The High Cost of Utter Financial Irresponsibility

July 22, 2011 10:46 AM

Is there an intervention program for money management? Help me address decades of willful, juvenile negligence of money.

This is supremely embarrassing to me, but the time has come for me to post this question. I will not beat around the bush: I am 45, make $100K a year, and I am broke. I live paycheck to paycheck. I have no savings. I have $20,000 in credit card debt. I've got various retirement accounts from various jobs scattered around which I don't understand. I could go on in greater sordid detail about my irresponsibility, but let me just sum it up by saying that this is just completely stupid and humiliating. I'm single and I rent my apartment, which at least means that others aren't implicated, but that doesn't make me feel any better.

I am ready and willing for a complete overhaul of long years of willful neglect of my finances. But I have no idea where to start. I need soup-to-nuts help and I have all kinds of questions: what is a reasonable monthly budget? should I liquidate part of a mutual fund to pay off the credit cards in one fell swoop? should these retirement accounts be combined and if so, how? Do I start an emergency fund first or pay off the credit cards? Etc. Basically I need to go from grade school to graduate school to educate myself and put myself on a plan.

In an attempt to address this myself, I got a Suze Orman book but gave up after the chapter that instructed me to go back through three years of bank and credit card statements to find out where my money goes. I spent three hours doing this and didn't even get two months into the three years--so tedious, so shameful. But in essence I know where my money goes: straight down my gullet in the form of meals and drinks, into my ears in the form of iTunes binges, across the country in the form of impulsive trips, etc. Stupid, transitory things.

So how do I turn this around? Are there professionals who will sit down with me and advise me on the very basics (X% of your monthly income should go straight into savings, $X per week is all you are allowed for "fun" spending) and the higher level retirement and tax planning? Is this what some people who work at banks do--even at the most basic budget level? Is it considered financial planning if you're just looking for month-to-month budget help as well as long-term options? Are there good books out there that won't require me to chart three years of ludicrous spending? Websites? What have you found most helpful?

I know this is a tough time for a lot of people, which makes this question all the more difficult to ask. But recent events--layoffs where I work--have me terrified and ready to face the facts and take the necessary steps. I'm ready to be a grown up and I need immediate triage, advice, and education. What is my first step?

Thanks.

posted by anonymous to Work & Money (25 answers total)

Look at your local credit union's website to see what financial education they offer, especially if they are a Community Development Financial Institution, or find your local nonprofit consumer credit agency (assuming you're in the U.S.).
posted by headnsouth at 10:52 AM on July 22, 2011

A lot of people seem to have success with Dave Ramsey's program, though it apparently costs to join and has religious connections, if that's a turnoff. It's also pretty extreme in rejecting debt but if that's something you have trouble with maybe it would be helpful.
posted by ghharr at 10:54 AM on July 22, 2011

Gail Vaz-Oxlade might be a good starting point (site includes a basic budget planner, lots of books too if you like that sort of thing).
posted by mazola at 10:54 AM on July 22, 2011 [1 favorite]

For basic budgeting, I like the model in All Your Worth -- instead of counting every candy bar and looking at every bank statement (I was totally unable to do that, either, when I was learning how to get a handle on my finances) it gives a basic 50/30/20 model: 50% of your income goes to essentials (rent, groceries, utilities, insurance, paying off debt), 30% goes to non-essentials, 20% to savings.
posted by scody at 10:55 AM on July 22, 2011 [2 favorites]

it sounds like you are better off having someone with whom you can interact to show you rather than going about it on your own via books, seminars, etc. find yourself a good financial planner.
posted by violetk at 10:56 AM on July 22, 2011

This has been covered a good bit on askeme, I would recommend looking through old posts. I used mint.com to search because it is a pretty good tool to get all of your finances in one place so you can start tracking stuff.

You can make budgets here and see how much money is coming in versus what is going out. As for credit card debt, if you think you can pay it off in 18 months, you could do a balance transfer to a card with an introductory offer of 0% for 18 months. That would be tough to do if you can't pay 1000+ a month.

I would also be putting as much money as I could into an emergency fund (6 months worth of living expenses is a good guideline) into a liquid savings/money market account.

Make sure you are maxing out your 401k as well, if your work matches, at least put in as much to get that match, it's free money.

All of this, though, is in the numerous posts on askme asking this same question.
posted by TheBones at 11:02 AM on July 22, 2011

+1 Dave Ramsey. Download the free Podcast, get books out of the library. The baby steps are simple. Ignore whatever religious aspects are there. The fact is in listening for years I have never heard Ramsey push the religious basis of his point of view on a caller who was not religious.

