I hope you can help me find a way to talk to my father about his financial situation. Last month his electricity was turned off and my sisters and I helped pay a past-due balance of several months. He says it was just carelessness and he didn't notice the bill was overdue, but my dad is very on top of things and I think he was just covering up for not having the money. Over the last couple years I've noticed a number of little things, like having less food in the house, that make me worry that he's financially stressed. I love my dad so much, and I can't stand the idea of him struggling alone with this. How can I get him to open up to me?
Read more in this week's Financial Therapy column at SheKnows.com for five ways to open up a conversation with elderly parents and establish a collaborative framework for their care.
Should you share your income in your online dating profile?
I will admit, when Penny Wrenn contacted me about this article for LearnVest the subject came as a total shock. I got married ten-plus years ago just as online dating was really taking off, so that world has largely passed me by. None of my clients have mentioned this aspect of profile management, so I didn't know that listing your income was even a thing. I don't show up much in this article because I was mostly agog at the questions Penny asked, baffled and concerned that this is what finding a match has come to.
Having one piece of data is not the same as having information.
Knowing someone's income doesn't tell you as much as you think about his or her actual financial life. Along with income are we going to list whether or not she has student loans? Whether he pays child support? Whether she has nine roommates or he lives with his parents? Who here might have a gambling problem? Raise your hand!
There is a time and place for communicating the financial aspects of our lives, and my feeling is that it should happen when we're able to give it the proper context. Someone reading your stated income is going to make assumptions about you that may be wildly inaccurate.
Money is not always attractive.
The fact that this seems to mainly favor people who list a high income is also troubling. The AYI.com survey Penny cites says that men and women who disclose incomes above $150,000 are most likely to be contacted. People who are high earners are not necessarily doing the most interesting work, or very interesting or happy themselves. I know a ton of unhappy lawyers and bankers who should not be foisted on the dating populace. (Case in point: many of them are unhappy with their jobs but feel unable to change professions because they're shackled by the student loans they took out to join said profession.)
I was happy to participate in this piece, but I'm even happier to read the research and other points of view it contains. I learned a lot. I'm struck by the sense that online profile management, the careful curation of those personal details we feel make us look best, is like a modern form of burlesque. Sure, you want to advertise enough to get people in the seats, but let's save something for the show, people.
Parents: let's put on a (personal finance) show!
Once upon a time, managing money was something we could see. Mom or Dad would sit at a table surrounded by paper statements and bills, writing checks and balancing the register. Cash was received at a bank branch, maybe even from a teller.
Many important associations with money were formed by witnessing these activities. We might notice a parent who got very stressed when the checkbook came out, or discussions about expenses that quickly descended into argument. Or we may have seen money management as a normal and neutral (maybe even positive!) aspect of the family's operations.
Money management activities today can be a bit more mysterious, if not completely invisible to children. We may check balances on our phones (indistinguishable from the other million times a day our kids see us looking at our phones), or pay bills online during a few minutes at lunch (if we directly pay bills at all). We get cash from points of sale or ATMs that we hit during our rush to get somewhere else.
This can leave kids with a skewed understanding of what it takes to direct and manage finances. Money seems to just happen automatically, without much attention. Often there are systems or institutions who capitalize on this inattention, protecting us from accidental oversight or promising to monitor our accounts and alert us if there's anything we need to know.
So as parents, one of the most important parts of financially educating our kids involves finding ways to bring money management to life so that it doesn't just happen behind the scenes.
It might take real effort to make money management more visible in your family. It's easier to use the conveniences of automation and mobile access. This is especially true if money is a stressful trigger. We look for ways to minimize our exposure to things that cause distress.
Performance
In a sense, when we make money management visible we're putting on a show. We choose what and how we demonstrate to our children about money.
Kids pick up on this performance on various levels, and that's why it's important to pay attention to scene, script, roles, and routine.
Scene
What do our kids see when they look at us managing money? Are we shuttered off in a dark corner, muttering angrily to ourselves? Or are we integrated with family life, accessible for curious questions? I understand it can be hard to review an account statement while sticky fingers reach for your keyboard. I used to pay bills after the kids were asleep for this very reason. But you'd be surprised how many young adults come to my practice who've never learned that it's normal to review expenses, plan for cash flow, or read through account statements.
Script
What language do we use with money, and how do we dialogue with others? When it comes to money, words matter. I recently changed how I talk about my usual Saturday practice, saying "Mommy's managing our money,' instead of "Mommy's paying bills." I want them to frame what they see as something positive and self-directed, as opposed to reactive and compulsory. Language and tone are especially important when choosing how to communicate with loved ones. Watch out for panicked or accusatory tones when asking your spouse to explain that recent charge at the Apple Store.
Roles
Who takes which responsibilities when it comes to managing the family's money? In two-parent households, does one person do it all, while the other declares him- or herself "hopelessly terrible" with numbers? Ideally children should see a flexible back-and-forth, where both parents treat each other as competent and equally responsible. It's okay to have different jobs, but no grown up should be exempt from money matters.
Routine
There should be a predictable choreography to our financial management process. Mail gets opened every day, bills are paid weekly, accounts reviewed and reconciled each month, investments quarterly. Children need to see that money exists within a framework of time, and that inattention to time brings a swift consequence of disorder. It shouldn't be, "Crap! Didn't I just pay that?" or "I think I'll jump on Mint.com today." Without choreography, the actors crash into each other and the audience can tell the scene is a mess.
If all of this makes you feel a little stilted and self-conscious, don't worry. As with real theater, the more you rehearse the more comfortable you'll feel. And you couldn't be in front of a more receptive audience.
So exactly what is "Financial Therapy?"
I work in a very niche field. Ten years ago, after addressing and working though my own troubled relationship with money, I decided I wanted to help others in similar situations. At the time I thought I was the first person who ever made the connection between how attitudes and beliefs impacted financial behavior, and it took me a long time to define my professional path. Early exploration led to social work and getting my MSW, and thereafter I had the good luck to land an amazing partner/employer in The Actors Fund where I was tasked with launching what became our Financial Wellness Program.
