well Are You Handling YOUR Money?
1) When you find something you like that isn’t a necessity, you:
a) You glance once or twice but decide you can live without it.
b) You go home and think about it before you’ll consider going back to buy it.
c) You carry it around the store for at least an hour so that you can get used to the idea of owning it.
d) You hold it to your bosom and race to the counter, credit card in action mode.
2) Your car payment is approximately:
a) Nothing
b) 10% of your income
c) 25% of your income
d) More
3) You spend less than you make every month:
a) True
b) True, 80% of the time
c) What, so I’m not supposed to have any fun now?
4) When should you make your last will and testament?
a) It’s all good, I wrote one on some lined paper back in middle school about who would get to inherit my future riches.
b) Don’t need one, I’m in debt and my 401(k) only has $5K in it.
c) I’ll make it after I have kids.
d) I can’t make one because I don’t want the government to know what I have.
e) As soon as possible.
5) Which of the following people really should be using a credit card?
a) An unemployed college student who gets $100 spending money from his parents each month and that’s supposed to somehow pay for everything.
b) A working single mom who needs to pay for her car repair to get to work.
c) A CPA who travels a lot for his work and is very responsible about paying all bills in full each month.
d) Teresa Giudice from the Real Housewives of New Jersey so that she can maintain her extravagant lifestyle (in order to sell her cookbooks) and make up for being cross-eyed on camera.
6) Should you save money even when money is tight? Like really tight, not sure if you’re going to be able to make rent tight?
a) Yes
b) No
7) On average, do people spend less when carrying a debit card or when carrying cash?
a) You’ll spend less with the debit card.
b) You’ll spend less with cash.
8 ) How do you invest in your 401(k) or other retirement accounts?
a) I don’t have any retirement accounts.
b) I just make automatic contributions and pick mutual funds using a dartboard.
c) I review my choices every quarter, and reinvest as long as they are no-load funds or I can choose individual securities.
9) When you’re ready to start reading some financial investment literature, who are you going to turn to? (Choose all that apply)
a) Suze Orman
b) George Soros
c) Dave Ramsey
d) Jim Cramer
e) Benjamin Graham
Answer Key: Add up your total points
1) a) 0 points b) 1 point c) 2 points d) 3 points
2) a) 0 points b) 1 point c) 2 points d) 3 points
3) a) 0 points b) 1 point c) 2 points
4) a) 2 points b) 2 points c) 2 points d) 1 point e) 0 points (I like option d but actually everyone should make a will, and update it after major life changes.)
5) a) 1 point b) 1 point c) 0 points d) 2 points (Look, the CPA has some spreadsheet where he calculates all his points and rewards and never pays a cent of interest, so he’s proven himself trustworthy enough to handle a credit card.)
6) a) 0 points b) 1 point (It’s true. You should save, even if it’s just $5/paycheck. It’s a mental thing too.)
7) a) 1 point b) 0 points (Read this article.)
8 ) a) 2 points b) 1 point c) 0 points
9) a) 5 points b) 0 points c) 1 point d) 2 points e) 0 points (Sorry, but if Suze Orman is allowed anywhere near your finances, you can’t be financially competent. And if you somehow are rich even with listening to her advice, just imagine how much richer you could have been without her!)
Guide
(0-3 Points) Financially Competent: Wow! Are you sure you didn’t sneak a peek at the answers? You have a good head on your shoulders when it comes to handling your money. If you are saving 10% of your money and using 20% to pay back debts (if any) and living on the other 70%, you are on the path according to the Richest Man in Babylon! Continue your sound practice and making conscious choices to live within your means. Begin researching what kind of business or investment would make sense for you, and would be something you are interested in.
(4-8 Points) Mildly Clueless: Ok, don’t worry. You just need a little awareness in your financial situation. It’s not hopeless because there are a lot of easy things you can do to change your path financially. Start with the basics by checking out Dave Ramsey and George S. Caslon.
(9 points +) Hybrid of Gob Bluth and Brick Tamland: Hopefully you were just joking when you picked your answers. Maybe you could retake it and see where you land? If you end up in the same category, I am not sure you really meant to land on a site about debt reduction. Or maybe you were thinking reduce debt to allow more room to re-create it?
The life of money never changes. It’s not a technical system, in which progress is made. It’s a moral system, in which the same lessons get learned over and over again.
This article by Bill Bonner was an excellent read, and I especially enjoyed the quote above. Now what exactly are those lessons so I can stop repeating my mistakes?