It sounds like you need to prioritize your bills and start making distinctions between wants and needs. Shelter, utilities, food are a need. Trips, iTunes, cell phones are a want. Some things bleed over from want to need and vice versa (beans and rice put food to need level, going to a restaurant moves your food to want; cell phone may be a need if you need it for your professional life, etc).

The intervention is this: what you are doing is not working for you, and you have no plan, and worse, no philosophy as to how to make these decisions. Screw retroactively going through 3 years. Clear a table and categorize all your bills. Which are needs (rent, utilities) and which are lower priority. Be ready to restructure your life. Where can you decrease your expenses? Car payment? Sell the car and get a beater. Rent too high: slim down.

That's a start. I wish you well, you can change your life, for sure!
posted by artlung at 11:04 AM on July 22, 2011 [1 favorite]

I'll second the "50/30/20" model Scody mentioned above as a very basic "this is how much of your income should be going to each kind of thing."

The pitfall it's easy to fall into when it comes to budgeting is in not budgeting money for fun. Occasional movies and dinners aren't essential things, so it can be too easy to think you aren't allowed to budget for them -- and that turns into feeling like you shouldn't DO that in the interest of "saving money". And that kind of Cavlinist approach lasts about two months before you get totally depressed, or before you snap and go on huge shopping sprees because you can't take it anymore.

But setting aside some money expressly for "nonessentials" and "fun" helps you stick to the rest of your budget (I'm finding that, anyway).
posted by EmpressCallipygos at 11:05 AM on July 22, 2011 [1 favorite]

Can you follow up with the mods to get your location posted? Someone might be able to recommend someone local who can help you.
posted by juniperesque at 11:09 AM on July 22, 2011 [1 favorite]

In addition to the practical advice listed here, I can recommend It's Not About The Money, which is a good way to hone in on the why of bad money management.
posted by solistrato at 11:16 AM on July 22, 2011 [1 favorite]

On preview, seconding solistrato that, in my experience, poor personal money management is never only about lack of financial knowledge, it almost always has roots in emotional or family history. Unless you figure out why money has never seemed important to you, and reconcile that, you'll never reconcile your bank statements regularly.

Rather than hiring a financial planner immediately, hire an accountant. Take them your box of unorganized receipts, credit card statements, bank statements, and whatever tax returns you can scrape up for the last three or four years (these should have copies of your W-2 attached, to document your income, and will summarize your tax payments). Confess all to the accountant, who will have Heard It All Before. Have a good cry over your shameful financial past, if that helps to clear your head.

Then have them set you up on Personal Quicken, on your laptop, PC or netbook, and also reconcile your bank account, as best they can. Have them help you prepare a monthly budget. Stick to the budget as you live and spend money through the month, but record all your spending and income in Quicken, even if you know you are deviating from the budget, in doing so. Open a savings account, and start "paying yourself first," according to your budget, whenever you are paid, even if, at the beginning, you are only saving token amounts, while you do everything you can to pay down that credit card debt. Every month for the first three months, have an hour meeting with the accountant, to close your month, review your performance against your budget, and see what you need to change to do better with your money. After 3 months, you'll have begun to form new spending habits, and be used to tracking your spending against a budget, and your budget should be realistic for how you live. Start seeing your accountant quarterly, and start cleaning up those retirement accounts, into something you can manage yourself, like an IRA (but pay attention to tax consequences when doing so).

Look around for some community college classes on personal money management in your area, and enroll. You'll have incentive through class participation and coursework, to learn a lot financial terminology, history, and practical planning techniques, in an organized way.

Look for a financial planner 6 months in, about investment and retirement planning. See an insurance agent if you don't have comprehensive disability insurance through your employer, or if you need to think about providing for others through life insurance.
posted by paulsc at 11:22 AM on July 22, 2011 [6 favorites]

Read Get Rich Slowly. He was in your position exactly.
posted by notsnot at 11:27 AM on July 22, 2011

In order to figure out where the money is going, keep track as you spend. Going over old bank statements is tedious. Just keep records of your spending for the next few months and you will find out what you spend money on. You might be surprised at how much you spend on some things and how little you spend on others.

I have an Excel spreadsheet which lists an entire year at once, with each month in a column. It allows me to see how much I spend in each category every month, and right now I know roughly how much money I will have in savings a year from now. It didn't take that long to set up.