It gives me a great feeling of satisfaction and pride to see how far things have come since those early days. The culture has changed, and I feel like there is an openness and complexity to our post-2008 understanding of money. Wonderful resources like LearnVest and DailyWorth successfully integrate the "softer" elements of financial behavior along with practical advice.
LearnVest even did a full feature on the field of financial therapy, and I was honored to be interviewed for the piece. This was part of their "10 Questions for..." series.
So without further ado, "10 Questions for a Financial Therapist!"
The $19,000 Haircut
When people assume that my passion for financial wellness is the result of a lifetime of good money habits, I tell them the story of The $19,000 Haircut.
I come from a family with solid financial values: work hard, spend less than you earn, save scrupulously and invest wisely. Yet somehow I couldn’t quite reconcile this excellent advice with the very different message I got from credit card companies strategically stationed inside my university bookstore, or with the dilemma of moving to New York City right out of college (read: no savings) and living on an entry-entry-level Marketing salary. Still, debt that began innocently enough spiraled over time into a “what’s $50 more on the Visa?” attitude, accompanied by anxious night sweats about when a deposit would clear, and using convenience checks from one credit card to pay the minimum on the others. A few years into this cycle I was getting farther away from the entry-entry-level pay excuse, yet no matter how much money I made it was never enough to right my course. My money (lack of it) and debt (too much of it) made me feel like I was living a lie, and that anything else I achieved in life meant little in the face of such monumental secret failure.
Enter my dear mother, who came to visit me one spring at my apartment in New York. I asked her to give my hair a trim, something she hadn’t done since I was a child. Perhaps it was my new metropolitan tastes or her lack of recent experience in hair styling, but I ended up with what can only be described as a lopsided mullet. I took one look in the mirror and burst into tears.
“Don’t cry!” She pleaded, horrified at my reaction. “We’ll call your hairdresser and tell her it’s an emergency. I’m sure she’ll see you right away!”
“I can’t!” I wailed. “I can’t go back there. I bounced a check” —this scenario occurred in 1999, a time when there was such a thing as paying by check instead of the ubiquitous debit card— “I bounced a check there four months ago and I can’t go back.”
My mother was dumbfounded. Bounced a check? Her daughter, who had received the best lessons in financial responsibility that the Midwest could offer? It was true. What’s more, as it became clear over the course of the next three hours, I was late on several bills and had amassed more than $19,000 in credit card debt.
Shockingly, she didn’t pour down any of the blame or censure that I had feared would come if I disclosed the truth. She simply asked, “Don’t you have a budget?”
“A budget?” (Not that I was unclear as to what a budget was, you understand. It was just that I didn’t know how a budget was relevant to me, in all of the unique snowflake-ness of my individual challenges and circumstances.)
“A budget,” she continued. “You make a decent income. How can you not have a plan for where your money goes?”
A-ha, that was the crux of it. I had no budget because I had no plan. No plan for my money, no plan for my career. I reveled in throwing myself at the world with just my talent and my ambition and treating the whole experience like one amazing adventure. Planning? Bleah. I wanted to be fearless and live a big life. I didn’t want to live on a budget.
And yet... did I want to live a life so financially compromised that I couldn’t undo a lopsided mullet? Was that the life of intrepid adventurer, or was that a deluded young woman with bad hair?
I wiped away my tears and decided to come totally clean. I pulled out the tattered bag in which I kept a stack of old mail. I held back no secrets. I didn’t pretend that I had this under control in any way, shape, or form. My mom dove right in.
“There!” she said, after 30 minutes of rapid-fire questioning and sorting through my bills. She held up a lined notepad that didn’t have more than ten items on it. “Here is your monthly budget.”
This was a monthly budget? It didn’t even take up half of a page: rent; cell phone; cable; electric; credit cards one, two, three, and four (organized by highest to lowest interest rates); and a weekly allotment of cash to use for everything else. The follow-up instruction: when you run out of money, stop spending. I took a deep breath and accepted the notepad.
Oscar Wilde once wrote that “the only thing that can console one for being poor is extravagance.” This had definitely been true for me. I had resisted being on a budget because I was afraid that it would deprive me of freedom, and when gripped by that fear I would try to soothe myself by (paradoxically) going out and spending more money. But in the first weeks and months of following my spending plan, instead of feeling restricted I was shocked to discover that I felt liberated. If I chose carefully, I had enough money in my weekly cash allotment to meet my obligations and even allow a little breathing room after the basics were covered. Being able to take care of my needs safely, without worrying that checks would bounce or that I would regret the purchase later, was a kind of emotional freedom I’d never before experienced. Also, I felt much more attached to the items I did decide were worth parting with money for. Instead of associating purchases with failure and fear, I associated them with confidence and value.
Once I made the “my money choices = me” connection, I felt a flood of meaning in my financial life. It was like I could see clearly for the first time. I went from utterly unconscious to fascinated with everything about the financial process. Thus when I looked at my debt, what I saw was a $19,000 reflection of all of those years of pain, frustration, and shame. Talk about motivating! I wanted that debt gone.
That same spirit of attacking life made me attack my debt and just want to pummel it into the ground. Every freelance job, tax refund, or gift from Grandma went toward my debt. And what’s more, I paid it joyfully. It took me just over a year to pay off the entire amount, and I remember that year as one of the happiest periods in my life. I hosted “clothing swap parties” with friends instead of going shopping (frankly, my friends were thrilled I’d 'fessed up about my money problems because they were all secretly in debt, too). I planned my life better, cutting back on taxis and convenience food, which made me feel calmer since I wasn’t so harried all the time. I learned to cook and lost weight. I even negotiated—successfully—with a retailer or two in order to make a purchase fit within my spending allotment. What was “another $50 of debt” and the resulting dread and shame when compared to the actual freedom that came from financial security and working toward my goals?
The gift of this period was that I learned how to pay attention to money. The debt was the painful wake-up call that I tried to ignore until it was impossible. The budget was the framework for engaging with my own decision-making process and discovering my own values. And the money itself? Money became a language that I learned to speak.
