What's Holding You Back?
By Dara Duguay
Fall 2007
Our personal behaviors sometimes create obstacles to effective money management. As a starting point, you can make progress toward reaching your financial goals if you begin to recognize these harmful behavior patterns, understand their implications and try to change them.
Do you fit into one of these four “categories” of financial behavior?
The Procrastinator: This person regularly ignores bill statements and other financial tasks, perhaps stemming from a lack of organizational skills that allows paperwork to pile up uncontrollably. But inattention to financial matters may cause late charges and penalties – at a minimum. When bills are chronically and severely late, your credit report suffers. Some people procrastinate so much that home foreclosure, car repossession or other dire consequences are the tragic results.
Try separating your financial bills and statements from all other paperwork. One way to do this is to create a file called “financial stuff” and use it to keep all paperwork received for the current time period. Set aside several dates each month – and mark them in stone – to go through the file and pay bills. You may even want to open your bills immediately upon receiving them and write the due dates on the envelope so they are staring you in the face, making you more likely to make on-time payments.
Automatic bill payment is another way to ensure that you meet all due dates. Sign up for as many of these plans as you can. As long as you keep enough money in your account, your bills always will be paid on time.
The Big Spender: This person loves to spend money and has a hard time resisting items that he or she wants but doesn’t really need. Do you often go to the ATM in the morning to withdraw money and spend it all by the end of the day? Do you find it impossible to browse in a shopping mall without making a purchase? If so, you probably fall into this category.
Big spenders may not know – or may not want to know – their total debt level. Most of these people think they owe less than they actually do.
You can help control your spending by limiting the number of credit cards in your possession, creating a budget and sticking to the ceilings you determine for each spending category, and finding other interests so that you don't shop just for something to do when you are bored. And if you can’t pay cash for it, maybe you just shouldn’t buy it at all!
The Water-Cooler Investor: This is someone who makes critical investment decisions based on tips from friends, relatives or co-workers at the water cooler rather than careful research or the advice of an investment professional. He or she may act on a “hot tip” from the newspaper, prompting an impulsive purchase of stock or a quick sale in response to bad news.
This behavior is governed by emotion rather than fact. Unwise decisions often result when investments are not part of a long-term strategy. Most of us simply do not have the financial education or expertise to invest effectively. A professional financial advisor helps keep emotional decisions in check and can develop an investment strategy based on the investor’s long-term personal and financial goals.
The Eternal Optimist: This is someone who does not like to think about unpleasant realities. For this reason, this person may avoid writing a will, acquiring life insurance, or filling out a medical directive or power of attorney.
Life events can and do happen, as evidenced by the unexpected expenses that have confronted all of us. These events may prove as small as a speeding ticket or a dishwasher repair. Others are far more significant, such as a stolen car or even a death in the family. Imagine how the problems caused by these major events are compounded by the lack of proper insurance or a will.
Instead of crossing your fingers and taking your chances, it is far safer to prepare for life’s inevitable surprises. Some people complain about wasting money on insurance they never use, but consider yourself lucky that you never had to use it. For peace of mind, the price tag is never too high.
This is merely a sampling of self-destructive behaviors that can prevent you from managing your money as effectively as possible. The key is to examine your financial behaviors and identify those that are holding you back. Take the proactive approach: Make the necessary changes and place yourself on the path to more money successes and fewer money messes.
# # #
Dara Duguay is Director of the Office of Financial Education for Citigroup and the author of several self-help personal finance books.
