Principle #2: When you track your money, you control it.

Have you ever taken your car for a tune-up and received a test result form similar to the one on page 35? The value of this kind of analysis is that it allows you to visualize exactly how your money was spent in getting your car tuned up. Without it, the only thing you may know when you pay the mechanic is that $75, for example, seems like too much. Or you may not even consider what the $75 was worth to you at all without something to verify the value of that expenditure. Having a clear picture of exactly where you spend your money is extremely important in today’s consumer-driven society. The constant bar- rage of emotional media messages often lures us into spending more money than we have. That’s why it is more crucial than ever that you learn the value of keeping track of where and how you spend your income. When you fail to do so, you can easily consume every penny you earn on impulse and without any real awareness. 

Tom and Shannon* are a perfect example of this. Shannon liked music and was a member of a club that offered discounts on CD's purchased through its mail order catalog. Shannon bought multiple CD's in order to take advantage of what she thought were cost savings. Tom was into computers and thought nothing of buying himself a new video game every week to play on his PC. Neither Tom nor Shannon tracked these expenditures and were often overdrawn in their checking account because of them. Shannon decided to take money from their savings account to cover the bounced checks she had written, but she didn’t tell Tom. In turn, Tom decided he would dip into their savings to bail himself out of all his overdraft fees but didn’t know Shannon had already used all their savings to cover her problems. Because they didn’t keep track of how they were both spending money, Tom and Shannon had not only overdrawn their checking account, but had devoured all their savings as well. As we mentioned in the introduction, many Americans today are av- idly pursuing their every want with the expectation that somehow it will be fulfilled. Individuals who had parents that satisfied each childhood desire often grow up expecting that they can continue to have every- thing they want as adults. Even with the knowledge that the money sup- ply is not endless, some people continue to spend as though their decisions will have no consequence. It is not until a person learns to track his money that he begins to see that all spending decisions have repercussions. Remember the Haywoods who enjoyed frequenting All-a-Dollar? Once they began keeping track of how much they were actually spend- ing at the bargain store, they were shocked to discover they were wasting $300 each month. Consider this statement by George Clason from the book The Richest Man in Babylon: “Learn to live on 90 percent of your income.” In today’s consumer-driven society, is it feasible to spend less than 100 percent of what you earn so that you can have a surplus for the future? It is, even for those who have become accustomed to devouring every penny they earn and living on credit. We have seen countless individuals do it, but they first learned how to track how much money they spent so they could contain that spending where necessary. Multimillion-dollar sports associations know the value of tracking. 

The NBA, the NFL, and other organizations keep very close track of each athlete’s playing statistics so that when it comes time to trade or negotiate contracts, they will know the value of that player. They also keep track of player statistics and make them known to the public to heighten awareness. This awareness creates interest, which in turn creates profits. A system of tracking is vital to any big corporation that wants to stay in business. Consider the example of a California-based computer hard disc drive manufacturer that was notorious for not keeping track of its inventory. The company constantly had problems filling orders and usually took an aver- age of three weeks to find parts in order to ship products to its customers. The company’s distributor got tired of waiting such long periods and went to a competing supplier. The business lost $12,000 and the distributor never came back. How big was this company’s actual loss? In reality, its damages were much greater than $12,000 because it lost a valuable distributor who took his business to the competition. And what about the IRS? Collecting taxes is a nasty business and without a system for collecting those funds the government knows it wouldn’t stand a chance. That’s why taxes are taken directly out of payroll so that no one cheats the system. Without your own system for tracking your finances, you could be cheating yourself out of valuable money or be cheated by others. “But,” you may find yourself saying, “I really detest keeping track of the way I spend my money. It seems so tedious!” We have found over the years that most people want to get on the road to financial control but initially hate being “restricted” when it comes to tracking money, so they play emotional games with themselves. Have you ever played any of the following games with yourself? 

 Game #1: Avoid balancing your checkbook monthly. 