Now I want to be clear that my experience with The $19,000 Haircut and paying off my debt is just that: my experience. After working as a financial therapist and coach for the last decade, I understand that there are several parts of my situation that were extremely lucky. I had a good, steady job and could take on extra freelance work. I received encouragement and support from my family. And just as importantly, this all happened in 1999-2000, the years when credit card companies were tripping over themselves to offer huge credit lines with 0% 12-month introductory rates and no balance transfer fees. It was cheaper for me to get out of debt then than at another time in history.
But the greatest lesson of The $19,000 Haircut was not about financial tactics. The gift of The $19,000 Haircut was the discovery that money can take us on a journey where we learn to do something different (financially) and it makes our lives better (non-financially).
The $19,000 Haircut put me on path whereby I became financially sane, personally empowered, and I found my life’s passion. That’s my story.
Surf the Urge
Just came from an absolutely AMAZING training with Dr. Andrew Tatarsky of the Center for Optimal Living. He was at The Actors Fund to talk about Harm Reduction techniques and his book, Harm Reduction Psychotherapy. While this was mainly focused on application with substance abuse cases, it is easy to make the connection to a disordered process with money. My favorite part of the training was the technique of urge surfing, where you delay responding to the urge to "use" (splurge, spend, drink, etc.).
In that delay you slowly breathe into the urge and describe the thoughts and sensations that come up.
The urge becomes the way in to see what is driving the feeling. You "unwrap" the urge and ask:
- What does the urge want?
- What happened just before?
- What does the urge want to change?
- If it could speak, what would it say?
- Is there a story it has to tell?
- What part of you is speaking through the urge?
For so many of us, financial behavior is not strategic, rational, and deliberate -- oh, no. It is reactive, messy, and confusing. It's based on urges that have their basis in deep emotion and profound personal meaning. It touches on our multiple points of our identity, relationships, and social context. Before we can attempt to change or "clean up" our financial behavior we have to come from an initial place of compassionate curiosity and radical acceptance. Once we can perceive and understand the origin of these behaviors and how those behaviors serve us (even as they limit us), only then do we have the chance to make real, purposeful, substantive change.
Radical acceptance. It's what financial wellness is all about.
The Secret to Financial Change
I appreciate where this article in LearnVest titled The Power of Pessimism: How Negative Thinking Can Improve Your Finance" is trying to go. Working with a client who is overly attached to affirmation and attraction (a la "The Secret") in lieu of an action plan can test my patience sometimes. But I don't know that I'd go so far as to say a dose of pessimism is the answer, either. Maybe it's just the provocative word choice that irks me.
The problem is that all of us have certain cognitive biases that frame how we perceive situations and approach change. As the article points out when discussing the effectiveness of affirmations, people with already high self-esteem respond well to self-directed messages like "I am lovable" and "I am worthy." People with low self-esteem tend to experience a drop in self-regard when they try to direct these messages toward themselves.
The toughest thing about trying to do something new is that we tend to approach this new thing in the same way we always approach things. Actually doing something differently is very, very hard.
And when it comes to changing your financial life -- oy! People generally seek our financial coaching or counseling when something with their money has become unbearable. Either their debt has climbed to an unacceptable level or they are tired of not being able to afford to visit their nieces across the country. Something has happened to make them say, "I don't want to live like this anymore." They are already dreaming of a life with zero debt or buying plane tickets on Kayak.com. Visualizing a desired outcome is not the difficult part.
The difficulty is that changing a financial outcome invariably involves changing your financial process. You have to do something differently than you've been doing it. Your attachment to a desired outcome does not overcome your cognitive and behavioral biases. That's why people usually have better results when they work with a coach or consultant who can offer them another point of view.
This article made me think of how I tend to direct people's focus when approaching financial change. In a nutshell (a very blunt, un-nuanced nutshell) I find that it depends on where you are in the process:
Beginning
Focus on changing nothing. Gather information about where you are, how your life works and doesn't, examine all options. Learn to pay attention and resist urge to change something -- anything! -- just to relieve stress. Practice being a "neutral observer." This can soften up our cognitive biases because we get out of the feel -> react cycle.
Early Middle
Focus on experimenting with change. Immediate and near-term focus only. No thought for the future, or you'll lose the ability to pay attention to the present. Purposefully resist the urge to prematurely commit. Try out, "fail," discard. Play!
Late Middle
Start to practice with what has worked in the Early Middle stage. Now you begin to focus on the future. Now there is a combination of optimism with what LearnVest might be calling "the right way" of "doing pessimism."
Final Stage
Now focus on progress toward your desired outcome. When you start to get off track, go back to the beginning and go through the gather info -> analyze info -> decide and follow through steps again. Revel in your vision for the future and attach to it, love it, and let it infuse your efforts.
Every Stage
Behavioral change is a slow, many-step process. I find it helps to try to enjoy yourself along the way. Stop and smell the roses of each little thing you try out or discover. This is the gift, this is where you truly learn to live your life and make conscious, purposeful choices. This is what is more important than zero balances and even visits with family. If you can learn to change your financial behavior you have the power to change anything in your life. Simply focusing on an outcome (positive or negative) leaves out all that good stuff along the way.
The Good-Enough Budget
I have a half-developed pet concept I keep turning over called the "good-enough budget." The term is a take-off on that classic Winnicott term, the good-enough mother. Without getting into a whole history of Object Relations, the basic idea of the good-enough mother is a departure from the Freudian and Kleinian "good mother/bad mother" dichotomy. The good-enough mother is less of an abstract, but is seen as a real person dealing with the real world, doing the best she can to respond to the developing needs of her infant, and for her efforts and responses to be sufficient to the child's needs. (The history of modern psychotherapy is basically written on the backs of "bad mothers," so the idea that something short of perfect parenting is still considered "good enough" should be met with cheers.)
The good-enough mother does a few crucial things consistently well:
- She sees her child for who he is and doesn't project her own fantasy;
- She accepts and responds to her child's needs without shaming or rejecting;
- She provides a "holding environment" with her attention, love, and physical care that supports her child's development from a dependent infant to a mature, authentic adult.
