Know Yourself Know Your Money

Key idea 1

What you learn about money as a kid will determine your outlook on it as an adult.

Amanda, a close friend of Rachel Cruze’s, has a lifelong passion with fashion. She considers shopping as a competition, not just a means to save money.

But with time, it evolved into something more significant. She had a high-paying career but yet managed to consistently spend more money than she brought in. Her marriage was in turmoil by the time she was in her late 30s because her boyfriend was becoming increasingly frustrated with her money habits. Inevitably, sacrifices would be made.

Amanda’s parents were the type to save the bags from cereal boxes “just in case,” and after seeing a counselor, she understood that this excessive thriftiness was the root of her problematic behavior.

As it turned out, Amanda’s excessive spending was her method of protesting her family’s penchant for frugal living. This is not an exceptional occurrence; in fact, the majority of people’s views on money are formed throughout their formative years.

The key takeaway here is that your early experiences with financial education are crucial in shaping your perspective on money as an adult.

Economic choices are rarely made in isolation. It’s not hard to guess how much your income plays a role. Other elements are at work in the background, but their impact is not to be underestimated.

The way you spend your money reflects your personality, as psychologist and best-selling author Henry Cloud puts it. You need to know your financial story before you can change your habits and move forward with your financial well-being.

The concept of a “money classroom” is designed to help with this very problem. You were introduced to the grownup realm of personal money for the first time here.

There are two methods in which all kids learn about money. They first listen to their parents’ words. And the second is the emotional tone set by their parents.

As a result of the diversity of the world’s homes, education takes on many forms. Some parents avoid all conversations about money with their offspring, while others avoid the topic entirely. This results in an impenetrable wall of silence in the classroom. Some families discuss sensitive topics over dinner, such as finances or investments.

Negative or upbeat feelings can be conveyed through communication. Some families can talk about money and the kids can relax. In other contexts, money is a source of tension and worry.

Different classrooms result from the interplay of these factors, but reflecting on your own financial experiences as a youngster might shed light on how you feel about money now. How? Let’s take a deeper look at the difficulties of growing up in three typical school environments.

Key idea 2

The most prevalent symptoms of the anxious classroom are embarrassment and terror.

One of Cruze’s other close buddies once filled her in on his backstory.

He accompanied his mom to the supermarket when he was a little boy. She was a regular purchaser of stale bread. Not until he went grocery shopping with his friend’s mum did he consider the possibility. After checking each loaf attentively, she selected bread from a different shelf. He was perplexed as to her whereabouts. She lied to him and claimed she was picking out the newest loaf.

Later, when he asked his mother why they didn’t do the same, she showed a brief look of concern. She said that the price of stale bread is halved because it is rapidly consumed. She went on to say that every dollar saved goes toward paying monthly expenses.

He had never before understood how much his parents struggled financially.

The main takeaway here is that anxiety manifests itself mostly in the form of social awkwardness and apprehension in the classroom.

Cruze’s childhood friend was a product of tense classrooms.

In this classroom, students rarely talk about their personal financial habits. However, kids are quick to pick up on the fact that money elicits a strong emotional response, even if it doesn’t necessarily result in loud conflicts.

The inability to discuss money issues is likely to be a lifelong struggle for people who grew up in such an atmosphere. In all honesty, that shouldn’t have come as much of a shock. You shouldn’t bring up a topic that has been causing stress for the individuals you care about.

Consider your feelings on financial matters. Do you fear that your significant other or best friend doesn’t know how hard it is for you to make ends meet? Do you ever worry that you won’t have enough money saved for retirement? If you answered “no,” then it’s time to make some adjustments.

That’s not as easy as it seems, so take it easy at first. Share your desire to improve your financial communication skills with someone you trust. In fact, it’s worth expressing out loud to start a productive conversation. When you’re ready, try explaining why you’re having so much trouble with it.

This is going to be uncomfortable, at least in the beginning. However, keep in mind that apprehension expands in the shadows. Bringing something out into the open reduces its potential for harm.

Key idea 3

Apathy can develop in a classroom if stability is lacking.

We just saw that some families don’t talk about money. Many people around us are very vocal.
However, this is not always a desirable trait. Money discussions that are open and frank can teach a lot. However, a child’s relationship with money might be harmed if arguing is persistent.

Kids are vulnerable to their parents’ negative feelings and powerlessness to alter the family’s financial condition when they hear them spoken publicly.

Finally, what does this mean? Feeling helpless in the face of uncertainty and disorder.

Disinterested students can be a result of an unsteady classroom environment.

