I’m a financial educator and evangelist at heart. Hand me a megaphone of any sort and I’ll use it to spread the word that, with a little planning and discipline, anyone can reach their financial goals, regardless of the current circumstances.
That’s exactly what I do as the behind the scenes financial consultant for Spike TV’s new reality show, Life or Debt, which follows families from all walks of life as they struggle to overcome financial distress and get on the path to lasting solvency and success.
Life or Debt is hosted by financial strategist Victor Antonio who puts his heart and soul into turning these families around. Victor and I have worked with 10 financially challenged families over the past year. In the course of that rewarding work we’ve identified some common problems and issues. Does any of this sound familiar?
6 common money errors
Flying blind – Many of these families had no idea where their money was going. They didn’t keep track of spending and sometimes couldn’t say how much money was coming into the household. Victor presses the show’s participants to think of their family as a business. Every successful business has a budget, monitors/controls expenses and works to maximize income.
If you don’t have a budget, put that on your to-do list for this weekend. We often think of budgeting as building a cage. On the contrary, it’s very liberating to know where your money is going and thus be able to control it. I always suggest using the T.S.L. budget because it keeps things simple.
Failure to communicate — Money is one of the hardest things for any couple to discuss – it stirs up all sorts of emotions, including fear. Those conversations get even more difficult when a family has financial trouble. Because the topic is so scary, and there is no plan to fix things, the partners simply opt not to talk about the situation. As a result, critical information about spending and income doesn’t get shared and a plan to fix things doesn’t get made. If this sounds like you, then it might be time to talk with your spouse about having an Economic Shutdown.
Keeping up with the Joneses — More like keeping up with the Kardashians for some of these families! Wild over-spending on homes, cars, clothes, club memberships, et cetera to maintain appearances is a real problem in our country. It’s so misguided. It causes financial havoc and is only viable until you are broke. As Victor says, “Over-spending to keep up appearances will eventually earn you an appearance before a bankruptcy judge.”
Thinking we “deserve” it – The wife in one of our Life or Debt families was spending crazy money on plastic surgery and clothes even as her husband’s meatball business was failing. When Victor confronted her, she countered that she works hard and was entitled to look nice.
Buying things we can’t afford because we think we deserve them is a classic example of something Victor warns about: Allowing feelings to trump facts when thinking about your money.
Most of us have been guilty of that misstep. We convince ourselves we can afford that extra $65,000 for the fancier house or additional $15,000 on the luxury car loan because, well… because we’ll be making more money in the future, or we don’t splurge on $5 lattes, or, or, or…
Working without a net — It’s critically important to have what your grandparents called a “rainy day fund” – enough savings to pay your expenses for six to twelve months in the event a job loss, divorce or medical emergency. Victor calls those events “The Bankruptcy Trinity.”
You won’t be surprised to learn that few of our Life or Debt client families had such a reserve. The fact is, most Americans have little or nothing in the way of emergency funds. A 2015 Bankrate study found that 60% of us didn’t have enough saved to cover even a minor emergency like a major car repair.
If this describes your family, address the issue immediately. Rainy days always happen – sooner or later. Start by going through your budget and identifying places where you can reduce spending and redirect that money into your emergency fund.
Getting “schooled” — Every parent wants the best for their children, including the advantages of a good education. But going into significant debt for education is ultimately a disservice to the kids. One Life or Debt couple pushed their relationship and finances to the brink because they wanted their kids to attend an expensive private school. That’s crazy. At Victor’s suggestion, the couple moved to a home in a top-notch public school district.
When it comes time to pay for college, be sensible. Start saving early, ideally in a tax-deferred 529 college savings account. Limit your kids’ choices to schools you can truly afford. Don’t get hung up on status schools. (Dad – you can root for that football powerhouse even if your daughter doesn’t go there.) Get buy-in from your young scholar by requiring them to pay at least some portion of the cost, such as books.
And, finally, ask this question: Based on their hopes, dreams and aspirations, does your son or daughter even need to attend college? There are many great jobs, including a lot of computer programming gigs, that don’t require a four-year degree.
Okay, time to get off my soapbox – for now. I hope you’ll join us for Life or Debt, Sunday nights at 10 p.m. on Spike TV. It’s very entertaining, and you just might learn something that will keep your family off the show.