So how does this relate to money? How can a budget be good-enough?
First of all, the good-enough budget is concerned with boots-on-the-ground financial management (meeting your real life, day-to-day financial needs) and not an abstract concept of financial perfection. Do you account for every penny? Do you religiously reconcile your accounts every month? Probably not. And the good-enough budget doesn't require you to. As long as you have a basic framework for what you earn and spend, you're still in better shape than "failing" at the ideal.
The good-enough budget reflects who you really are. Do you eat take-out for every single meal? Then your good-enough budget shows a higher number in Take Out than in Groceries. Same thing for all of those other "naughty" financial behaviors that people consistently omit or under-report in their budgets: buying clothes, liquor, taking taxis, etc.
Not quite ready to accurately account for those expenditures? The good-enough budget doesn't judge. Figure out all of those committed expenses -- things like housing payment, car payment, student loan, cell phone, internet, insurance -- and everything else can be "discretionary" for now. Practice simply staying within your means (so that "committed" plus "discretionary" is still less than "income) and the good-enough budget will accept that for now.
The good-enough budget gives you room to work on your financial awareness and behavior without requiring perfection. It is a low-pressure but consistent connection with your money where you give yourself structure, but still enough wiggle room for this to be a work in progress.
Because you, my darling, are a beautiful snowflake and you deserve to have your money be a source of happiness instead of shame. Mama loves you.
It's Hard Out Here for the Rich
I settled down this morning with U.S. Trust's 2012 Insights on Wealth and Worth as a little light beach reading (sigh... if only. I'm still at the office). Some of the findings knocked me out of my chair. Among them:
- Six in 10 HNW parents are not fully confident their children will be well-prepared to handle a financial inheritance.
- The younger generation is more likely to have full confidence in their children's preparedness.
- Nearly four in 10 parents strongly agree their children would benefit from discussions with a financial professional.
- Just over one-third of wealthy parents have fully disclosed their wealth to children, while half report having disclosed just a little regarding their financial status.
- Nearly half (48 percent) of people over age 67 said, "I was taught never to discuss wealth."
Are you kidding me? Read between the lines here. Parents (and "parents" here can be any age between 18 and 67+, so we're talking in most cases about parents of adult children) don't think that their children are prepared to handle the wealth that will be coming their way. But the majority of them don't disclose the facts of the situation, and almost half of the older cohort don't seem comfortable discussing it at all. The younger generation thinks, "Of course I will handle this better than my parents did and will make sure my own kids are prepared," but these are the same people the older genation thinks are not well-prepared to begin with. Finally there is the wish that some financial services professional will just step in and set it all to right. Give Junior the Facts of Wealth talk and suddenly he'll morph into an upright steward of the family fortune. Oy.
Responsibly handling money (whether it's a thousand dollars or a hundred million) has a good deal to do with information, but even more to do with intangibles like maturity, the ability to moderate impulses, and the formulation of meaningful goals. To successfully pass wealth from one generation to the next the tasks of money management must be imbued with positive associations, but these bullet points indicate strife, discord, and intergenerational blame.
I know that it's not a popular past-time to bemoan how hard it is to cultivate new generations of rich people, but it always makes me sad to see money as a source of emotional constipation in families. In all of the wealthy families that I know and have worked with, money is the dark matter that exerts a gravitational pull on all involved. The healthiest way to deal with this is to bring it out of the darkness and acknowledge it's influence on relationships and behavior. Money can do great good in the world and can be a source of positive family identity. But unhealthy families create unhealthy financial behavior again and again and again.
Thank You to My Parents, for Letting Me Be Stupidly Naive with Money (Seriously)
For two years, I lived in a Brooklyn building built illegally on a commercially zoned block, wedged between two factories. Four of us lived in an apartment designed for two, with railroad-style bedrooms. We often barged in on each other while sleeping, reading, having sex. The post office refused to recognize our address or deliver mail. Crack deals sometimes took place on our stoop.
Ah, the glamor of New York City for the young, ambitious, and broke. For Lilit Marcus it was a crack-tastic Brooklyn share where she couldn't even get her mail. For me, it was a sixth-floor walk-up with no windows in the living room. But at least mine was in Chelsea.
I love this article about How I Made it in New York City Without Parental Help. I especially love how this is now a thing, I guess, in the era of Boomerang Kids and whole employment sectors dependent on unpaid interns. When I moved to New York in 1996 it wouldn't have occurred to either my parents or me that they should be financially supporting my choice of where to live. They didn't especially like that I wanted to move here after I graduated (like this writer, it was a wonderfully impulsive, capricious choice to be sure), but I was an adult and therefore I don't think that they considered it to be much of their business.
Lilit was much more conscious and disciplined about money than I was. For years I was baffled by my ever-growing credit card debt. It seemed like everyone here was effortlessly fabulous, and even though I was by no means extravagant I certainly spent more than I should have just trying to go with the economic flow.
When I eventually "hit bottom" financially, I actually did get crucial help from my parents. Some of that was monetary (they caught me up with my past-due bills totalling just under $2,000 as I recall), but the most important forms of help I received from them were instruction and support. My mother sat down with me and together we drew up a monthly budget, and over the next two years as I attacked and paid off $19,000 in credit card debt, my parents cheered me every step of the way.
We are all on a journey with our money. I don't regret a single step of mine, because each peak and valley has taught me something meaningful. In fact, the valleys have been -- if you'll pardon the pun -- the richest experiences of all. I was amazed to discover how safe and secure it felt to know where my money was going, and that I could say no to a purchase or proposed adventure without self-combusting.
I give my folks huge kudos for the constructive way in which they helped me. They did a parent's ultimate job: helping their child develop the skills and capacities to be a competent, independent adult. That's more valuable than paying my rent for a lifetime.
How to Spend Your Savings
It's time for Katie to liquidate her Moving Fund and head to her new place. The only problem? She fell in love:
This is not Katie.
Over the past few months, my aggressive savings has become a source of pride. I've watched the balance grow and I feel accomplished. Responsible. Safe.