I’ve written a few times about doing your own research without explaining what that entails. It’s similar to due diligence, which is a period of investigation before a merger or acquisition is undertaken by a business. Businesses take every purchase/investment/acquisition seriously, and so should you. When it comes to your money, how you spend it and invest it, you want to take the time to verify what’s being sold or portrayed to you is accurate, and can be verified by some independent or legal sources. I think that a lot of unaffordable mortgages could have been avoided during the “easy money” period of 2004 to 2007, if everyone hadn’t jumped in head-first without bothering to do any research because the hype just sounded so damn convincing.
True Story Interlude: I went and saw a few new condos back in early 2006, blissfully unaware of the impending bubble burst that would come that fall. All I knew was that home prices just kept going up and up and I better get in on that, quick. I saw a few 1-bedroom condos* in the NW area of Washington, DC (where I lived at the time) and I’m a sucker for new construction. I was also a sucker for the gym, movie room and rooftop deck and spa. After the tour, the sales consultant talked to me about my financing options. The price for the 1-bedrooms were about $375,000. She said that with good credit (which I had and have, even though I carry debt I have a credit score of 720), I could possibly get an interest rate around 6%, but the option she was really pushing for me was the adjustable rate mortgage (ARM) so that my payments in the first two years would only be around $1,200. Then she showed me that after those two years, the interest rate would go up or down, and my payments would most likely go up because the interest rate would probably go up by 2 to 3%. I don’t remember all the details, but I could do enough simple math to see that the financing was a shit show and I would end up being unable to handle that kind of monthly mortgage ($1,800 or more) when my rent was $1,000 and included utilities and cable. I really wanted to have a place of my own. But I wasn’t blinded by the hype, when the truth was right there on those laminated sheets in front of me: this payment is going to go up and so is your interest rate.
So the point is that you want to take the time to research things you want to buy, stocks you are thinking about investing in and anything else that involves money. Here are a few things I have learned over the years.
Financing a Purchase: The whole point of getting out of debt is to not finance stuff, but I have financed things in the past and I can handle listening to all of the jargon to make sure I am not getting screwed. If someone says they are going to offer you 4.9% APR, make sure the papers you sign state exactly that. At the dealership, I was offered 4.9% APR but when the finance guy was typing it into the computer, he had me check the screen and it said 4.99% APR. I pointed it out, he fixed it. That .09% reduction saved me a few hundred dollars in interest! A few other tips when signing an 80-page loan document:
Investing: I was a very amateur investor before the past year. I’m still an amateur, but I am learning how to view investing, what to research and analyze and how to analyze the market without following the market and the emotional, irrational trading that results from following the market. Even though I majored in business, worked in management consulting and advised large corporations on their investments, I still didn’t know sh*t about investing. To be honest, I would like to go back to my investment classes in college and call out my professors for not giving us the following essential reads:
The other essential part of investing is reading company’s annual reports, SEC filings, and financial statements. You can also listen to earnings calls (usually done every quarter) online, and all of this information is public and free. A few websites that I find useful are:
To sum it up, I like doing my own research because it puts me in control of the situation. I ask a lot of questions of everyone, and I read everything I can before making a decision. All “doing research” means is just double-checking what people are telling you. Do you have it in writing? Do you understand what it means? Are you getting what you expected? Do you have an uncomfortable, queasy feeling about going through with something?
If you answered yes to every question but the last one–you should be good, dude!
*Never buy a 1-bedroom condo unless you want to keep it forever. As the saying goes, you’ll be the first and last owner when you buy a 1-bedroom.
In case you couldn’t tell, I’m not a very serious person. I always liked Margot Fonteyn’s quote, “Take your work seriously, but never yourself.” I like it because I never take myself seriously, and most of the time I don’t take my work seriously either. So it works out, you know what I mean?