My discretionary spending is done entirely in cash to simplify accounting. I don't count every individual discretionary expense. I just take out that amount of cash every month and I know I am within budget if I still have any. My bank statements are also simpler since they aren't littered with hundreds of very small transactions (a soda here, a lunch there, etc.) I pay my major bills from my checking account and everything else is cash.
posted by twblalock at 11:38 AM on July 22, 2011

I am 45, make $100K a year, and I am broke. I live paycheck to paycheck. I have no savings. I have $20,000 in credit card debt. I've got various retirement accounts from various jobs scattered around which I don't understand.

Congratulations, you are in a better financial position than the vast majority of people in the country. Just imagine being a single parent trying to live on $25K with $20K in debt and no health insurance. Those are real financial problems. You don't really have financial problems, you have spending problems. If you get those under control you will be absolutely fine within a very short period of time.

should I liquidate part of a mutual fund to pay off the credit cards in one fell swoop? should these retirement accounts be combined and if so, how? Do I start an emergency fund first or pay off the credit cards?

You are making this more complicated than it needs to be right now. Step one, cut up your credit card and stop using it. Don't start using a credit card again until you've established years of staying in a reasonable budget. Step two, get a debit card if you don't have one and use that for everything. Step three, SPEND WAY LESS MONEY. Seriously, that is your main problem and even if you never learn another single thing about personal finance it will single-handedly put you in a good financial position for the rest of your life. $100K for a single guy with no kids and no mortgage is a huge amount of money, pretend you only make $60K and act like that's all the money you can spend. Put the amount you think you should be spending for the month in a checking account that your debit card draws from, and when you run out of money, stop spending. Do whatever you can to force yourself to get your expenses down.

As far as your specific questions, if you have a taxable investment account with mutual funds in it, you should probably sell those and pay down your credit card debt. See this previous comment for my personal priority list when it comes to these sorts of decisions. Yes you should probably roll those retirement accounts into a single account, figure out which brokerage you like the best and ask them to help you do it. An emergency fund will give you more short term protection (less risk) whereas paying off credit cards faster will save you more in the long run (more total gain), so it depends on where your priorities are. I would definitely not bothering paying off your card until you get your spending under control, because if you pay it off and nothing else changes you will probably just rack up more credit card debt.

Are there professionals who will sit down with me and advise me on the very basics (X% of your monthly income should go straight into savings, $X per week is all you are allowed for "fun" spending) and the higher level retirement and tax planning? Is this what some people who work at banks do--even at the most basic budget level? Is it considered financial planning if you're just looking for month-to-month budget help as well as long-term options? Are there good books out there that won't require me to chart three years of ludicrous spending?

You are probably talking about a fee-based financial advisor or "money coach" who can go through these things with you. Someone at a bank is good for saying "I want to do X, how can I do that?" whereas an advisor is better for "What should I do?" (the answer from the bank will usually be "Do whatever gives us the most money"). Other posters have mentioned good personal finance books and blogs so far. But as you've said, you basically already know what your main problem is, you spend too much. Get the big problem under control and then get educated about the specifics.
posted by burnmp3s at 11:48 AM on July 22, 2011 [5 favorites]

Maybe you can start by signing up for Mint.com, and letting it do some of the organisation and categories for you. It may only do the last month for you when you start (link), but after that it will keep going in the background so the information is there.
posted by jacalata at 11:49 AM on July 22, 2011

I think a financial planner should be able to help tailor their services to your needs. It's not as simple as X% should go to savings (in fact, that had been our position over the past several years, and our financial planner has helped us see the shortcomings of such a "cookie cutter" approach).

A financial planner will let you know what paperwork you do need to gather (although you will need to some legwork tracking down things like your scattered retirement accounts) and the information they need to help you come up with a plan going forward. In our case, for example, we certainly didn't need to go through 3 years of spending--we just gave them a current estimate of our monthly income and rough expenses as a starting point. We also had to gather information about our various savings, credit, and investment accounts, and information concerning our current life insurance status.

Then, the planner will talk through with you about your short-, medium- and long-term financial goals: do you want to save for a house? do you think you'll ever need to worry about family/kids/etc.? Any other unusual savings goals? When do you want to retire? Do you expect your spending level to stay about the same, go up (more travel, e.g.), or go down when you retire? What happens if you get sick or disabled?