Many of our clients have expressed to us that they simply don’t want to know how far out of control they are or how bad things have actually become. Fear and guilt are often the reasons for this stubbornness. In fact, one of our clients was so overwhelmed by the thought of balancing her checkbook that she simply opened a new account every six months. 

Game #2: Blame employers or others, and/or think you are not making enough income. 

Many people trick themselves into thinking that their overspending and debt load should be blamed on their jobs and/or their employers. These people convince themselves that true financial happiness can only be found in a larger salary. They assure themselves that pastures are greener elsewhere, and incur further expenses when they change jobs, uproot their families, and move across the country. Remember, it matters not how much you make, only how well you manage money that counts. Even major league athletes who have not yet learned to track their spending think they don’t make enough to support themselves. The Associated Press, reporting on the National Basketball Association’s 1998 labor strike, quoted Jazz player Greg Foster as saying, “It hurts missing a paycheck— especially for a guy like me,” who was scheduled to make more than $500,000 in 1998. After missing close to 30 games due to the strike, Foster and other NBA players felt they just couldn’t make ends meet. “I mean, I’m not Patrick Ewing or one of those guys who gets the big bucks. I need every penny.”1 

Game #3: Claim that you never dreamed anything could go wrong when emergencies hit. 

This is the ultimate gaming strategy, which transfers every bit of personal responsibility onto a “natural disaster” that you couldn’t possibly foresee. We counsel with hundreds of clients who have no idea where the money goes each month and yet cannot see the correlation between this lack of tracking and the total devastation that a basic emergency can bring to their family. One of our clients mysteriously lost her hard contact lenses, which would have cost her approximately $350 to replace. However, because she did not want to feel restricted, she had not tracked her money and there- fore could not find the extra funds to purchase new lenses. This small amount of money put her into a state of total financial and emotional panic. At the outset, tracking your money and how it’s spent may appear tedious and restrictive. But we know from years of helping people gain control of their finances that it’s actually wonderfully rewarding.

Principle #1: Spending is emotional part 2

Get in Control—You Can Do It! 

Understanding that spending is emotional is the first step toward financial control and the key to true contentment and happiness. The remaining nine Money Mastery principles are based on understanding this first most important idea. Having come this far with us already, you’re obviously making an effort to better understand your own emotional approach to money. And that means you’re beginning to take control. Taking control is tremendously rewarding and we encourage you to continue! To see just how rewarding it can be, let’s go back to Doug and Sally Smith. As they worked with their coach, the Smiths began to understand how their emotions were affecting their spending. They realized that they had a problem telling their children no. They understood that they were spending money to make themselves feel better in the short term and jeopardizing their long-term financial security. 

They began making changes by denying their children when it was necessary. This was not easy to do in the beginning. The children were not used to their parents’ new behavior and resisted it. But in a short time, they began to accept their parents’ new way of doing things. When the Smith’s daughter had the opportunity to go to Europe for a high school academic event, instead of stressing out about how they would send her, Doug and Sally encouraged her to get a job and earn the money to go herself. Once she realized her parents were not going to hand her the money, she got a job and earned her own way. Later, she commented to her parents that she had actually enjoyed the satisfaction of making her own money for the trip and had appreciated her experience in Europe much more than if Doug and Sally had just given her the money. Today the Smiths have stopped overspending and have actually begun saving an extra $300 each month. They have begun to look at every expenditure as an emotional decision, determining whether the object of their spending is something that fits their financial priorities or not. We encourage you to think deeply about the first Money Mastery principle by looking at how you emotionally spend your money. 

Take the challenge to complete the following short assignment before going on to Chapter 2. It will help you go further in your commitment to make important changes to your life. Go ahead! Take the challenge! You’re worth it!