But soon, I'll be back to zero. And even though that's way better than, you know, not having the cash at all, my inner Scrooge McDuck doesn't want to let go of all those pretty green bills. Ever.
Katie, I hear you. (Sidebar: I'm not stalking you. I know I blogged about your last piece, too, but that's because you have such great insight about this topic!)
People are well acquainted with the challenges of saving money, but we give short shrift to how hard it can be to appropriately use that savings. In other words, to spend it! In my Managing Cash Flow for Artists workshop (now in its sixth year), we have a whole session on operating a cushion, or Contingency Fund. This workshop is designed especially for people who have variable income and who often use credit cards for "lifestyle continuity" (also known as "eating and having a roof over your head even in months when your cash flow is negative"). Having a financial cushion is necessary for all of us, but for those who have particularly... dynamic... financial lives, being able to draw upon that Contingency Fund is a critical step toward breaking the cycle of debt.
But my advice on the topic has more to do with the difficulty of the behaviors associated with operating a Contingency Fund than with the concrete aspects of how much to put aside, when to take it out, and how to replenish it. Because the biggest obstacle to appropriately utilizing your Contingency Fund (or in Katie's case, her Moving Fund) is emotional.
We have a tendency to fall in looooooove with our money. The harder we've worked to put it aside, the longer we've held it and the bigger the balance, the more attached we get (the same is true for investments, by the way). It is always easier to spend someone else's money (i.e., credit), which is why we override our own natural aversion to debt in order to hold on to our precious saved pennies.
So in Cash Flow, I teach Contingency Fund 101 as a behavior instead of a desired balance. And it helps to learn to walk before you run. My advice is to start with $1,000 -- a significant amount but not enough to get head-over-heels about -- and practice using it to cover expenses that are not part of your regular monthly budget or to plug holes when your income dips. The more confident you get about your ability to take out money and replace it, the less bereft and anxious you'll feel when you part with it for its intended uses. In the mental health profession, we would say you'd developed a secure attachment to your Contingency Fund. You learned that "Mommy always comes back," (or in this case, Money always comes back). Once you get the hang of properly operating that $1,000, it becomes easier to build a more robust Contingency Fund, as well as saving for other meaningful short-term goals.
Katie is doing a great job of coaching herself through the tough goodbye to her Moving Fund. In this similar article today on LearnVest, Sadia does the same with her Vacation Fund. Today is a good day for ladies rocking the Save-to-Spend technique. Yay!
Fixing Education Debt: Too Much of a "Good" Thing
I work with a lot of artists and freelancers, which makes me particularly sensitive to people's issues with educational debt. Unless you can afford to attend college without borrowing, it is increasingly difficult to pursue any field that doesn't offer immediate and sustained financial success. A writer or designer whose income swings wildly from month to month and year to year is going to be crippled trying to come up with $500/month to send to Sallie Mae. And with no hope of restructuring the loan or having it discharged in bankruptcy, for many folks there's a good chance they'll be paying until they die.
Listen, I get it. I totally understand the argument about fraud and why there should be a high bar preventing people from getting the education and then sticking taxpayers with the bill. But I also see how broken the system is. While I do want to talk solutions, I find it impossible to get to that without two minutes of diatribe first. Here, in no particular order, are the issues that make me get a little mouth-foamy when talking about student loans:
Available money today errodes value sensitivity.
You visit a campus and it's beautiful. All the students look so happy, and they're talking about such interesting things. You think, "This is where I belong." To a teenager about to leave his/her parents' house for the first time, that feeling of fit is supremely seductive. Or maybe the allure is a particular program (I hope it's Engineering) or the status and cache of the school. But whatever it is, on some level you think that if you just get there then the rest of it will all work out. And because lenders are generally tripping over themselves to lend to you (there's very little risk to them, since discharge is difficult), it's just so easy to get the money to go to school. So you go with your gut. After all, repayment is so very far in the future...
It also obscures the skyrocketing price of education.
Depending on which data you use, the cost of a four-year college is going up somewhere between 7% and 8.3% a year. There are a number of contributing factors, as federal and state funding gets cut and institutions fight to attract students by offering more amenities, but the fact is that costs are going up like crazy and until recently nobody seemed to be too concerned about it.
Loans are given each semester, and not seen in their aggregated total until all the money has been borrowed.
Here $7,000, there $7,000, everywhere a $6- or $7,0000, so grows $100,000 of debt before you even know it. I have heard terrible stories of graduates having panic attacks when they FINALLY get presented with the entire amount of their debt right before graduation. To say nothing of the shock of seeing how fast that debt can grow when you put it in forbearance for a few years while you're trying to find your feet professionally. Oh, and remember: the private loan you took out the first semester has also been growing for the three and a half years you've been in school, too. Interest on interest on interest.
"Good debt."
This makes me insane. Yes, it's better to borrow money to get a Bachelor of Arts vs. spending the same amount on shoes and handbags -- no doubt about it. But for crying out loud, as if that's a real comparison! All debt should be considered carefully, deliberately, even gravely. To give it a blanket "good" moniker belies the seriousness of the situation. Getting a university degree can increase your earning power by a million dollars over the course of your lifetime. But saying that educational debt is "good" side-steps our natural conservativism about borrowing and errodes our ability to think critically about value.
You're not playing with a full deck, so to speak.
Sorry, 18-year-olds. I know you're a National Merit Scholar and all, but the truth is that your brain isn't quite done forming yet. In fact, the "executive suite" that is your prefrontal cortex, whose functions include "calibration of risk and reward, problem-solving, prioritizing, thinking ahead, self-evaluation, long-term planning, and regulation of emotion" isn't fully formed until your mid-20s. You are an expert on Chaucer and you can recite Pi to 50 digits, I grant you, but you're making a permanent financial commitment that your future self is going to have to deliver on, and you don't even have the part of your brain that can do that yet!
Education debt has a ripple effect over the entire economy.
Young adults can't save for a down payment because that money is going toward their student loans, which means the housing market is slower to recover. Retirement savings starts later for the same reason. People delay having children, and struggle to save for their children's education, and the cycle is in danger of repeating ad infinitum.
Okay, now I'm freaking out and totally mad. What's next?
