Religion, sex and politics are three topics that people say should be kept out of polite conversation. I’ve been known to discuss all three; in fact, they are three of my favorite topics.
The last big taboo seems to be money. Most of my friends, all of my family and most other people I know are unwilling to discuss their personal finances. The people that do talk about it are seen as braggarts or uncouth. We feel like it’s offensive when people ask someone what something — such as a new car or house — cost. In fact, just typing that sentence makes me cringe a bit at the sheer rudeness of it.
I thought it might be a Southern thing, or maybe a rural small-town Texas thing, but even a dear friend who grew up just about as differently from me as one could imagine — being from New York with her artistic and very liberal parents, who had open conversations about most everything else in life — shared that her family had a similar taboo about discussing money.
This friend and I, along with another friend who is a financial coach, decided to talk openly and share our numbers with one another in order to help each other optimize our personal expenses, income and investments. It was surprising how extremely difficult it was to simply say the numbers aloud to these women that I’ve shared much more intimate things with.
While I’m certainly not advocating that anyone share about their money situation at the bar on a Saturday night, I do think we would benefit from educating ourselves a bit and being willing to talk with others to some degree. We can’t learn from others when we don’t talk about these things.
Too many people are ashamed that they make too little money to support the lifestyle they’re living, or guilty because they make too much money and then feel unworthy, or they have shame around not knowing how to manage finances. They are accomplished people that go through life absolutely brilliant in their chosen field but who have no idea what to do to with the money they are earning.
So we spend it, because we see other people spending and we think that’s what we should do, just because there’s money in the bank account, without putting anything aside for a rainy day. Or worse, we spend to zero then keep spending on a credit card and carry a high-interest balance because we don’t really pay attention to how truly expensive and unnecessary it is.
These are just a few of the kinds of mistakes we make with our money.
Shame about money
As a CPA, I see firsthand how much people tend to keep finances shrouded in privacy. Even when clients are working with a CPA or other financial professional, there can be insecurity and shame around talking about money. Clients will meet with me, give me access to their social security number and bank account number, show me how much they made, how much they invested, how much their child’s day care costs, how much their house is worth and what they’re paying for it. We’ll have a nice conversation; I’ll find out about their financial lives over the course of the last year, and then start working on their tax return.
Once they get home, maybe later that evening or maybe in a day or so, they’ll remember to tell me they got a letter from the IRS a few months back and is that something that maybe I would need to know about?
The first time this happened in my practice, I was shocked. It would never have occurred to me to not deal with a letter from the IRS immediately. Instead, the guy didn’t understand what the IRS was requesting, and just put in a folder to look at with the following year’s taxes, and then mentioned it to me as an aside in our third or fourth interaction.
He hired me as his CPA to help resolve this, and yet was still hesitant to tell me about the IRS letter.
I’ve seen this scenario play out over and again with people. People are carrying around a tremendous amount of shame around finances, thinking they should know better and feeling like they have to fake not knowing about it to be seen as competent and successful.
We act as if we’re supposed to be all-knowing and invincible around tax law and personal finance, when the reality is that it can be really complex and intricate. In personal finance, like anything else, we need more knowledge and understanding, but above that that we need to know when to get some help and when to take action.
I’ve stopped being surprised at the issues people have with money and not knowing what to do with it, or even knowing what to do with it but failing to execute their plan. I’ve seen it in men and women, gay and straight, across ethnic groups. This is truly a human phenomenon.
Knowledge isn’t enough
Even if we are knowledgeable about personal finance, the way we treat our finances is similar to the way we treat our health and nutrition. Sure, we can generally know that we should eat right, exercise regularly, get adequate rest, manage stress levels, etc. This is a recipe for a healthy body. But the reality is, that until we actually do these things, rather than just know to do them, we don’t get the benefit.
So you may know that you need to save and invest your money, but if you don’t actually do it, you’re going to have a hard time seeing the benefits.
Don’t get me wrong, education is vitally important, but execution is often the vital missing piece. For bodybuilders, reading food labels and measuring food to accurately capture the calories being consumed is a critical part of achieving the ideal body. While this can get tedious and obsessive, it is a great tool to know what you’re actually consuming in terms of calories and macronutrients. Otherwise, you have to just wing it, and since most people say they would like to lose weight (most of us) or gain weight (fewer, but still some of us), then I would venture a guess that “winging it” isn’t working for most people.
