Friday, April 30, 2010

Habits are Key to Managing Money

I don’t consider myself a math whiz. After all, I’ve been known to look up the rules for adding and subtracting fractions, and I still get weak in the knees when I have to do ”public math.” I suppose you could find this a little ironic, considering I write about personal finances for a living.

I contend, though, that managing your money well has more to do with controlling your habits and emotions than it does with crunching numbers. After you understand general computation, the math of financial success is simple: Spend less than you earn. What isn’t so simple is living with a perspective that can help you do this.

Money perspectives are often so subtly-woven into your life that it can be difficult to recognize them. It’s like the old adage: The thing a fish is least likely to notice is the water in which it swims. To begin understanding your perspectives, you have to look closely.

You can do this by examining how you spend your money right now. Start by making two columns on a piece of paper. In the first column, list things you would really like to spend your money on. This might include a vacation, a college fund, charitable cause, new television, pair of water skis or garden fence, for example. Don’t count anything as too grand or insignificant.

After you’re satisfied with your list, get out your checkbook register or go to your online banking site and make a list in the other column that includes every place you spent money last month. If necessary, get out your credit card statements, too, so you can include individual purchases or expenses on your list. When you’re finished with both lists, compare them.

Are you spending in a way that is helping you get things you want? If there’s a disparity between your lists, ask yourself why. It may be owing to habits that go unchecked, such as eating out. But you may need to challenge what you would consider the most basic expenses – housing, food and transportation. It’s possible that your habits and perspectives have more influence than you realize.

Not long ago, my husband believed it was natural to have a car payment. His parents always had a car payment when he was growing up, so why wouldn’t he? It never occurred to him there was another option. It’s not wrong to have a car payment, of course, but you should consider why you have one in the first place. You may find that it goes deeper than your need for transportation.

What and where you eat says something about your perspectives, too. I once had a friend announce that she didn’t eat “cheap food.” I think she was referring to packaged foods, such as instant noodles and macaroni and cheese, but her statement seemed to apply more to her ideas about the meaning of food than to issues of nutrition.

You have to eat, but you have a significant amount of control over how much you spend on food. You need shelter, but you don’t have to own a home or live in a certain neighborhood. If living with a roommate or selling your house would improve the quality of your life, why not consider it?

Realize you shouldn’t allow a limited perspective to keep you from getting what you most desire.

CCCS/ACCE –American Center for Credit Education
Carey Denman

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