For the forseeable future, college is going to cost money -- a lot of money. We can spend forever gnashing our teeth and tearing out our hair about it, but at some point we need to take a deep breath and deal with the most important consequences, namely the pressure on borrowers and the drag on the economy.
There are several groups working on constructive solutions from various angles. Some focus on making repayment more affordable, others on blanket forgiveness for a nation of debtors. I really liked this article that I saw today via LearnVest on Why Student Loan Forgiveness May Not Be as Helpful as You Think. The author suggests a compromise that would act as an economic stimulus: subsidizing existing student loan debt by paying the interest, combined with creating an economic incentive to universities to lower tuition and make school more affordable. This could conceivably enable young people past and future to pump money into the broader economy instead of to the banks.
I think this is a coherent and well-reasoned argument that doesn't get lost in emotion, moral outrage, or good-vs.-evil debates -- which I totally respect, since I had to get on a 500-word soapbox before I was even ready to talk about the article that was ostensibly my reason for this post! Oy vey...
Are your finances a mess? That's curious.
When it comes to money, most of us have a problem-solution mentality. Got debt? You need a plan to get out of it. No savings? Here's a way to budget your way to a fatter balance. Hate to review your accounts? Try the butt-in-chair method.
The limitation with this approach is that most financial goals involve a significant amount of behavioral change, and slapping that "problem" label on yourself means you are probably going to overlook the very insight and information you need in order to change.
Instead of problem solving, try to cultivate an attitude of benign curiosity about you and your money. I say benigncuriosity, because when we first start to simply pay attention to money it can bring up a flood of negative emotions and beliefs. We need to be conscientiously gentle and kind to ourselves, or the practice of self-examination feels overwhelming.
Benign curiosity begins with two important premises:
All financial behavior has meaning.
All financial behavior serves a purpose.
So if, when you start paying attention to money, you notice that you've been making a lot of impulsive purchases, try to step back from the self-recrimination for a moment and remind yourself:
I may feel regret about these purchases now, but at the time there was a reason why I felt I had to buy X. What was I trying to do, change, or fix? In what way did that work? In what way did it not?
Benign curiosity allows you to identify the true cause of the behavior and find positive, affirming ways to meet that need that aren't financially destructive. This way when the moment comes again you A) recognize it, and B) have an alternative response ready.
As someone said in one of my groups last night, "It's easier to change a habit than to eliminate it."
Treating is Fundamental
This morning I gave a talk to the graduating seniors of a prestigious arts college. One of the questions I got asked was how to deal with wanting to treat yourself. "I work so hard," the young man said, "and I feel like I deserve to spend money on something nice for myself once in awhile, even though money is tight."
As far as I'm concerned, you should be spending money on nice things for yourself all the time. I am not the treat police. Completely the opposite, in fact. I feel like meaningful treats** should be part of EVERYONE'S regular spending plan. But treating yourself has little to nothing to do with how hard you work, and everything to do with whether or not you have the money to afford your treat of preference.
When you try to buy yourself a treat that you can't afford just because you "deserve" it, you end up in a mental spiral:
Prosecution: "Do not buy those shoes! You will just go into more debt!"
Defense: "I deserve these shoes! Wait, I NEED these shoes. My other shoes are worn out and scuffed, the heel is broken, and I never have any nice shoes to wear when I have to go out."
Prosecution: "When you have to go out? Really? That's your defense? Maybe you want to try again."
Defense: "Whatever. Work has been making me crazy. I hardly ever buy myself anything. I should get myself something nice once in awhile. Besides -- these are on sale. It would be a waste of money notto buy them!
Prosecution: "Your Honor, the Defense should recuse herself because she is starting to sound insane."
Defense: "Ha! While you were talking to the judge I snuck up to the register and paid for them! Too late!"
And later... the "Defense" is nowhere to be found as you mope about, feeling ashamed that you spent money on shoes that you meant to put toward paying down debt. You're still tired, anxious, and overworked, but now you get to feel guilty and regretful on top of it. How is that a treat?
Buying something on impulse that you can't afford and telling yourself you deserve it is a self-esteem grenade.
A real treat starts with a plan. You think about what would be a meaningful, enjoyable way to spend money on yourself. If it's shoes, great. Or it could be going to the movies, meeting a friend for dinner, or buying fancy bath salts. When you know what it is you want to spend money on, revisit your monthly spending plan. Put said treat item into the plan. If you need to, pare back other expenses that are not as valuable in order be able to afford it. If things are really lean, see if you can identify what it is about your preferred treat that makes it so meaningful, and then try to find a lower-cost alternative (for movies, see if you can set a date with yourself to watch a movie at home with a favorite snack and no interruptions, or for fancy bath salts try mixing your own).
When you consciously and deliberately give yoursef a treat you get to enjoy every part of it: the dreaming, the planning, the selecting, purchasing, and using. Using money as a means of self-care can be an amazingly empowering experience. And THAT can be the real treat!
**For our discussion here, when I say "treat" I specifically mean SPENDING MONEY on something fun, indulgent, or frivolous. I don't just mean doing something nice for yourself.
National Teacher Appreciation Day
I was always a geeky kid who loved school, so it's no surprise that I can name ten teachers off the top of my head to whom I feel grateful and who I think about with great affection. But hands down, the teacher who had the most significant impact on my life was never my teacher in any particular class, but the teacher who ran our drama and forensics department. She was my mentor, coach, director, and friend.
Kathy Mulay was a perfectionist. And she could be tough. When she cast me in our senior year production of The King and I, I went through a period of rehearsals where I was intimidated to sing in front of the girls playing the King's wives because I thought they had better voices than me. Kathy (Mrs. Mulay then) took me aside and didn't reassure me. She didn't give me a pep talk. She told me that the part was mine and I needed to "get it together." She was the director, she knew what she was doing, and she had given the part to me. It was time to deliver. I remember my blood turning to ice when she dropped this on me. But in the next second I knew I had to deliver. So I delivered.
