The basics of personal finance are simple: Spend modestly, save, invest for the long term, protect yourself with insurance and don't pile up credit card or other debt.
Surprisingly, many people don't know the basics, and some unknowingly twist the fundamentals of money management and put themselves in a hole despite their good intentions.
"A major illness or some other unavoidable problem can cause people to fall short of their financial goals, but more often than not, long-standing barriers to dealing well with money are to blame," says Eric Tyson, a financial counselor and author of "Mind Over Money". "I've worked with more people who need to overcome significant obstacles in their attitudes and behaviors concerning money than those who just need a bit of sound financial advice."
Tyson recommends starting with a "historical inventory" of your attitudes toward money. Ask yourself some basic questions: Were your parents savers or spenders? How much freedom did your parents give you to handle money as a child? Did you manage money well? How important were financial considerations in what you chose to study and in selecting a career?
Tyson says there isn't a right or wrong answer to these questions. But thinking about how you developed your attitudes about money can provide insights into the way you now manage your finances and can lead to improvement, if needed.
Tyson, whose other books include "Personal Finance for Dummies" and "Investing for Dummies", has discerned what he calls a "money personality." Here are the symptoms and cure of what can be pathologies, or at least troubles, that erode your finances and make your life miserable:
1. Disease: Excessive Spending -- Some people overspend because it gives them a sense of power and provides an adrenaline rush, while others spend because it's a social activity and it gives them something to do. (See: "Kids Say 'Charge It;' Granny Says 'Make Do' " and "Living Debt Free" and "Using Credit Wisely.")
Cure: Tyson says there are basic tactical steps such as cutting up excess credit cards, tearing up unsolicited applications for additional credit and substituting the use of a debit card for a credit card in most instances. But the long-term fix will come only after you understand why you overspend. Is it an effort to keep up with the Joneses? Impress your co-workers? Wow women? Think.
Some people need psychological counseling, and Tyson says many over-spenders have success with Debtors Anonymous, an organization patterned on Alcoholics Anonymous. (See: "Deciphering A Credit Report" and "Fixing Bad Credit.")
2. Disease: Workaholism -- Men are especially prone to this malady, but women are catching up. Among the first questions asked when you meet someone new is "What do you do?" Work is a big part of our identity. The danger is that the drive for fancy job titles, the corner office and a fatter paycheck takes over your life. Many find that a bigger pay check is never quite big enough, because wants have a way of expanding as you climb the career ladder and outrace your current paycheck.
Cure: Tyson says balance is the key to managing work. Your children and spouse are more important than work, and you don't need a bigger house and a fancier car. No terminally ill patient ever said, "Golly, I wish I'd spent more time at the office." So, what's more important: putting in 80 hours a week or attending your daughter's dance recital? (See: "Addicted To Work" and "How To Work For An Idiot.")
3. Disease: Herd Following and Information Junkies -- There's a cascade of information available and those who think they can beat the market often spend hours researching their picks. Many love the chase and get caught up in the game while overlooking performance.
Cure: Tyson urges people who spend hours in front of the computer each day in search of winning stocks to ask a basic question: What's your return? You may do better in an index or mutual fund. If so, relax and enjoy more time with your family. You'll also save a bundle on transaction fees.
4. Disease: Extreme Save-ism -- Thrift is a virtue, but some see saving as an end in itself and forget how to use money wisely. It's nice to leave something to your children, but it makes no sense to build a nest egg if you don't enjoy spending a reasonable amount on travel, living where you want to be or following your passion--even if your violin lessons scare the cat.
Cure: Tyson urges savers to ask a basic question: To what end are you squirreling money away? If you don't have an answer, your desire to save may be limiting other aspects of your life. Don't let the desire to be thrifty impoverish your life. (See: "The Seven Deadly Excuses Hurting Your Finances.")
5. Disease: Procrastination -- If you were traumatized by a decimal point in your youth and now let bank and mutual fund statements or bills pile up on your desk unopened, you probably have negative associations with money and deal with bad memories simply by avoiding the subject. Perhaps your parents squabbled about money when you were a kid, or maybe you just don't like to keep track of financial matters because it brings back bad memories of your high school math teacher.
Cure: Tyson says getting organized can boost your returns and save you late fees on payments and penalties on filing your taxes. Remember that avoiders span the income brackets. The difference is that the wealthy can hire managers and advisers to handle the basics. The rest of us have to do the work ourselves. Some people have large sums of money kicking around in a checking or low-interest savings account. Take a look and sort things out. You work hard for your money and your money should work for you. (See: "Family Financial Planning.")
6. Disease: Mismatched Style -- Opposites attract when you're in the golly-gee-wow, getting-to-know-you phase of a relationship, but can lead to endless strife if one spouse is a saver and the other is a spender, or if one favors a buccaneering style of investing while the other is a buttoned down conservative with money.
Cure: Tyson says it's important for couples to talk about their differences in financial planning, dreams and aspirations. Compromise is the key to success: Without it, one partner won't get anything and the problem will fester. (See: "Family Financial Planning" and "First Comes Love, Then Financial Planning" and "Living Well In Retirement.")
7. Disease: Adolescent-Onset Budgeting Woes -- Some kids believe their self-worth is defined by the brand of sneakers they wear. (It's called advertising, kid.) Others know the cost of the latest electronic gizmo, but don't know the value of a buck. Parents want the best for their kids, but some throw money at them because they feel guilty about spending long hours at the office.
Cure: Tyson says it's a good idea to give your kids a financial stake in their current passion--Nike running shoes, an Apple iPod or a laptop from Dell Computer. Rather than flashing the credit card, have the kid work, scrimp and save to learn the value of money and the cost of the item. Part-time jobs after school teach discipline, and the paycheck will create a sense of independence. The smart parent requires the child to save a portion of each paycheck for school. (See: "Better Budgeting For College Students" and "Teaching Kids About Money" and "Back To School Finances 101.")
There are many financial Web sites that provide a good starting point to learn the basics of personal finance, including Capital One Financial, Lending Tree, a division of IAC Interactive and major banks such as JPMorgan Chase, Bank of America and Wells Fargo.
It's important for parents to set a good example for their children.
"Your behavior shows kids what you think is important in handling money," Tyson says.
