Financial Hygiene.. our dirty society :)

[duncan_m]

Hi!

I've used the term Financial Hygiene a few times in the past. I consider someones "Financial Hygiene" to be the set of habits, attitudes and behaviours that they have towards managing their finances.

It occurs to me that our society is developing sloppier and sloppier financial hygiene.

I was wondering what people think are good behaviours, traits and activities when it comes to personal financial hygiene.. and on the other side of the coin, what are bad behaviours and traits that you observe in colleagues, family etc?

A few places where I could do better are:

1. More prompt payment of bills
2. Accurate notation of expenditure
3. Keeping a CLOSE eye on Bank Account and Credit Card activity
4. Quickly filing tax returns

A few places where I see some of my tenants/colleagues/friends could do better are:

1. An abandonment of Interest Free deals and reverting to cash for whitegoods.
2. "Forward Planning", having a realisation that car tyres (for example) DO wear down and that you need to PLAN to have the money to replace them in 2 years time.. rather than bemoaning the unexpected bill you've suddenly been hit with..
3. Realising that CARS suck and they'd probably own a house now if they hadnt bought that new WRX last year..

It seems to me like we're descending into a sloppy, dirty society when it comes to money. Bankruptcy, Cash Convertors, Pay Day Lenders, Interest Free Deals, Credit Cards, new Cars, competitive consumption, mobile phone debt etc..

I guess its always been this way.. one only need re-read the Richest Man in Bablyon to appreciate the same exact set of problems existed back in the 1930's when George Clason penned the book.. But surely they didnt have to contend with the almost malevolent standard and effectiveness of advertising that now takes place.. the sheer volume of advertising that we're subjected to and the psychological brilliance that certain advertisers bring to bear in encouraging the behaviour they require from us in order for THEM to succeed (consumption predominantly).

What pearls of wisdom would you pass to your kids as they leave home on how to manage their finances? As investors are we passing on the really big picture (asset building) and forgetting to pass on gems of minutia that are required to build a foundation?

 

[Rixter]

Dunc,

I think the 95%/5% rule comes into play here.

95% of the population are active members of what I call the 40/40 club and the other 5% non-members. - 40/40 club meaning those are the people who attend work 40 hours per week for 40 years of their life, only to retire hopefully with their house paid off and a small amount of superCONuation they hope will last their days out. Unforunately it doesnt and they fall onto the welfare system.

However the 5% non-members take a proactive approach in all areas of their life including their Financial affairs. This attitude or Fianancial Hygiene as you describe it is passed onto their offspring both by educating them and even more so by example. Their children become a product of the environments they have been brought up in.

Unfortunately the same can be said in relation to the 95%ers but in this situation their non Financial Higiene practices slowly degenerate in years to follow, and is eventually picked up by the welfare system in turn.

Just my perspective .

 

[markpatric]

The 5% could be called the club of 24/7.
Chasing returns 24 hours a day, 7 days a week, at risk of disregarding more important matters like spending time with family, enjoying life now and appreciating what we have, with good health hopefully at the top of the list.

I suppose it depends where you start as to how much effort and time is needed, a good family, a good business and good holidays has to take prevalence over trying to "get rich", for the majority.

And as for spending our time chasing the almighty dollar for our family/kids sake, I think this thinking is counterproductive and overated in the extreme.

 

[vandalic]

A few financial strategies I follow...
1. Live below your means
2. When you get a pay rise at work, add a small increase to your budgets to reward yourself, but save and invest the rest and live like you were previously
3. Use tax returns for investing not for paying car rego's, etc
4. Budget but not so tightly that it's unattainable - Fixed Expenses and Variable Expenses. Disburse surplus revenues into an Emergency Fund, Bills due in 3 months or more (electricity, car rego, rates, etc), Investing fund (shares and property) and Holiday/Travel fund. Although, keep them all in the same account until used to maximise the joys of compounding.
5. If you have to make a tax payment, do not pay it until just before it is due, produce yourself some more interest, don't give the government free interest
6. If you have a personal loan for a car (i.e. 8% interest) and you can produce greater returns in shares or property by utilising the money, let the car loan continue on normal repayments
7. Ensure you are claiming all possible tax deductions and that you keep an ongoing record and folder of receipts from throughout the year
8. If you obtain a bonus, win some money in the lotto, receive share dividend payments, etc save the money and invest it like you never won/received it
9. Patience, you don't need everything today.
10. Invest in property/shares/etc based on a combination of proven methods, the best experts in the field (read their books), others experiences, sound logic and most importantly investing which suits your lifestyle and mindset. Do not follow the herd mentality or recommendations from a friend of a friend's mother's cousin. Research research read read.
11. You cannot get rich overnight unless you win lotto or gain inheritance, so don't count on building your fortune from short-term get rich schemes.

