Money management is an area where a suprising number of Americans are having an overwhelming amount of difficulty. I say "surprising" because one would would think that the country with by-far the highest Gross Domestic Profit in the world, which is the combined value of all goods and service (aka the place with the most money) would be filled with people with a nearly scholarly understanding on how money works and should be managed. However, the harsh reality is that this is far from the case.
You've heard the statistics on news stations throughout the country. Issues such as credit card debt that is simply out of control and the rising number of home foreclosures are devastating many families. If you've ever had a car repossessed like I have, you know that its one of the most humiliating experiences you can ever undergo; not only are you without transportation, you're also very visibly broke, which cuts through your pride as easily as a butchers cleaver through melted margarine.
Often when situations like these arise, there's very little thought given to the underlying issues. People want relief and they want it quickly. They want the creditors to stop calling them, they want the card balances to be zero, they want the mortgage and car loans to be current, all after a long nights sleep. The realization that such is unrealistic, and that what's really happening is that those debts are getting larger and larger the longer they go unpaid, causes untold anxiety.
Even if you're personal situation isn't nearly as bad, you probably find yourself amongst the over 70% percent of Americans who live paycheck to paycheck. My favorite financial author, David Ramsey, described people who live this way as saying "thank God its Friday, oh God its Monday!" A job to many people is viewed as stated in the oh-so-often used acronym "just over broke."
Often times, people only think of one "solution" to problems like these (note the quotation marks around solution)...more money. With no idea where its going to come from, they unreservedly conclude that dollars will bring relief. While it would seem logical to assume that more money would fix these situations, the fact of the matter is that it has an even greater potential to make the situation worse. To illustrate:
Lets say your trying to fill a pail with water from a running faucet. You realize that theres a hole in the bottom of the pail, and that the bucket isnt getting filled because of this hole. Would you then reason, "Hey, maybe if I use the garden hose instead, it'll fill up since alot more water comes out, and alot faster!"?
If you think that this is a solution, you probably haven't gotten this far in the article. As silly as that may sound, people apply this same principle to money management. In their minds, if they just had more money, everything would be okay. This really is not the case, and does not get to the root of the issue, which as we mentioned earlier isn't really on people's minds when they're in a bind. Just as more water will only pour out of the hole in the pail, so a person who foolishy mismanages their finances will just have bigger problems with bigger money. Believe me, I know. I was one of those foolish people before I changed my ways. Most of my mistakes were ignorance. Thankfully for me, it didnt involve much money, so I recovered quickly. At my lowest point, I had roughly $1,500 in assets and over $13,000 of debt. Bad? Yes, but manageable. A former NBA player I grew up watching was forced to file for bankruptcy, stating $4.3 million in assets and $12 million of debt. Thats what happens when you put more water in the pail. Thats what happens when you give more money to a person who couldnt manage what they had to begin with. It just makes the problem that much bigger.
The purpose of this blog and the series of articles herein are to get to the root of the issue, to patch the proverbial hole in the pail, to change the way you think about money. To those aged 18-24, don't think that just because most financial statistics usually only factor in those 25 and over that your money habits now dont matter. This time period can be crucial to the rest of your financial future, much like childhood is crucial to adulthood. If you're just starting out, you can avoid the problems plauging so many people and families. You can thank God for everyday you're alive without the anxiety of being broke. You can potentially coast through life free from an issue that causes so much domestic strife. Yes, the fundamental financial principles herein, and the sound advice for the early years can set you for life.