My decent-but-not-fantastically-exceptional performance as Mrs. Anna aside, the area where Kathy really changed my life was as my forensics coach. Forensics, or competitive public speaking, is not the coolest way to spend Saturday mornings when you're in high school. But for some reason I loved it. I loved to write, edit, and endlessly rehearse my pieces in hopes of winning a trophy. And Kathy would work with me for hours into the evening, choreographing each cross of the room, each hand gesture. Under Kathy's direction I went to the state finals two years in a row, competing my junior year in Informative and senior year in Oratory.
Can you think of a better gift to give someone than the ability to craft and deliver a message that others can understand, and believe? I use these skills every day when I teach classes, lead workshops, and speak at events. I feel so lucky that I can take my passion for helping people bring money into balance and communicate it to as many listeners as I can muster. I never feel nervous in front of a room full of people. I get excited! I know that what I have to say can make lives better, and I don't have to worry about my ability to say it. When I consider that public speaking is one of the most common phobias, I cannot even express my gratitude for what Kathy Mulay has given me. But still I will take this opportunity to say it: Thank you, thank you, thank you, Mrs. Mulay.
Princess, Post-Doc, Publisher, Mom?
As the mother of two daughters, I want my girls to have dreams as big as the world. Fighter pilot? Astrophysicist? Go get 'em, girls. And yet one of the things that I love most about my own career is that I can organize my schedule to include a lot of mommy time. Half of the week I get home after the kids are in bed, but the other half I can cuddle the baby all day and be there to pick up big sister from preschool. Being a hands-on parent is a priority for me, but it does make for some hard choices when it comes to certain professional opportunities.
The balance that I've created is in large part due to the messages about work, family, and earning that I got from my own mother. When I was younger my mother was a teacher. She enjoyed her work, but even more importantly her career enabled us to survive those years when she was the custodial parent after she and my dad split. A few years later she remarried and continued to teach for awhile, but with a longer commute, another child, and a busier household the main message that I got from her was that it is very hard to be the mother in a two job, two kid family. As soon as we could afford for her to leave full-time work she did, and I remember that there was a lot less stress in the family when she was able to focus on home.
Reading this piece about the "princess mentality" by Amanda Steinberg and referencing an earlier op-ed by Laura Vanderkam, I can't help but think of how complex (and wonderful!) our choices are as women. I am so glad there are voices like Amanda's and Laura's that urge us as women to protect ourselves, to participate in own own financial lives, and to never depend on someone else for our own security. I agree wholeheartedly. There is absolutely no job security in being a princess nowadays.
But while that's undoubtedly true, it's still not exactly simple. My mother also encouraged me to dream big. Fighter pilot and astrophysicist were actually things I wanted to be when I was growing up, but as I got older I pivoted to something decidedly more family-friendly. I'm lucky that I am actually doing work that I adore, and pursuing a career path that fulfills me just as much as being a parent. But do I feel like I threaded the eye of a needle in doing so? Absolutely. And I wonder what message I'm modeling for my girls, even while I tell them to shoot for the moon.
Couples Counseling: You and Your Money
Sometimes in my financial counseling practice I feel like a couple's counselor, rehabilitating the relationship between people and their money. (This is, of course, notwithstanding the many actual couples that I treat around money issues. That's a whole other can of worms.)
Sessions can go something like this:
Client: "Make my money stop disappointing me!"
Money: "Make her pay attention to me!"
Client: "Every time I try to spend time with my money, it's never enough. My money is all complicated and needy and it doesn't give back to me. It doesn't take care of my needs. It's all, 'Hey, why don't you keep better records? Didn't you notice that this bill was late and you got slapped with a fee?' I work all day long, and when I get home I just want my money to be waiting for me with orderly accounts and a fat balance! Is that too much to ask?"
Money: "You are acting like a crazy person. No, I cannot organize myself. I can't do anything you don't instruct me to do. I am an inanimate object. Quit projecting your relationship with your mother all over me and just hang out with me once a week! I'm not trying to stress you out. I'm just trying to get your attention because there are things that need to get done!"
What I basically do is what any couples counselor would do: try to bring down the emotional intensity and facilitate communication such that both parties can actually hear each other (okay, really it's only one party that needs to do the hearing).
What clients need to "hear" is their own anxiety. Anxiety has a vital function, and that is to bring our attention to something that needs to be addressed. It's designed to be uncomfortable so that we're motivated to remove its cause.
When we yearn for money to take care of us with no responsibility or action on our part, we're enacting an infantile fantasy. In essence, we put money in the role of a parent whose job is to provide unconditional care and support. For many people who struggle with this financial issue the root cause is a parent who did not do that job sufficiently.
The financial counseling process can help clarify and resolve where money gets tangled up with personal struggles such as this. The "dialogue" above seems silly from the perspective of adulthood, and sometimes just pointing out the dynamic can be enough to help people recognize the impossible expectations they have for their financial life, and to begin to build a solid and mature relationship with money.
The Automated Life
I was reading a post by new Twitter friends oXYGen Financial (@oXYGenFinancial) about the pros and cons of putting bills on autopay, and I thought I'd contribute my two cents.
Our money takes us on a journey. Some parts of that journey are interesting and worthy of exploration, other parts are simply scenery that we pass by on our way to somewhere else. Putting bills on autopay puts them in the scenery. Which has advantages - do you really want to be examining every tree and mile marker? Not only could that get pretty dull, but it could also take energy and focus away from other parts of your financial life that would benefit much more from getting your attention.
When coaching people on developing financially healthy behaviors, I tend to start with a thorough examination of all expenses. Each expenditure tells us something (my mantra is "All financial behavior has meaning," and what you spend money on reveals a tremendous amount about you). So yes, I want to know why you chose that cable plan, or why you live in that apartment. I've been known to get lost in the story of when you stop for coffee. When you're at the beginning of the financial wellness journey it's not just every tree and mile marker, but even the blades of grass get at least a cursory glance.
However, there is competition for your attention, just like there's competition for your money. So after we get a sense of which budget elements need attention and which ones do not, tools like autopay can be immensely helpful. Not only does this feature have the benefits listed by oXYGen, but I would add that you can also avoid late fees and the anxiety of wondering if you've paid something on time. Creating a greater sense of safety around your daily finances frees you up to start working on deeper-level issues.