Josh

 

[willair]

Hi!

I've used the term Financial Hygiene a few times in the past. I consider someones "Financial Hygiene" to be the set of habits, attitudes and behaviours that they have towards managing their finances.

It occurs to me that our society is developing sloppier and sloppier financial hygiene.

I was wondering what people think are good behaviours, traits and activities when it comes to personal financial hygiene.. and on the other side of the coin, what are bad behaviours and traits that you observe in colleagues, family etc?

A few places where I could do better are:

1. More prompt payment of bills
2. Accurate notation of expenditure
3. Keeping a CLOSE eye on Bank Account and Credit Card activity
4. Quickly filing tax returns

A few places where I see some of my tenants/colleagues/friends could do better are:

1. An abandonment of Interest Free deals and reverting to cash for whitegoods.
2. "Forward Planning", having a realisation that car tyres (for example) DO wear down and that you need to PLAN to have the money to replace them in 2 years time.. rather than bemoaning the unexpected bill you've suddenly been hit with..
3. Realising that CARS suck and they'd probably own a house now if they hadnt bought that new WRX last year..

It seems to me like we're descending into a sloppy, dirty society when it comes to money. Bankruptcy, Cash Convertors, Pay Day Lenders, Interest Free Deals, Credit Cards, new Cars, competitive consumption, mobile phone debt etc..

I guess its always been this way.. one only need re-read the Richest Man in Bablyon to appreciate the same exact set of problems existed back in the 1930's when George Clason penned the book.. But surely they didnt have to contend with the almost malevolent standard and effectiveness of advertising that now takes place.. the sheer volume of advertising that we're subjected to and the psychological brilliance that certain advertisers bring to bear in encouraging the behaviour they require from us in order for THEM to succeed (consumption predominantly).

What pearls of wisdom would you pass to your kids as they leave home on how to manage their finances? As investors are we passing on the really big picture (asset building) and forgetting to pass on gems of minutia that are required to build a foundation?.

Duncan,
good question,i just asked my three daughters to read this post and see what they think, one said thats ok with the big picture because in 5 years time
everything will be different but she only 13,but the otherday we went past a bolcks of flats for sale and she said, just think dad if you bought that block
with 6 flats thats six people that will pay the property off for us, i was happy after she said that, for me i try every day to teach them something new
about life and stay away from the advertising dragnet that seems to be everywhere, they are all already investing in one way or another so they will learn as they go and each time they find a problem,they will learn how to deal with it..
good luck
willair..

 

[Rixter]

The 5% could be called the club of 24/7.
Chasing returns 24 hours a day, 7 days a week, at risk of disregarding more important matters like spending time with family, enjoying life now and appreciating what we have, with good health hopefully at the top of the list.

I suppose it depends where you start as to how much effort and time is needed, a good family, a good business and good holidays has to take prevalence over trying to "get rich", for the majority.

And as for spending our time chasing the almighty dollar for our family/kids sake, I think this thinking is counterproductive and overated in the extreme.

Markp,

I think you missed where Ive already addressed your concerns - The 5%ers have all the other areas of their lives in balance.

Cheers

 

[House_Keeper]

What pearls of wisdom would you pass to your kids as they leave home on how to manage their finances? As investors are we passing on the really big picture (asset building) and forgetting to pass on gems of minutia that are required to build a foundation?

Good post duncan.

I believe kids learn mostly by example. In our case, they don't see us spend more than our basic needs. We don't spend much time in front of the TV. Neither do they. They are aware of our investment properties. They have investments and I get them to read and understand their quarterly statements. Our kids have never insisted that they must have some expensive toy. When I asked my daughter what she would do with her investments when she is 20, she said she would buy a house. Our kids pick up on the way we live and for them it seems to be the "normal" way to live.