But for the past year or so, it’s been the serious work of my life to get out of debt. I like that I am seeing tangible results. I am at the lowest debt level that I have been at any time in the past two years. I am reading books that are motivating me to stay on the path of reasonable spending and being on the lookout for opportunities, like The Richest Man in Babylon. And since I spend a lot of time working on my getting-out-of-debt plan, I also end up talking about debt and money with almost everyone I come across. Which got me to thinking about how money was discussed with me as I was growing up and how I would talk to my own future kids about money and its significance. I think about my future kids a lot. Is that weird? I want the best for them but I also want them to be thoughtful and caring people. So I think about how I would bring up money without making it the most important thing in their lives, but rather making it a tool to achieve what they want in life. It’s a good idea for everyone to talk to their kids about money instead of letting them simply absorb the bad habits or strange inclinations of their parents. Kids are always observing and they understand a lot more about money than their parents may realize. It’s worth it to give them a few tips so that they can avoid some of the mistakes we all make. But the thing about it is, you wouldn’t talk to your kids the same way about money if you were making $20,000 per year versus $200,000 per year or $2 million per year. The basic principles would be the same, but I think you may consider tweaking some of those ideas based on your income level.
(I know it’s dangerous to generalize, so I am only describing how I would talk to my kids at each of these income levels, and only once they are older, between 10 and 12.)
How to Talk to Your Kids About Money (Based on Your Income Level)
Parents’ Annual Income: $20,000 per year or less
Basic Message: Please be the beacon that brings us out of this crushing poverty.
Look kids, we don’t want you to have to work for minimum wage just so you can live a soulless existence where you have lost the will to dream and are forced to frequent check cashing stores and get ripped off at every turn. You’re going to have to work really hard to get out of this socioeconomic level. Education will be a big part of it. We’re not going to buy you fancy clothes just because the other neighborhood kids are wearing them. You’ll have to push yourself when we’re at work, and think of money as something to save, earn and eventually invest. We’re going to support you in everything you want to do (that’s legal) but we won’t be able to put you in all the classes and sports we want to. When you get a little older, you’ll see other kids acting a little wild. The other kids might be able to afford to mess up and get DUIs or blow money on drinking binges, but you don’t have that luxury. Little setbacks for those kids would be big setbacks for you. The world doesn’t care if you push yourself and learn and take as much as you can from it. Only you can care. And we promise to give you anything we can, and be happy when you become independent and able to support yourself and even us, if you want. But take care of yourself first.
Parents’ Annual Income: $20,000 to $80,000 per year
Here is the income range of the majority of households. It’s a pretty big range, and parents in this range can have wildly different money habits.
Here’s what I promise to do:
Here’s what I will not do:
Parents’ Annual Income: $80,000 to $170,000 per year
Another big portion of the population falls into this income range. Although most of the kids in this range will receive the education that was so important in the first income range, and participate in the sports/activities that are a priority in the second income range, I think what brings it all together is making sure kids don’t feel entitled. Even though this is a pretty good income level, I want my kids to be motivated to go out and explore the world, discover what they want to do and how they might help their communities. I think understanding money, saving, and how it will help them do what they want is going to be an important part of that.
Parents’ Annual Income: $170,000+ per year
The key thing to avoid at this income range is complacency. It’s still easy to be in a high level of debt even with an excellent income, so as a parent I would want to make sure my child knows that we have a great opportunity to save and invest. Budgeting and the philosophy of living well below how we could be living will put our values before a bunch of stuff. We’ll be lucky enough to travel to international destinations but the kids would be involved in choosing a place, understanding how much we’re spending, and setting limits for how much to spend each day. There are lots of great opportunities at this income level, but also lots of ways to blow through money with hardly a thought, and I want to encourage the former and avoid the latter.
*Exception: $1 million+ per year
Basic Message: You can do anything, but you can’t do nothing. (That’s a paraphrased Warren Buffett quote)
We’ve been given a lot in life. Well, you’ve been given a lot in life. I wanted to get a lot in life and I went out and got it. Yeah, I stomped on some people’s heads to get here. But now we have an obligation to society, and I don’t want you to value your money any less just because you didn’t work for it. I want you to live in comfort, but I also want you to consider the value of money and how you can use the money we have for real uses, whether it’s charitable or a business enterprise that’s going to provide for you and your family. It’s not our place to flash our money around and pretend like it’s completely trivial when it defines our whole lifestyle. No. We are not those people. Fortune comes and goes, but your character stays the same. I will help you do whatever you want to do. I promise not to dress you in head-to-toe Gucci at age 4 and scar you for life.
Bottom Line
At the end of the day, it’s really what the parents do and how they act that will effect what attitudes their children take about money and everything else. No matter how much or how little you make, you can encourage your kids to view money differently than how it is portrayed in a consumer-driven, hypermedia society. You can help them along the way and show them good behavior, but it will be their decision in the end.
Here’s a little additional reading about the traits that shape us:
What do you think? How would you talk about money with your kids?
