Petersons - Dont Break the Bank: A Students Guide to Managing Money

Chapter 1:
Money Makes the World Go Around

10 Steps to Increase Your Financial Fitness

1. Be honest about where you are.

Its human nature to avoid pain, but denying a problem will only make it worse. Statistics show that more than one third of Americans purposely avoid thinking about their damaged financial lives. Until we get honest with ourselves, we are unlikely to improve our financial health. To become financially fit, its important to know things like:

Your credit scoreWhat is it? What does it mean? How do you get it?

How much you owe and to whomAre you paying rent, insurance, everyday expenses?)

How much you have in savingsAre you spending every cent you have? How much should you be saving?

How much you have saved for retirement or when to start a retirement account

Where your investments are held and how they are allocated

2. Know where you want to be.

Changing habits can be tough. To stay motivated, keep your eyes on the prize. What would a healthy financial life do for you? How would it make you feel? What would you have? Where would you go? Identify your goals around your career, education, retirement someday, travel, health, and family. Where do you want to be in five years? In ten years? The more specifically you identify what you want, the more energy you will unleash to get yourself there.

3. Beware of your thoughts.

Are you an over-spender? Do you neglect saving? If you answered yes, you are an average American. Perhaps that helps explain why 80 percent of Americans say money is the Number 1 source of stress in their lives. To change bad habits, it is often essential to identify the beliefs that underlie them. Our financial behaviors make sense when we understand our beliefs about money. These beliefs, called money scripts, are typically outside our conscious awareness, but they drive all our financial behaviors. Some problematic money scripts include the following: More money or more things will make me happier, and I can never have what I want, so I might as well get what I can when I can. When we base our financial lives on erroneous or incomplete beliefs, we set ourselves up for failure.

4. Forgive yourself.

Our feelings and beliefs about money dont develop in a vacuum. We are taught them or we arrive at them when trying to make sense of confusing situations. As children, we are prone to making incomplete conclusions. For example, if our family is rich and unhappy, we may conclude that money led to our unhappiness, when the discontentment could be better explained by other issues. As adults, we rarely return to our past, identify our money scripts, examine them, or change them. As a result, their control over our financial lives can be insidious. So regardless of your current financial situation, have compassion for yourself. Most likely, your behavior toward money is a result of where you came from. The good news is, the more you know about money management the more you are empowered to change.