Personal

Sound finances begin with you. Yes, you are part of a family, the finances of which affect you. A rich mom, dad, or uncle can make a difference to you. If you are employed, your employer’s finances also affect you, in job security, advancement, compensation, benefits, and bonuses. The economy of your community and state, and of the nation and world, also affect you. Economic recessions and downturns in the stock market can impact you. But those outside influences aside, your knowledge, decisions, and actions matter most to your financial situation.

⤠  Avoid giving security for debt. ⤟

Accounts

Your checking and savings accounts are good starting points for your personal financial management. You probably have an account into which you place your income and out of which you pay your expenses. We used to call it a checking account, but we don’t write paper checks much anymore. Call it your household account. You may also have an account you don’t use daily, in which you keep savings you’ve accumulated, and out of which you might pay an unusual expense, like buying a car or making a down payment on a home. Call it your savings account. Open a savings account if you don’t have one. To manage your money well, you need both a household account and a savings account.

Reconciliation

Keep it simple. Reconcile your accounts monthly. To reconcile an account means to check your record against the bank’s record. If you keep a written check register for your household account, compare your register to the bank statement you get at the end of each month. If instead you rely on an electronic register for your household account, check the electronic register at least monthly. You need to ensure that you and the bank have the same understanding as to your deposits and withdrawals. You or the bank may have made mistakes. The bank, a retailer, or a scammer may have added a charge to your account. If you don’t catch the mistake or unauthorized charge timely, you may lose the ability to contest and correct it. Monthly reconciliation also ensures that you regularly think about money management.

Banks

You need to manage your money through a financial institution. While keeping some cash on hand can be wise, keeping all your money in your mattress is a poor practice. Banks are not all alike. Size, services, cost, accountability, and convenience all vary. Larger banks tend to offer more programs, options, and services, and have more-sophisticated online services. Smaller banks tend to be more accountable when you have an issue. All banks must earn income. They may charge fees for accounts, automated-teller usage, bill-paying services, credit and debit cards, and overdrafts. Fees can vary widely.  So can the interest banks offer on accounts. Choose the most helpful and cost-efficient bank. Change banks until you find one that feels like a financial partner.

⤠  Sow bountifully, reap bountifully. ⤟

Relationship

Your relationship toward money can influence your personal satisfaction and success. You need the right attitude toward money.  Poor money management generally comes from a poor relationship toward money. Personal money management isn’t just getting your finances straight. It instead means getting your relationship toward money straight. Discern and modify your beliefs about money and relationship toward money, or else money will define its own relationship with you.  

When Pat started at his sales job after graduation, he knew immediately that his personal finances would work. Money meant little to nothing to him other than the ability it afforded him to do the work that he loved. His first paycheck provided that ability. He could see that his earnings would soon pay off his modest educational debt. For the moment, Pat thought nothing else about money. Yet anytime he thought about marriage and a family, which was increasingly often, he began to think that money might have more to it than just sustaining his ability to work. By contrast, Erin had a different view of money. She feared her large and stubborn educational debt, although the more she thought of it, she realized that she had always been insecure about money.

Income

 Your income can increase substantially over the course of a career. Look online for information on median income for people in your business, trade, or profession. Trade and professional associations, and industry, field, and human-resources groups, publish median wage information, often breaking it down by experience and category. Get a good idea of how your income might change if you stick with your current career or change careers. Don’t just live paycheck to paycheck. See where your paychecks may get you over the years. You deserve a fair wage for the value of your services. If your wage is fair, but you’re not earning what you want or need, then gain education, experience, and advancement, or change careers. Look at the big income picture, not just your monthly budget.

⤠  Sow sparingly, reap sparingly. ⤟

Volatility

Income can go up and down a lot. You may work in a seasonal trade, profession, or business. You may also take medical, pregnancy, or dependent-care leaves. Both the timing and amount of your income can vary. Sound money management can help you handle income volatility. Indeed, the more volatile your income, the more you need to plan your finances. Just because your trade or business is feast or famine, don’t throw planning to the wind. Instead, let your planning spread your money across your income cycles, to flatten out the peaks and valleys. That big check you just got? It may not be so big, depending on how long it must last. Figure it out.