In an unsteady classroom adults often complain (sometimes loudly) about their financial situation yet never seem to do anything to improve it. The number of problems is large, but the number of possible answers is small.

One of the author’s close friends is a prime example of someone who experienced this type of upbringing.

Her parents were always stressed out about money, and they never hid the fact that they were having financial difficulties from their kids. They argued frequently and had short tempers when times were tough. A child who begged for a certain type of cereal or a pair of new sneakers would get an angry response.

However, when times were good, her parents were not exactly known for their frugality. Suddenly, there was enough money for shopping trips and treats, and everyone was in a good mood. These about-faces were like a case of whiplash for Cruze’s pal. The choices her parents made rarely made sense. Upon reflection, she realizes that they did not make “deliberate” decisions with their financial resources. It varied in intensity, like the weather: sunny one day, rainy the next. This was, in either case, beyond anyone’s control. The only difference was that her parents didn’t get into an argument when it rained instead of when they ran out of money.

It is understandable that students who have just left an unreliable classroom would develop a disinterest in financial matters. They have learned that discussing it will just lead to arguments and that it is fleeting, so they generally attempt to ignore it. One could ask, “What’s the purpose in trying? It’ll only lead to a fight anyway.” if they were raised in such a school. Although these feelings are natural, you are not stuck with the current situation. As we’ll see in a while, when you take charge, things do get better!

Key idea 4

If you have no idea what money is or how it functions, you cannot hope to learn about it.

While financial insecurity is certainly a factor in the classrooms where anxiety and instability prevail, it is also possible to have difficulties in life while still being adequately provided for.

Which brings us to the oblivious lecture hall. Growing up here, you probably didn’t have to stress about money. You probably never even considered the possibility. It’s understandable that you didn’t give much thought to financial matters; after all, neither of your parents ever seemed too concerned or eager to have a conversation about it.

The old adage that ignorance is bliss does not hold true here. Sooner or later, you’ll have to stop relying on other people to handle your finances and start doing it yourself. That’s a tough order if you haven’t had any training.

The main idea here is that learning about money is the first step toward understanding it.

There are two common explanations for why children spend their formative years in school oblivious.
The first is obvious: some people come from wealthy backgrounds. Assuming they didn’t make it a priority to teach you about money management, your parents probably didn’t see much of a need to worry about it themselves, so you probably won’t either. If they hadn’t prepared you for adulthood in this way, you may today be an adult with no idea how things function.

Parents of other people really did have it tough, but they did everything they could to shield their children from harm. They weighed telling their children about the problems adults face vs keeping them in the dark, and they made the decision to do the latter.

Parents’ best intentions in either scenario may lead to unintended consequences. The most frequent problem? Many folks feel duped. Some people wonder why their parents didn’t take the time to teach them this fundamental ability. Others feel betrayed since their parents hid problems from them when they were growing up.

The failure to receive financial education also has real-world consequences. When they become adults, children learn how crucial it is to have a firm grasp on a topic about which they previously had no background. To put it another way: you have no idea how little you know. Therefore, there is no reason you should naturally understand the significance of a budget or how it relates to your life goals if you have never been taught about such things.

Don’t worry if any of the three scenarios we’ve discussed thus far sound similar; in the next few sentences, we’ll examine several methods that will help you regain control of your finances.

Key idea 5

To begin taming your financial anxieties, it’s recommended that you set aside at least $1,000 in an emergency fund.

We all feel fear sometimes since it is our body’s natural response to potentially harmful situations.

Hormones released by the brain in response to fear improve one’s ability to detect and respond to danger. This is the biological mechanism responsible for the “fight or flight”.

Fear, however, has its costs. Because of your heightened awareness of potential threats, you probably don’t spend much time trying to figure out the meaning of life while you’re being chased by lions.

Worse, paralysis by fear is a real possibility when dealing with a fearful situation. And that right there is anxiety: the kind of diffuse terror that keeps you frozen when there seems to be no way out of a potentially dangerous scenario.

Although modern humans face much less danger from wild creatures than they formerly did, our survival instincts nonetheless kick in anytime we feel threatened. This explains why so many people are constantly worried about money.

The main takeaway here is the need of having a $1,000 emergency fund as a first step toward mastering your money worries.

Time and again, people’s greatest financial concern is that they won’t be able to come up with a small amount of money when they really need it.

Okay, but what if my supervisor decides to fire me tomorrow? Worst case scenario, my child gets sick and I have a slew of unexpectedly high medical bills to pay. But what if more pandemics emerge and the economy continues to contract? What if I can’t drive to work unless I pay someone to fix my car and they don’t show up unless I wait till they are paid?

