Identifying a Future Financial Catastrophe
Frugal Dad recently posted on a story from Get Rich Slowly on this topic. I don’t want to comment specifically on the contents of this blogpost – it is heart wrenching and frankly it does not need another blogger chiming in. However, I do encourage you to go to the sites and read what these two great writers have to say on the issue.
Normally, I take a no-nonsense approach to this type of thing. “The parents, kids, friends cousins, etc who are in financial trouble got there because they were not disciplined. They deserve to have some tough times and this is simply God giving them a little growth.” I believe GRS referred to it as “Give up and move on” as to what some of the readers might suggest. It is a VERY tough situation that I have not yet had to deal with in my life, but I am certain it is coming.
The real issue I wanted to address is to how to identify when a family member or friend is heading down this path. If you can identify the behavior, maybe, just maybe, you can help them, or yourself, resolve it before things get crazy. These are not all in-your-face type of behaviors. Some are extremely subtle and very hard to detect
Here is a list of ten dysfunctional money-related behaviors:
- Using money as a mood-changer. Many people use spending money to change their moods after a bad day or family argument, etc. If you get the feeling you are doing this, stop and think before acting. Are you using the purchase to get back at someone? Try to view the situation in a new way. Develop more flexible problem-solving skills.
- We’ll deal with it later. Incurring more debt only puts more financial stress on you to pay more, which is a VERY risky behavior. What would happen if someone lost their job, or got too sick to work? Waiting to deal with issue later could be the kiss of death. As Tony Robbins would say, “kill the monster while it is still young.” Always deal with it head on.
- Till debt do us part. Marriage is tough enough, but when couples get out of control with their finances, it always ends badly. Keeping secrets about how money is spent, or earned, can create havoc and erode trust at home. People differ in their attitudes about budgets, investment style, insurance needs, standard of living, vacations, hobbies, etc. It is important to choose someone from the outset whose values are in sync with yours, or if its too late for that, to have regular discussions about financial priorities and decisions.
- Hidden addictions. This one can be obvious, but oftentimes is not. The internet has changed everything for this one. Shopaholism, gambling and drugs are all well-known addictions and sometimes are easy to spot. They all eat up huge amounts of money and can ruin someone’s life very quickly. But when the internet came into play, things changed for those with addicting personalities. Having the latest gizmo, software, hardware, clothing, etc is now just a click away and can be done VERY discretely.
- Not planning for major purchases or choosing impulsively. Major appliances eventually roll over and die. Replacing these items is costly, but sometimes our emotions take over what could be a rational process. Sometimes, we may feel a sense of entitlement where “only the best will do.” This occurs with items that NEED replacing and items that WANT replacing. Or even worse yet, items we have NO NEED for at all, but all of the sudden are “must haves”.
- Playing rescuer for the financial crises of grown children. This one can be for your grown children or your parents (going the other way.) You might do this because a) you feel you “have to” in order to prevent some catastrophe, or b) because its “what good parents or children do,” or c) because you get a kick out of stepping up to control their lives. In any event, this is a terrible situation to be in and is reminiscent of the post that started this article.
- Not wanting to look in the mailbox. This is my favorite as I have done this like EVERYONE has done this. This head-in-the-sand approach is probably costing you more money because, out of your fears about knowing and looking, you may be missing opportunities to undo the damage, or at least do damage control. Once you take the time to know what you are dealing with, it will be scary but you can adopt a plan of action to curtail new spending, take steps with creditors, pay bills on time to avoid those deathly default rates, etc.
- Letting money “burn a hole in your pocket“. Having money handy is comforting to most people, but before you spend your tax return money, consider letting it “cool off” for awhile, safely parked in a savings account that’s difficult to access. Adopt a time frame where you choose to do nothing. You might find that you actually like saving.
- Emotions about inheritances. An inheritance can elicit powerful feelings ranging from guilt over what you did not do for your parents, to sadness that they did not get to enjoy their own hard-earned money, to fear that you will blow through your inheritance, or feelings of entitlement after having had an unhappy family life. Whatever your case, get sound financial advice from a trusted source. My advice: resist fancy home improvements or any other impulse purchases until the money, and your emotions, “cools off.”
- “I’m going to win Lotto”. Having dreams is a fun thing but if your solution to money stress is to score big at Lotto, you woke up and smoked your breakfast. The reality is that most of us will have to work until we get to retire, and only a tiny percentage of people ever win lotteries. It’s far better to use your wits to plan soundly towards making your retirement dream comfortable.
I think this list is a good one and I am sure there are plenty more. And for the guys reading this, it is very easy for us not to face our fears about this subject, grab a beer and forget about the discussion. DON’T! Get on the horse and tackle this thing if it is close to happening to you. I would say “be a man about it”, but you already know that is the case.