Taking Back Your Financial Life

You Don't Have to Be Rich
by Jean Chatzky

(Page 2 of 3)

And Then We Got Ahead of Ourselves

As our paper riches started to accumulate faster and faster, it began to seem okay, natural, even deserving, to spend some of that money. After all, if our brilliance as investors had made us this much money, it would certainly make us much more. But rather than cashing out our positions in order to do it which would leave potential profits on the table (our shares of Amazon.com, after all, were still climbing toward analyst Henry Blodgett's $400 price target) we borrowed. We floated trips to Europe and the Caribbean on our Visas and MasterCards. We didn't put much money down on that new car or second home. Instead, we leveraged up. Debt seemed to make sense when the money was flowing this freely.

We didn't even stop spending when the dot bomb blew. Consumer debt continued to rise through the 1990s and into the new millennium. Personal bankruptcies hit new highs every year. But instead of scaling back and taking a break from living large, we began to raid the equity in our homes to support our new lifestyles. With mortgage and home equity rates scraping the bottom of the barrel, we refinanced and took on lines of credit, not just to renovate and add value to our homes, but to consolidate credit card debts that we then allowed to ratchet right back up. A Louis Uchitelle piece in The New York Times in 2001 reported that despite the trillions in new wealth generated by the bull market, we owned less of the equity in our homes than any previous generation had.

There seemed to be no going back. By continuing to borrow during the late '90s, we were able to continue to spend more than we were actually earning. In November 2002 three years into the market's steady decline our personal incomes climbed by only 3 percent. Personal spending grew a full 5 percent.

When the Worry Finally Caught Up

What finally stopped us in our tracks? What finally brought us back to reality? Not three consecutive down years in the stock market. Not rising unemployment. Not the threat of war overseas. No single one of these factors was enough to burst our bubble of glee. It wasn't until a perfect storm of all of these factors hit at precisely the same time that we started to worry.

Unfortunately besides worrying we didn't know what to do.

An NBC News/Wall Street Journal poll released in July 2002, after the Dow Jones Industrial Average lost 1,300 points in ten consecutive trading days, showed that 70 percent of individuals nearly three-quarters of us have little or no faith in the information that comes out of brokerage houses and investment banks. And yet many of us continue to rely on those institutions to manage our money for us. Shortly thereafter, a New York magazine piece focused on a woman who "vowed" not to open her 401(k) statements for the next two years. And there are plenty more where she came from.

As all of this distressing evidence poured in, I started looking for answers. I wasn't certain of what I might find, but I was certain of this: Turning the other cheek wasn't the answer. Nor was sitting around feeling sorry for ourselves, as if we were the minions in a market-run dictatorship that could do with us (and our money) as it wished.

Taking Back Your Financial Life

The conclusion I came to was this: It's time to take back our lives. And in order to do that we need to take back our money. Not just the manner in which we manage it by learning, once again, to live within our means, however modest or expansive those means happen to be. We need to regain our financial power if we feel we've ceded it. Or to grab hold of that power, even if we've never paid much attention before. And we need to do it in a way that will allow us to feel good not compromised, not guilty, not second-rate but good, happy, smart, and confident about our choices.

But how? If you've watched me on television or read my columns, you know I'm all about the tactical and practical. I look for real solutions to all sorts of money problems, and then I want to see data that prove to me that the solutions work.

Where money and happiness were concerned, useful data didn't exist. There was a bounty of research showing that, indeed, money wasn't the key to lifetime happiness (although it did have a role to play). But when I started looking for lists of behaviors and habits, things you could actually alter in your lives that would positively impact your relationship with money, I found nothing.

So I went looking for those answers myself. At the end of 2002, with the help and support of Money magazine, extensive proprietary research was conducted for this book by RoperASW. The goal was to figure out, first, what influence money has over an individual's overall happiness; second, what habits, attitudes, behaviors, and knowledge separate those people who are satisfied with their financial lives from those who are not; and third, what effect changing those habits, attitudes, behaviors, and knowledge might have on a person's life.

The results were staggering. Of course, money plays a role in the happiness equation. To try to deny that link would be disingenuous, not to mention unbelievable. But it's not as strong a link as big a contributing factor in your happiness as you might think. Moreover, money can be a bigger cause of unhappiness than many other factors in your life. Let me say that again. Even when it's working in your favor, money can't make you completely happy. But it can without a doubt make you miserable.

Our study examined nine factors that contribute to a person's general happiness: things like a marriage or other important personal relationship, good friends, children, job, and lifestyle. Of all of these, money, it turns out, is the biggest contributing factor to a person's unhappiness. It is the factor we worry most about the one we feel is furthest from our control.

Then we dug deeper. We delved into the lives of people for whom money was not a roadblock to happiness. These were people who said they felt in control of their money, who didn't spend nights staring at the ceiling worrying about it. And we were able to isolate their habits, attitudes, and behaviors.

The links between those people the habits, attitudes, and behaviors that separate them from those who are unhappy form the basis of an astounding new way to manage your money. Follow the prescription, adopt the habits, by which these people live and it will lead you directly to a happier life. You will reduce money-related stress. You will start making financial decisions that truly make you happy and that aren't based on someone else's definition of satisfaction.

And I have the research to prove: It's not about how much you have. You don't have to be a Rockefeller. You don't even have to be rich. That's right. Whether you pull in $50,000 a year or $500,000 a year, you have the same shot at achieving this sort of financial satisfaction.

In fact, adopting these habits, my research shows, is worth an extra $25,000 a year. Picture this. You have two American families. The first earns less than $50,000 a year but is in control of their money. They're not anal with a capital A, but they've adopted a handful of the good habits I'll outline for you in the pages that follow. The second family earns at least 50 percent more upward of $75,000 a year but they're less in control. They're not financial fiascoes across the board, but they've picked up a couple of not-so-good habits.

Who's happier with their finances? Neither one. Roughly six out of ten families like the first will say they're financially happy. Roughly six out of ten families like the second will say they're financially happy. Good money management taking ownership of your money rather than letting it ride roughshod over you makes the difference.

In other words, adopting good money management habits rather than poor ones is like earning another $25,000 a year.

What are you waiting for?

Copyright © 2003 Jean Chatzky. All rights reserved. This excerpt, or any parts thereof, may not be reproduced without permission.

About the Author

Known to millions of readers and tv viewers, Jean Chatzky is the financial editor of NBC's Today show and also appears on CNBC. She is a regular columnist for Time, Money, and USA Weekend magazines. She is also the author of Pay It Down!