Finally, given this information, the planner can present options: roughly how much does it look like you could be saving, comfortably? if this falls short, what are your options (for example, would you rather postpone retirement? lower your expectations for your retirement lifestyle? improve your current cash flow by cutting back even more on current expenses and/or increasing your income through outside consulting or some such? pursue higher-risk investments in your retirement portfolio that MAY [emphasis on MAY] allow you to realize bigger returns?). Plus all your other little questions, like paying down debt vs. building some savings, whether it makes sense to cash out anything from your retirement to pay off the CC debt, and so on.

There are a few things that are worthwhile, I think, about working with a financial planner--especially if your income is in the 100K territory. (a) your time is more valuable if you spend it doing the things that you excel at, and delegating other tasks to people who excel at those things. That doesn't mean you remain forever in the dark about financial matters--instead, in part your financial planner can serve as a sort of financial tutor who can teach you the essentials faster than any book, blog, or podcast ever could; (b) when you ARE paying someone for their time, you're more likely to take the "homework" seriously, because you don't want to waste the resource you're paying for. This is in addition to the fact that they know off the top of their heads the answers to questions that would take you hours to research yourself, as well as raising the questions you didn't even think to ask.
posted by SomeTrickPony at 11:53 AM on July 22, 2011 [1 favorite]

Sometimes when it's all too overwhelming, it's best to keep it simple. I'm no financial genius, but up until not too long ago, I was also pretty poor at figuring out how to make sense of what I was doing with my money, except that I was starting to get overdraft notices from my bank, and I didn't want them anymore, and I was making some late payments on bills because I wasn't paying attention to when things were due.

So I basically wrote down a chart that told me WHEN I needed to pay things and HOW MUCH to pay. Then I figured out when my paychecks arrived, and so now I knew when to pay them (all done online, by the way, and in advance). I do these charts two months in advance.

After I pay off my rent, credit card (because now I only have ONE), and main utilities, I now have an idea of how much discretionary cash I have left over between paychecks, and so I divided that into thirds. One third of that gets spent on groceries / gas / other cash essential items. Another third is entertainment (and I consider the gym, cable TV and internet access in that). The final third portion immediately goes into savings.

Since I started doing this, I haven't had one single late payment, one single overdraft notice, I'm paying off my debts in a timely basis and life is much more manageable. Go to an expert to figure out the BIG PICTURE, but start with something like this to get a better picture of how to live your life financial on a month to month basis.
posted by HeyAllie at 11:59 AM on July 22, 2011 [1 favorite]

Seconding Mint.com, and the engagement of a financial planner. I am a fan of Edward Jones, personally but you can do this yourself via a number of books. Start small, get in to a habit of dealing with it at least once a week consistently and then when that becomes rote expand and make it more complicated.

I found there were two components, weekly tracking of where it all goes (in our house, it is known as The Reckoning), and then monthly check ins on the erosion of debt if it exists and the investment of savings. Mint helps me in both areas.

I also do some front end planning with the paychecks, for example I send a certain percentage of every pay check in to a savings account that requires me to actually call someone to get at the money. I don't keep an ATM card for it, I don't have checks and I don't have it linked anywhere.

I set another percentage to cover the regular expenses - rent, utilities, standard bills, monthly groceries + 50-100 bucks for extra stuff that comes up.

The remainder goes in to paying down debt and everything else. The credit cards get locked away in a block of ice in the freezer, or buried in a 3 foot hole in the back yard, etc.

My rule of thumb is to save for my family first, cover the costs of living at a minimum (shelter, food, transport) second, and then aggressively pay down debt. I prefer the cash safety net over getting rid of interest charges that exist personally, I am willing to live with the small percentage trade off on the balance for the security.
posted by iamabot at 12:13 PM on July 22, 2011

: "In an attempt to address this myself, I got a Suze Orman book but gave up after the chapter that instructed me to go back through three years of bank and credit card statements to find out where my money goes. I spent three hours doing this and didn't even get two months into the three years--so tedious, so shameful."

Firstly, realize that you don't have categorize do it all at once, and that good software tools can import & classify this from online sources. The aim here is to get a statistically sound "average" and capture rare but recurring expenses, with which to reality check your new budget. I'd suggest getting to two months history, and then just enter older data at a leisurely pace later. I still discover old statements and bills sometimes and enter them in post-hoc. Since you're planning major changes, knowing how much you spent on drinks two years ago will be useless for planning anyways, so don't sweat this "two years" crap.

Secondly, simplify. I regularly use autobill pay, to avoid late fees and shutoffs etc. My mom hates them becuase they're hard to stop, but then she forgot to pay stuff while in cancer treatment and got a rude surprise. Automate saving for emergencies and retirement, and consolidate those retirement accounts once you've got a handle on the tax implications (ah the burdens of wealth). You're renting now, so there's no house with property taxes and insurance and repairs.