Principle #1: Spending is emotional part 1

Think back to the last time you spent money. Perhaps it was yesterday or even a few hours ago. Perhaps you can’t remember the last thing that you bought. If so, think hard until you can pinpoint what you spent money on.Ask yourself the reason for making that spending decision. Did you buy something necessary such as groceries or medication? Was the item some- thing you needed or just wanted at that moment? Did you worry about having enough money to pay for the item? Did the purchase cost more than you thought it should or did you even worry about the price? Will this spending decision have a big effect on whether you’ll be able to purchase other things later? Did spending the money make you feel guilty or did it give you pleasure? Now, try to recall a particular incident where spending money had a strong emotional impact on your life or the lives of your family members. What made that incident so emotional?One of the most important questions you can ask is: “How does spending money make me feel?” Through years of counseling thousands of people, we have heard count- less reasons why people spend money. Many of those reasons have more to do with a person’s circumstances and the way they feel about those circumstances than whether there is, or is not, enough money to spend. Let’s take a closer look at what we consider the three most significant reasons people spend money.  

Impulsiveness 

As we noted in the Introduction, we live in a world full of emotional media messages. These messages often play upon people’s deepest psycho- logical needs pointing out all the things a person may lack in his or her life. Responding to this supposed lack, many individuals spend money impulsively without thinking as a way to meet unfulfilled desires. Without the proper respect for money our current society has become notorious for impulsive, reckless spending. According to Richard A. Feinberg, professor of Retail Management and director for the Center of Customer-driven Quality at Purdue University, up to 50 percent of all consumer purchases are made on impulse.1 Here are some of the responses we get from people who spend money on impulse: •“Spending money fills an emotional void in my life. . .I just feel like I can’t get the things I really desire, so I acquire material things to fill myself up.” •“I like to give my children what they want because it gives me joy. Sometimes I feel like it’s the only thing I can really do right for them.” •“Having the money I want to spend, when I want to spend it makes me feel important. I know my Dad never could feel that way and I always felt sorry for him.” •“I can’t say no to my children. . .they pester me until I give in and get them what they want. They’re just plain stronger than I am.” The Haywood* family is a perfect example of how emotions can trigger impulsive spending. They had a habit of going to All-a-Dollar, a bargain chain store that sells every bit of stock for $1 or less. Purchasing little items such as candy or inexpensive toys for the children gave the Haywoods plea- sure without making them feeling guilty, especially with the store’s low prices, which made the trips seem so innocent. But once the family started to keep track of how much they were spending at All-a-Dollar they were shocked to find it was more than $300 per month. Low prices combined with their impulsive desire to please their children cost the Haywoods some serious cash they would rather have spent elsewhere. Most people are trapped in an impulsive mentality that prevents them from keeping much of the money they make for any length of time. Re- member the time/value of money we discussed in the Introduction? Impulsive spending completely eliminates the possibility of increasing the value of money over time. Did you know that 85 percent of all Americans who win lotteries spend every penny of their winnings on consumable goods rather than investing it in high-yield programs?2 Based on this statistic, it’s plain that the majority of Americans do not understand the profound power of the time/value of money and are destroying their future because of it. Are impulsive emotions affecting the way you spend money?

 Economic Hardship 

Experiencing a financial disaster is another thing that can greatly affect feelings about money and how it should be spent. Have you ever lost a job and had to come home to your spouse with the bad news? What kind of an emotional impact did that have on your family? After the trauma of losing a job, or some other economic hardship such as illness or di- vorce, we often hear responses like these about the way spending money makes people feel: •“I just hate not feeling like I have enough money for the things I want. I get so depressed just thinking about it.” •“Spending money makes me feel guilty, like I don’t deserve the thing I bought or that it will come back to haunt me later.” •“My divorce has wiped me out financially. I have nothing left after I pay child support and alimony for anything I might want to get myself.” Doug* was a young father of three when he experienced the economic trauma of divorce. Within 12 months of the divorce, he began paying more than $900 a month for alimony and child support. Having recently graduated with a degree in graphic design, Doug wasn’t advanced enough in his career to make the kind of money he needed to support his three children and an ex-wife. He was forced to move in with his parents and sell his car. Even then, he barely made enough to meet his financial obligations. The only thing he indulged in was music, buying a CD or two every once in a while. Doing so made him feel extremely guilty because he worried that indulging himself would somehow affect the happiness of his children. Doug’s economic hardship was an emotional situation that had a huge im- pact on the way spending money made him feel. When we are forced into a bad financial situation due to some kind of economic disaster, spending money can be a highly emotional issue that causes friction in marriages and personal unhappiness.  