This is the sort of terrifying inquiry that keeps millions of Americans awake at night. And with good cause too. Seventy-eight percent of Americans report living from paycheck to paycheck, per a 2017 survey by CareerBuilder. However, according to the Federal Reserve, only 39% of Americans have enough cash on hand to meet a $400 emergency. That means that if terrible luck strikes, 40% of Americans will face a financial catastrophe that might put their lives in jeopardy.

If you frequently find yourself tossing and turning in bed, fretting over hypothetical situations, what should you do? One easy solution is to start saving for unexpected events.

The only thing that can be counted on in life is that there will be moments when you need money to get you out of a jam. A fair baseline is $1,000, which is small enough to be achievable with little hustle but still large enough to handle many unexpected needs, such as auto repairs and lesser medical bills.

Key idea 6

If you want to get out of debt quickly, it’s best to focus on the easiest solutions.

Previously, one of Cruze’s friends owing $40,000. Elizabeth, a teacher with a limited income, tried diligently to pay off her debt but was unable to do so. Elizabeth resorted to Cruze in a last-ditch effort to find a way out of her predicament.

Insight from Cruze? Gain financial stability by increasing your income. Elizabeth sought for additional work to augment her teaching salary. She watched over people’s homes while they were on vacation, walked dogs, babysat, and worked weekends at a neighbourhood bakery. As a result of this strategy, Elizabeth is now debt-free.

However, she wasn’t just blindly tossing money at the issue; rather, she was employing a time-tested technique known as the snowball method.

Main takeaway: it’s possible to quickly reduce or eliminate debt by focusing on relatively easy-to-implement solutions.

The snowball method is the most straightforward strategy for paying off debt.

You should start by making a list of all of your financial obligations. Where do your financial obligations lie and who do you owe them to? Put all debts, regardless of interest rate, in order from least to greatest. As soon as you’ve finished it, you can get going.

For the foreseeable future, you should devote all of your debt-repayment efforts toward paying off your smallest loan as soon as possible, while still making the required minimum payments on all of your other debts.

How? That, of course, is a loaded question to answer. Sometimes, all it takes is shifting your spending habits slightly, like only ordering takeout once a month instead of twice, to free up enough money. But without such flexibility, you’ll have to find some additional means of income. All that matters is that you make every effort necessary.

You can move on to the next smaller debt after you’ve paid off the first one. When that’s gone, you’ll go on to the next and keep doing that until you’ve exhausted all of your options.

Don’t forget that when you start making payments on your third-smallest loan, you’ll no longer be making any payments at all toward your second-smallest obligation. However, since this sum has already been budgeted, it can be reused without causing a financial strain.

Just like a snowball picking up speed as it rolls downhill, this strategy for paying off debt relies on a steady accumulation of small wins over time. Moving forward is becoming less difficult. And that’s excellent news for more than just your bank account; it’ll also bring you some much-needed calm.

Key idea 7

To save costs and stay out of debt, you should only buy necessities.

The New York Times conducted a series of interviews with recent couples in 2019 to learn more about their trips together. The article’s authors were curious about the causes of so many negative comments.

One answer can be found in a story of a couple who spent a small fortune to visit the beautiful island of Aruba in the Caribbean.

Those breathtaking sunsets were something the groom would never forget. The amount of time his wife spent shooting them via social media was more impressive than their physical attractiveness. Even dinners at fancy restaurants cost too much. The bride made her food selections based on their Instagrammability rather than their taste.

Their marriage was nearly doomed by the exorbitant cost of the honeymoon. Where did we go wrong? To put it bluntly, trying to impress people is a costly endeavor. It will probably also make you feel bad.

The main idea of this section is to only buy necessities in order to minimize debt and save money.

Looks can be deceiving. We have established that roughly 40% of Americans cannot come up with $400 in the event of an emergency. The availability of credit obscures this reality.

The average credit card balance among American households is $14,500. While emergency expenses and unforeseen costs are covered, a large portion of family debt goes toward subsidizing extravagant lifestyles that families simply cannot afford. In spite of the fact that he may appear to have it all together thanks to the shiny new SUV in his driveway, the odds are that your next-door neighbor is actually struggling to make ends meet while also carrying tens of thousands of dollars in debt.

This is why it’s a bad idea to base your financial decisions on the wealth of others. Let’s pretend you’ve also decided you need a shiny new car in your garage. That’s like saying you want to be like a broke person and then comparing yourself to them. Obviously, trying to emulate the poor is not a good financial strategy.