Cheers,

 

[markpatric]

Yes Rixter but the overwhelming majority of "self made" people I have known have had a hefty price to pay, which generally is in the form of very long hours for many years, not to mention extremely hard work.

 

[Rixter]

Mark, I dont know about you but I prefer to work smart not hard

I find its alot easier to keep things in balance that way which you & I have already rightfully made comment on.

 

[Dazz]

The overwhelming majority of "self made" people I have known have had a hefty price to pay, which generally is in the form of very long hours for many years, not to mention extremely hard work.

Agreed. "Cats in the cradle" and all of that.

Wasn't it Bill Gates who said one can achieve anything, if your are prepared to sacrifice enough for long enough. It swings both ways of course. Some people sacrifice almost all material wealth to achieve what they perceive to be a higher spiritual plain...viz. Mother Teresa. Both are at the extremes.

Perhaps somewhere in the middle is where we are all shooting for ??

 

[wealthyjay]

Agreed. "Cats in the cradle" and all of that.

Wasn't it Bill Gates who said one can achieve anything, if your are prepared to sacrifice enough for long enough. It swings both ways of course. Some people sacrifice almost all material wealth to achieve what they perceive to be a higher spiritual plain...viz. Mother Teresa. Both are at the extremes.

Perhaps somewhere in the middle is where we are all shooting for ??

Be aware that Mother Theresa was a very canny business woman with the skill and connections to raise millions of dollars to the poor. Its somewhat erroneous to say she lacked completely materially.

Anyway, I agree with what you are saying, you choose the price you are willing to pay for your goals. You cannot get something for nothing. To be focussed on wealth usually means some sacrifice o the family scale and vice versa. you can't escape that. You can't be upset about that. I am not sure about trying to play the middle ground, I feel this creates conflict with priorities and creates a manic lifestyle.

 

[markpatric]

Yes it is definately difficult to find middle ground, so often it comes down to jump or don`t jump, do or don`t do!.

Work smarter not harder is a great idea to keep alive, but very often it can become "work smarter, go backwards and then work twice as hard to get back to where you were to begin with!".

 

[Merovingian]

Work smarter not harder is a great idea to keep alive, but very often it can become "work smarter, go backwards and then work twice as hard to get back to where you were to begin with!".

Don't they call that "working dumber"?

 

[duncan_m]

The point I was trying to make, if it was not clear, is not the have versus the have nots.. it was the micro money management skill issue..

Along with having the gumption to actually invest there's a whole raft of skills required for managing the day to day balance of accounts, keeping track of bills, creating a budget etc.. Do we preach the big picture often at the expense of the little picture?

 

[Corsa]

Along with having the gumption to actually invest there's a whole raft of skills required for managing the day to day balance of accounts, keeping track of bills, creating a budget etc.. Do we preach the big picture often at the expense of the little picture?

Hi Dunc

I dont think we preach the big picture at the expense of the little picture

I think, in part, that it is the individual and the individuals preferential operating style that determines whether the big picture is the main focus or the detail gets high priority.

Typically, people fall into one of the following categories (per Myers Briggs and Carl Jung theories for anyone who has read a bit about personality typing:

1. Intuitive = N - are big picture, visionary, creative, focus on the theories and concepts
2. Sensate = Sdetailed focusing on the facts, figures and high attention to detail

Usually people will have a bit of both Intuitive (big picture) or Sensate (detail) characteristics but everyone has a natural preferential state so people should be able to identify in themselves whether they are the big picture or little picture.

So, cos I know you, I know that you are a very detailed person (Sensate focused), you have to be to be a programmer and to acheive all that you have acheived and so you will focus on all those details and perceive that others (who may not focus on these details) as doing it the wrong way, as you "naturally" think the way you like to do things is the best way

But others, will focus on the big picture and perhaps outsource some of the details to accountants, husbands/wives, bury head in sand, whatever as they are focusing on the next vision rather than manually reconciling all the accounts.

Me, I am smack bang in the middle (as I have taken the Myers Briggs test) and have equal amounts of Intuitive and Sensate. In this case they say that the Intuitive always takes preference and essentially you are a big picture person but supplemented with a strong eye for detail which is definately the case with me and the way I like to operate.