The personal finance corollary to this is tracking every penny you spend for a set amount of time. This will show how you’re actually spending your money. The results can be quite shocking.
You may think you cannot possibly save money each month. But I guarantee there will be some category of spending you can make changes to — or avoid doing again —to save more money.
But maybe you can’t stand spending the time educating yourself to the enth degree, and you can’t or won’t track your spending. There are still some basic things you can do to improve your financial situation. Although they are not necessarily fun or sexy (until you get rich, then maybe some people will think that’s sexy), they are well worthwhile.
- Have an emergency fund. Seriously, work on getting some money stashed aside in case of an “emergency.” Because the “emergencies” we see as completely unexpected should not be completely unexpected.
If you have a house with appliances and/or a water heater, and/or air conditioning, at some point, one of them will most likely fail. Have some money set aside to take care of it when it does.
If you own a car, I can almost guarantee that at some point you will have to take a vehicle to the shop. If the car is out of warranty, you know that you’ll have to pay something — whether for the repair, for maintenance or for the insurance deductible.
Is that an unforeseen circumstance? Absolutely not, and you should be able to handle these kinds of “emergencies” out of your emergency fund savings without having to take a loan from a retirement account or carry a credit card debt. While we’re mentioning credit card debt …
- Eliminate debt. Especially the “bad debt” like high interest rate debt or the debt for consumable and depreciating goods. Don’t keep paying 22 percent interest on your meal from McDonald’s from a year ago. If you’re just paying the minimum balance on your credit card balance, that’s exactly what you’re doing.
Enough has been written in other places on when debt is appropriate, and ultimately that comes down to each person to decide. However, and especially with credit card debt, is it appropriate to let your current self cheat your future self? Is most of what you’re putting yourself in debt for something you want rather than something you need?
If you’re in debt, you need to take a hard look at this and make a plan to get out of it.
- Minimize your tax liability You earn your money, and you deserve to keep it. Pay attention to taxes and minimize your liability to whatever extent possible. Don’t take retirement plan distributions early, because you’ll pay a penalty in addition to the regular income tax. Besides, if you’ve saved an appropriate emergency fund, you should rarely find yourself in a situation where this would be necessary.
If you have a business, you need to keep good records of all your expenses to write them off at tax time.
- Invest and build wealth. Educate yourself, find a professional unless you are sure you can go it alone, and build wealth for yourself. Figure out what investment would make sense for you, such as investing in the stock market, real estate, starting a business — whatever you and your trusted advisor think is appropriate.
If you go the stock market route, set aside regular contributions to your investment account. Automate as much as possible so you don’t have to write a check or manually transfer funds each time you get paid. Make it as painless as possible.
So much excellent information (and unfortunately some misinformation) is out there about personal finance. Do a little research, find something that works for you and use it to improve your personal financial management skills.
Here are some books and blogs that I highly recommend.
- Mr. Money Mustache: If you don’t mind a little salty language here and there, MMM delivers exceptional content on how to radically accelerate your savings and live a happier life. It’s a fresh perspective on finance that’s part philosophy, part personal responsibility and just pure awesome at MrMoneyMustache.com.
- The Mad Fientist: This blog gets a little more nerdy, delving into tax and savings optimization, with some travel and credit card hacking thrown in for good measure. At MadFientist.com.
- Jim Collins: If you want to further your education regarding the financial market, look for the Stock Series by Jim Collins at jlcollinsnh.com/stock-series/. It’s multiple blog posts that build on each other and will give you a great foundation in understanding how various investments work.
- Your Money or Your Life by Vicki Robin and Joe Dominguez is one of the most eye–opening books I have read in the personal finance category. It has a unique perspective and has some tools that have absolutely transformed the way I treat my money.
- David Bach has some great primers on how to build wealth. The first one I read was Smart Women Finish Rich. Another good one is Start Late Finish Rich. His key message is to automate paying yourself first. If you can nail this habit, then you are well on your way to building wealth.
Suzanne Butler is a Dallas-based CPA offering tax return services for businesses and individuals and business startup support. She is also a Quickbooks certified proAdvisor/advanced. Call 469-387-6140 or visit SButlerCPA.com.