Retrospection is the most effective means of escaping this bind. Don’t rush into any purchases. Asking yourself these questions before making a purchase will help you achieve this goal. First of all, if no one saw your Aruba holiday photos or if your coworkers used the train to work, would you still desire that high-end European car? The second thing to think about is whether or not you’ll be delighted with the purchase once you’ve made it.

If you answered “no” to either of these questions, it’s likely that your spending money to impress others. Until your mood improves, it’s probably best to put off making this purchase.

Key idea 8

You can find a balance between miserliness and wastefulness.

We all make fiscal blunders from time to time. It’s also true that not every blunder is the same.

If you use your credit card to pay for an extravagant trip or a new automobile that you can’t afford, you could be doing serious damage to your financial situation.

For example, ignoring a tacit agreement to split the bill with friends and instead insisting on paying for only what you’ve eaten can be excellent for your wallet but awful for your friendships.

What’s the fix? Strive towards an equilibrium between the two extremes.

In this short messaging service, we emphasise: You can find balance between miserliness and wastefulness.

Spendthrifts are often too lenient with others. They shrug it off when they forget to pay bills and the late fees pile up. When such costs add up and their wages won’t cover groceries for the month, they shrug and pull out the plastic.

You are correct; this does happen on occasion. But making excuses over and over just keeps the toxic cycle going. You can’t save money or amass riches if you’re always overspending on the excuse that you’re “not good at planning” or taking on debt because you “deserve” a reward. If you don’t change your ways, you’ll never be able to break free of the things about your life that are making you miserable. No matter how unkind it may sound, if this fits your relationship with money, you need to be more severe with yourself.

On the opposite end of the spectrum come the miserly few. Imagine you’re a friend of the author. He had picked up takeout for his family and noticed they were missing two tiny items when he came home. Everyone was content, there was plenty to eat, but he just couldn’t let it go.

A whole hour was spent on the phone with the restaurant, a return trip, and a detailed explanation of the problem. Once he got home, he was irritated despite having his $8 refunded. In addition to the eight bucks, he had lost out on a family supper.

If you’re a stickler for the law, you can use the five-year rule next time anything like this comes up. Determine if this will be relevant in the future by asking, “Will this matter in five years?” No? Recollect yourself and continue.

Key idea 9

When you get back in touch with your goals, you’ll find it far less difficult to save.

To save money can feel like a sacrifice. Putting money up for the future entails giving up some present-day freedom.
However, you’re looking at it completely wrong. Rather than being a chore, saving money may be a great source of pleasure. If it doesn’t, maybe you’ve lost the link between saving and dreaming.

This animation’s main point is that it can be simpler to save money if you reconnect with your dreams.
You should immediately begin saving money if you haven’t already. However, this isn’t simply about being ready for the unexpected. Recognizing your aspirations is an integral part of saving.

A minority of people are steadfast savers. They are content with saving just because it is beneficial to do so. Rarely do people have that kind of outlook. The majority of us need a more substantial anchor. And this is where one’s imagination and dreams come in.

Because nothing can stand in the way of a person’s will to work and save for something they desire very much. For instance, if you have a clear vision of your ideal retirement, you may find it simple to set aside 15 percent of your paycheck each month. And the same holds true for any other objectives you may have. If you care deeply about alleviating poverty in your community, you’ll find ways to save money and increase your charitable contributions. Why? The ability to save money, after all, grants one independence. It’s the means by which your most valued ambitions can be realized.

But how much should you put away each month? You have the best chance of realizing your goal if you divide it into manageable chunks. Let’s say you’re dead bent on relocating to a different city. How long will it take and how much will it cost at each stage to get you there? Obviously, you’re going to have to find a new line of work. Then there’s the expense of a new home and moving there. Although time is more valuable than money when it comes to searching for a job, you may want to set aside $500 to buy lunch for people who are helping you look or to have your resume evaluated by a professional. You’ll need at least $30,000 for the down payment and closing costs on the house itself. The expense of hiring a moving company, meanwhile, may be around $6,000.

When you total them up, that’s how much you want to have saved. The next step is to give oneself a reasonable deadline for finishing the project. You’ve finally figured out what to do. If you can maintain your focus, you will succeed and achieve your goals.

Final Overview

The essential point of these key ideas:

What a person learns about money as a child shapes their views and behaviours around money as an adult. While some families felt comfortable discussing money matters, others hid their struggles. Some were careless and extravagant in their spending, while others were miserly. Different financial upbringings lead to unique difficulties in adulthood. In spite of whatever apprehensions or inhibitions you may have regarding your own finances, you may begin to regain control. Where is it best to begin? Get in touch with your aspirations, start an emergency fund, and consider why you buy the things you do.