Read an Excerpt
Chapter One
Figuring Your Financial Fitness
In This Chapter
* Common financial problems
* Bad debt, good debt, and too much debt
* Assets, liabilities, and your (financial) net worth
* How much you really saved last year
* Investment and insurance checkups
* Fitting money into your overall life
"I've made just about every financial mistake there is to make," lamented a student in my personal finance course. The student, who had an anxious yet depressed look, seemed to be asking me for forgiveness.
This is when it first dawned on me that as grown-up children — referred to as adults — we're not really allowed to make mistakes. If you mangle your car in an accident because you weren't paying attention or get fired from a job because of poor attendance and performance, you feel awful.
With financial matters, however, the fact that you've made a mistake may not be as obvious as twisted metal or a pink slip and no more paycheck. Some mistakes take months, years, even decades to manifest themselves. Even then, some people don't realize the foolishness of their ways.
REMEMBER
Few people like to be made to feel stupid or told that they're doing something wrong. And what you do with your money is a quite personal and confidential matter. I've endeavored not to be paternalistic in this book but to provide guidance and advice that is in your best interest. You don't have to take it all — pick what works best for you and understand the pros and cons of your options. But from this day forward, pleasedon't make the easily avoidable mistakes nor overlook the sound strategies that I discuss throughout this book.
If you're young, congratulations for being so forward-thinking as to realize the immense value of investing now in your personal financial education. You'll reap the rewards for many decades to come. But even if you're not so young, you surely have many years to make the most of what money you currently have and will earn (and may even inherit!) in the future.
Throughout our journey together, I hope to challenge and even change the way you think about money, about making important personal financial decisions — sometimes even about the meaning of life. No, I'm not a philosopher, but I do know that money, for better but more often for worse, is connected to many other parts of our lives.
Common Financial Problems
How financially healthy are you? You may already know the bad news. Or perhaps things aren't quite as bad as they seem.
When was the last time you sat down surrounded by all of your personal and financial documents and took stock of your overall financial situation, including reviewing your spending, savings, future goals, and insurance? If you're like most people, you've either never done this exercise or did so a long time ago.
Financial problems, like many medical problems, are best detected early (clean living doesn't hurt, either). Here are some common personal financial problems I've seen in my work as a financial counselor:
* Not planning. Human beings were born to procrastinate. That's why there are deadlines — and deadline extensions. With your finances, unfortunately, you have no deadlines, and you may think you have unlimited extensions! You can allow your credit card debt to accumulate or leave your savings sitting in lousy investments for years. You can pay higher taxes, leave gaps in your retirement and insurance coverage, and overpay for financial products. Of course, planning your finances isn't as much fun as planning a vacation, but doing the former will help you take more of the latter.<