Daily Financial Obligations 

The struggle for daily survival can also affect why and how we spend money. Even those who are frugal and don’t spend impulsively have heavy debt loads and excessive taxes and are impacted emotionally by the sheer effort of just making ends meet from day to day. We have counseled hundreds of clients who have felt burdened and depressed by this daily struggle: •“I feel angry that I have to fight just to pay taxes and my debts. It leaves me nothing left over to spend on myself or kids.” •“We were just audited recently and I felt so intimidated by the IRS. Taxes are the first thing that comes out of my paycheck and it just makes me sick that I still feel like the government controls my life.” •“We were so poor growing up. I promised myself I would never make my kids wear hand-me-downs, but we don’t have enough money after all of our other expenses are paid for me to really give my kids what I dream of.” • “I can’t believe that I have to work almost six months out of the year just to pay my taxes. It really upsets me just thinking about it.” The Martinellis* are a good illustration of how this daily struggle to survive can greatly affect the emotional well-being of a family. Don and Keisha Martinelli were struggling to make ends meet on the East Coast where the cost of living is high. The couple had three boys younger than the age of 7 and were concerned about financing their children’s college education. Don was working 14-hour days as a controller for a corporation in Manhattan, but even with the long hours, they weren’t able to find enough money to build a savings program for their sons’ future education. In an attempt to earn extra money, they had in- vested in a business opportunity that never took off because they didn’t have the time to put into it, forcing them into further debt and farther away from the boys’ educational funding. This daily struggle simply to survive was draining the Martinelli family and was killing the fun times they wanted to have with their boys because they never dared spend money to take them anywhere or go on any vacations.

The Time/Value of Money

These three forces consumerism, indebtedness, and excessive taxation are largely taken for granted by most Americans, and their casual attitude towards such powers leads to victimization. They know there must be something wrong with their impulsive spending habits, but they have not yet linked those habits to their inability to tune out the media hype that urges them to consume, at any cost. 

These same people long to have more money for retirement, for their children’s education, for vacations, and yet they realize they’re not saving anything. Unfortunately, they have not yet seen the correlation between their enslavement to credit issuers and their inability to save for the future. These people feel overwhelmed by the amount of taxes extracted from their paycheck each month, and by the way that estate and death taxes eat into their savings and investment nest eggs, but have not yet connected big government shearing with their own ignorance about the way the tax system really works. 

Money

These people see tremendous financial opportunity in the world but lack the skills necessary to control these powerful forces and harness the wealth and prosperity all around them. Without a big picture view of how these forces can affect us over time, we may be forever trapped in the moment, failing to understand what we call the “Time/Value of Money.” For those who live from paycheck to pay- check, the daily struggle to survive inhibits the ability to see the true value that money can have over time and the kind of return it can bring over the course of several years. Those who choose to remain in debt do not under- stand that the time it takes to pay off compound interest is affecting the long-term value of their money. The money that they could be using wisely to give them a return over time is instead being paid to creditors, completely stripping their money of any value it could bring them. 

Those who continue to pay excessive taxes, are in a similar fashion, failing to see the time/value of money because they don’t realize the value that their money will bring them over time if they paid their taxes correctly so they continue to let it slip through their fingers even though they don’t need to. People weighed down by consumerism, indebtedness, and excessive taxation have a difficult time understanding the exponential value that money can have if given a little time to grow. The time/value of money can only be explained to a point, and then it must be experienced in order to fully comprehend it. Many of the people we work with are so caught up in the worry and frustration of the moment that they can’t see what’s waiting for them in the future. Others think they already have all the answers about money management. Some of the hardest people we try to help are the financial planners and accountants who have an intellectual base of knowledge on how to deal with money, yet are thousands of dollars in debt because they do not fully comprehend the power of these forces, the emotional impact they can have on lives when they are taken for granted, and how a casual attitude affects the value of their money over time. Are you one of them?