Automating a spending activity de-prioritizes it in your consciousness. That's fine (again, given the potential drawbacks so excellently listed by oXYGen), but it's not fine if that spending behavior becomes completely unconscious. A routine review of charges helps you keep perspective on what your choices cost. It also gives you the opportunity for a quick check-in that this expenditure is something you continue to value. I can't tell you how many thousands of dollars I've helped people save when they discover a mountain of subscriptions, dues, and other fees they didn't even know they were still paying, or when they pause to notice their Netflix payment despite the fact that they've been holding on to the same three DVDs for six months.
A huge part of financial wellness is learning how to pay attention to money. But attention is a precious resource, and figuring out the best places to apply it is an art. How does autopay work (or not work) for you?
The Have-Nots vs. The Used-to-Haves
Let me begin by saying I am a huge lover of DailyWorth and the amazing, talented women who run it. I'm sure this postabout the new Vh1 show "You're Cut Off!" was done in a spirit of fun and wasn't intended to be mean spirited:
"I nevah knew you could spend less than $800 on shoes," says one girl, shaking her head sadly. And you nevah knew that watching dumb rich girls would make you feel so good about your own finances"
It makes me once again shake my head at how much we as a society love to laugh when someone who comes from money gets taken down a peg. We judge them when they discover, often painfully or in some situation of comical ignorance, how the "other half" (actually the other "99.99% of us") lives. Just because the overwhelming majority of Americans know that one can -- quite easily! -- spend less than $800 on shoes, it shouldn't mean that this one individual's discovery is worthy of our scorn.
Why is it funny when a person finds that the financial conditions she's been prepared for have evaporated? (Okay, okay, it's for the sake of a reality television show here, I grant you.) Would you find it funny if all of the sudden you had to go from indoor plumbing to having to fetch your own drinking and cooking water every day? Should people laugh at you when you wistfully talk about how wonderful it was to turn on the kitchen sink or flush a toilet?
It amazes me that a country that loves to fantasize about the effects of weath simultaneously loves to demean and humiliate the wealthy. Judging those who have more than us blinds us to the privileges we do enjoy. It keeps us all in rigid little boxes about the "right" amount of money to have (hint: it's always just slightly more than we personally have).
It's wonderful that the young women appearing in "You're Cut Off!" will be learning about financial competence. Despite the narcissistic paradox of participating in a show like this ("Act like a spoiled brat! Excellent! Now cry when I take your money away! Awesome!"), I'm relieved to see that they will be working with a life coach in order to -- hopefully -- come away with this having experienced some actual personal growth.
Break It Down, Avoid Breakdowns
Changes are afoot in our house. My husband and I recently reviewed our split of financial tasks and decided to revise who is responsible for what.
Just because I counsel people on issues of financial self-care doesn't mean these processes are always perfect in my own life. I probably have more than my share of quirks and blind spots -- why do you think I went into this business in the first place?
So I begin with a confession: I have fallen down a rabbit hole. I sit here surrounded by multiple stacks of open files. I have two online accounting programs open, as well as a now-four-page Excel workbook. I'm totally over-caffeinated and I've been in this chair for five hours.
It's not uncommon for large financial initiatives to inspire manic bursts of effort. But problems arise when we let our mania run the show. I started out on one small task -- creating a simplified family budget -- but then I had to look up some insurance info in our files. That led to reviewing policies. Then I opened Mint to look at numbers for shopping and groceries. This led to a hyper-detailed tagging project. Then I wanted a clearer idea of how much our daughter's activities cost per year, so I started pulling data going back several months.
Somebody help me!
Large financial tasks require structure. They require a goal, sub-tasks, and a time line. When you jump in with only a hazy idea and a Venti-sized twitch in your fingers, it's too easy to get into trouble. You start off strong, then you run into a snag, and then you get distracted, and then you start something else, until finally you're waist-deep in fifteen different projects with nothing actually accomplished. The cycle ends when you run out of time or energy, and the emotional imprint that's left on this experience is one of frustrated depletion. What's even worse, you've left the task in such a state of mess that it's hard to find the thread to pick it up again later.
If I were to be my own client here, this is what I would advise:
Set a start time and an ending time.
You never want to make your level of motivation the key determinant of task structure. This morning I was filled to the brim with motivation. I couldn't wait to get started! But five hours in I had exhausted myself. I'm walking away from the task feeling terrible. My motivation for picking it up later to continue the work? Not high, my friends. I've created an association between this project and feeling crappy about myself. That emotional association is going to make it more difficult to resume the task and see it through to completion. To create a positive emotional association, you want to structure the task such that you walk away with some motivation still in your tank. Then, next time, you'll be excited to jump back into it.
Make 'Create a Clear Plan' the first sub-task.
My simplified family budget idea was too vague. What's the purpose of said budget? What does "simplified" mean? Knowing that I have a visual learning style, I should have sat down with a blank piece of paper and sketched out exactly what it was that I wanted to figure out, what resources (information) I would need to do it, how long it would take and when I planned to do it. Only then should I have allowed myself to touch the computer or filing cabinet.
Make 'Organize the Project for Next Time' into the last sub-task.
Have you ever seen a contractor at work on a big construction project? It may seem like a waste of time (and your money) when they start putting everything away at 3:00 in the afternoon, but the truth is that ongoing jobs require careful organization for each phase of progress. Along with setting an end-time for today's work, I should have also allotted time to tidy up and put things away in some sort of order. Looking out at my sea of files, I want nothing more than to just dump them all in a drawer and never open it again.
Put the project away and do something rewarding.
Okay, so I was not good at these first three, but my reward today was to vent a little by writing a slightly whiny blog post. There is also a very good chance that as I type this I'm sitting here with a generous bowl of ice cream. And I'm totally watching The Closer as soon as I wrap this up.
Review of process is the only way we learn to do things better. The good thing about financial tasks is that they are a regular part of life. I am going to get many, many, many opportunities to work on this some more, and when I do I am going to follow my own advice.