Erin’s insecurity about money made her fear all the more the small signs she saw of the volatility and risk in her work for the company. Until her first full year at work, she had assumed that the company’s finances were rock solid. To its college interns, the company had projected all the trappings of financial success. Yet its quotas and memoranda to its new employees, including Erin, hinted at uncertainties about which Erin hadn’t guessed while an intern. Erin’s other revelation was that the company seemed to distinguish among employees in compensation and year-end bonuses. She even overheard long-time employees talk about having had good or bad years. Apparently, incomes at the company went up and down year to year. She just hoped that her own income, which she appreciated as substantial, remained reasonably stable. On good days, Erin even hoped that her income would someday go up.

Pyramid

Think of your money like a pyramid. Your needs are at the bottom and desires at the top. Managing your money is the pyramid’s foundation. You cannot aim for the pyramid’s top without managing your money, especially financial risks. If you don’t manage your money, things will continually knock you back to the pyramid’s base. Once you manage risks, you can begin to climb the pyramid. Reaching the pyramid’s next level involves conserving your money. At the pyramid’s top is wealth distribution. You can’t take wealth with you. Instead, plan for its distribution. Your management varies at the pyramid’s different levels. Failing at any of the pyramid’s levels can delay or destroy financial success.

⤠  Give joyfully, not grudgingly. ⤟

Components 

The pyramid analogy shows that sound money management involves several components. The components include things with which you must deal immediately, will soon need to deal, and should eventually deal in the long term. Your first priority order is managing your cash flow to meet obligations. Your second priority is managing debt so it doesn’t undermine your future. Your third priority is managing risk so that unprotected events don’t ruin your future. Next is managing your budget to gradually accumulate wealth. Then comes tax planning so that the government doesn’t keep you from winning. Next is managing your investments so that they grow safely. Then comes retirement planning to ensure you have enough to live on. And finally is estate planning, to bless future generations.

Before long, Pat had figured out the marriage-and-family part to money, or at least some of it. Thinking about the experience of his mother and father, and the varying finances of his several aunts and uncles, helped him put it in perspective. Pat realized he had mastered only his cash flow and debt management. In a way, he was still living hand-to-mouth, which seemed fine for the young, healthy, single, and childless man who he was. Yet he realized that he needed to be thinking about the risk of illness and job loss, protecting his coming wife, saving for his children’s education, and investing for retirement. This family thing was going to be different, he realized, thinking at the same time that maybe he needed to grow up.

Access

Beware unusual access to money. The temptation of money has tripped many individuals up. Some workplaces, from retail and security to healthcare and guardians roles, and professional jobs in human resources, accounting, banking, law, and other fields, give employees access to other people’s cash, credit cards, personal information, valuables, and accounts. Another reason to manage your money wisely is to help you avoid money temptations. Individuals who steal, embezzle, and defraud are often trying to recover their own financial losses. Indeed, if you suffer collections actions, bankruptcy, or similar financial reversals, you could lose a job or career in a field that involves positions of trust with money, personal property, or data. 

⤠   Better to have a little honestly than a lot dishonestly. ⤟

Organization

This Part I begins by addressing principles and practices of personal money management. Part I’s second section addresses cash flow, budgeting, and balance sheets, laying the groundwork for personal financial success. The third section then addresses managing risk and safeguarding finances. The fourth section addresses investments and retirement planning. The fifth and last section addresses tax planning and wealth transfer because nothing, as they say, is quite so inevitable as death and taxes. Get started on your money management journey. Make it meaningful.

Checklist

Reflect, research, investigate, and act until you can affirm each of the following statements summarizing the advice in this section:

• My personal finances need to be stable, secure, and orderly for my personal success.

• My personal attitude toward money is consistent with wisdom skilled financial advisors possess.

• My income could grow substantially under favorable circumstances.

• My income may prove volatile, making my personal financial planning more important.

• My long-term financial success depends on progressively adopting and integrating plan components.

• I may handle or have access to substantial sums or valuable, making my financial integrity key to my success.

Read the next chapter.