Thirdly, make it a habit. Schedule monthly "finance night" to update your books, check on your plans and major expenses, and review your net worth. Hopefully this will be fast and simple, so after a few months you can add in stuff like price shopping for big ticket items, reviewing one of your free credit bureau reports or rebalancing your portfolio.

Finally, seek some professionals. You don't need to be "grad school" educated on personal finance, but it helps to know some who are. You'll likely be in a tax bracket that it's worth consulting accountants for it. There are CFPs who will help you with budgeting, and those who don't. You'll just have to call around.
posted by pwnguin at 1:51 PM on July 22, 2011

I spent three hours doing this and didn't even get two months into the three years--so tedious, so shameful.

You're going to need to find a way to deal with these feelings or none of the methods suggested wil help much. That's just another way of not dealing with the problem and sticking your fingers in your ears because you like being comfortable now. Economics isn't about money, it's about the study of incentives and human behavior. Your insistence on spending everything right away is how the rest of us make money on savings. You need to come to grips with the fact you will want to be comfortable in 20 years too and won't be able to earn such a high wage forever.
posted by yerfatma at 2:05 PM on July 22, 2011 [1 favorite]

First of all, max out your 401k contribution ($16500 this year). In another five years (age 50), you can add another $5500 "catch-up" contribution to that (probably higher, by then). You can afford it, really. You won't even miss it, after a few months - Keep in mind that you don't pay the whole thing, because it comes out pre-tax, and your employer most likely kicks in $3-6k of that.

Second, pay off your credit cards. Period. Give yourself a realistic timeframe based on your "necessary" expenses, but a year should suffice (given your stated debt and income, and the fact that you realize that you make a decent salary means you don't live somewhere like NYC where $100k doesn't actually count as all that much). Once you have them paid off, NEVER run a balance again. Ever. No, not even for that. Or that. NO!

Third - Figure out how much you "need" to spend monthly, then give yourself half of the remainder as "play" money and save the other half. Do whatever the hell you want with the play-half, have fun - We work to live, we don't live to work. But don't spend a penny more than that on non-critical expenses.

And there you go. In 20 years, you'll have at least enough to retire comfortably in most of the US.
posted by pla at 5:23 PM on July 22, 2011

I disagree with most of the above posters. Signing up for mint.com or sitting down and making a budget won't do squat for the same reason that you walked away from the Suze Orman project. If you don't understand the emotions underlying saving, spending, and your personal money triggers, tips and tricks and systems will either overwhelm you or you will fall back into the very habits you are trying to change.

I recommend exactly two places to start:

1) at the blog The Simple Dollar, the author tells his story of how he hit rock bottom and climbed back out. You are not alone!

2) Buy I Will Teach You To Be Rich. This book has done wonders for several friends of mine who have a similarly high salary and spending habits. It shows you how to go for 'big wins' rather than cutting back on a few lattes, and most importantly for you, has a simple and low-maintenance automated setup for saving and paying bills. Significantly easier psychologically than budgeting and doing it all manually, so higher likelihood that it will work for you.

Also? You don't need to revamp your entire financial life at once. Just getting started is most important. If you are getting overwhelmed, just pick the one thing you can do today to move things forward and then go get some ice cream.
posted by squasher at 5:24 PM on July 22, 2011

Good for you! Please, try to forgive yourself for all your bad past decisions. You know you made mistakes, and now is the time to buckle down and fix them. Try to set aside the guilt and blame, even though that's kind of an impossible task. But try.

In addition to Dave Ramsey, I also recommend the book Your Money Or Your Life. And yes, you can also seek out a financial planner, explain your situation, and have them help walk you through creating a goal and figuring out the steps you need to get there.
posted by ErikaB at 6:10 PM on July 22, 2011 [1 favorite]

It's a day later and I'm still thinking about your post. I am not a professional financial planner but I've read a ton about personal finance, taught a little about it, am very nice, and want to help you get started. MeMail me if you're interested
posted by squasher at 2:14 PM on July 23, 2011

bogleheads.org is a great resource for questions. It more or less started out as "Vanguard Diehards" (Vanguard being probably the best place to have IRAs and so forth) and is full of excellent, conservative advice about money. I think Suze Orman is an idiot. Also, see about borrowing against your 401K to pay off the credit-card debt. When you do that, you repay the interest to yourself in your 401k, which is pretty cool.
posted by Lizzle at 3:01 PM on July 26, 2011