So, to summarise I would say that you do have a point, people in order to be completely efficient and efficient should focus on paying bills always, quickly getting tax returns on time, or reconciling accounting software....but as is life, sometimes life gets in the way of doing everything the "right" way always and you have to take a satisfiest approach rather than a perfectionist approach otherwise you always end up letting yourself down with all the demands of life.

Cheers

Corsa

 

[thefirstbruce]

Corsa, you raise an important point re personality theory, and attitude towards money. However, re MBTI, Jung, Teplov/Nebylitsyn, Eysenck, et al, one has to remember that personality inventory scores are plotted on sliding scales, and are never diametric opposites. And distributions are generally normal, thus putting most near the centre. Personally, I flip flop between an ESTJ and ENTJ, depending on which side of bed I get out of

For a great site with lots of free and interesting personality tests try
http://www.similarminds.com


As for financial micromanagement, I think this is quite a pertinent and interesting topic to explore. One trend that I think has unfolded over the last 30 years is the preoccupation and focus of individuals with events at a national and international level. This has been accompanied by more and more companies having a competitive edge when national or international in size. Local businesses are progressively being eaten up by franchises and nationals.

This has all happened at the expense of individuals prioritizing matters at a local level, including personal level. I would argue that things local seem so impotent and unimportant in the minds of many, when compared to all the big issues that fill the broadsheets and electronic media.

I believe a lot of this focus has subconsciously steered many of us not to be too concerned about micromanaging our own affairs. Further it is seen as uncool and indicative of failure or personality weakness to question a bank about bank fees etc. One is expected just to cop them as the cost of banking and business. Further, many of us complain of being time or energy poor, so have little opportunity to micromanage.

However, all of this is a matter of perspective and priority. I think there is a growing realization in society that individuals need to calm down and focus a little more on local issues and what is best for self, and not take the word of institutions whose primary motive is shareholder profit.

When I look at how I have become systematically desensitized to mobile phone bills, I shudder. I don't seem to mind now, that the amount of money I am spending on mobile calls, could pay the interest on $40,000 worth of IP. Sure the mobile is part of my business expenses, but it still isn't an absolute necessity. We all managed quite well before mobiles.

I think despite GST, tax matters are a lot more complicated nowadays. And this has ppl fussing over things they never used to.

Probably one of the strongest concepts I have thought of to instil 'financial perspective' in myself and younger ppl, is to sit down and write out what is most important in life, what we want to achieve, marriage, having family, being able to retire comfortably. And then mapping that out with a spreadsheet. When I have done that, it tends to add strong perspective to spending $4 on a cup of coffee (consider $4 compounded over 40 years), choosing to go to the beach every weekend instead of helping a friend lay a concrete slab (and in the process learning to do it myself)

So I would add to Duncan's financial consciousness or hygiene, that we add time hygiene, in which we contemplate more mindfully, which choice might have better long term outcomes.

And I cannot help but see that all this is taking us on a journey back to core values, the sort of values that used to be taught by churches- strength of character, self dignity and respect for others etc.... Yes the churches needed to be held to account for their misuse of power, but somehow I think many of us threw the baby out with the bathwater....Where do we go now for guidance on how to live life wisely.....and maintain perspective?????

 

[Rixter]

Don't they call that "working dumber"?

I definitely think so.- doesnt sound too smart to me.

 

[markpatric]

Rixter, when we say "working smarter, not harder", it can tend to imply "hardly working" which, in my experience applies generally to those who have ALREADY worked very hard for many years.
Are there really shortcuts to great riches for the average Joe?.

 

[Corsa]

Corsa, you raise an important point re personality theory, and attitude towards money. However, re MBTI, Jung, Teplov/Nebylitsyn, Eysenck, et al, one has to remember that personality inventory scores are plotted on sliding scales, and are never diametric opposites. And distributions are generally normal, thus putting most near the centre. Personally, I flip flop between an ESTJ and ENTJ, depending on which side of bed I get out of

thefirstbruce, agreed although a person should be able to identify with one characteristic more than the other, they typically have a bit of both personality types. I understand that typically if a person is subjected to a major life change (ie death, marriage, moving house etc) then people can flip entirely more to one end of the scale than the other but generally people stay on the same plan. Ie i have taken the test 3 times over 10 years and each time the type ends up the same (ENTJ) although I mentioned that my N and S were equal so thefirstbruce i would be the same as you ENTJ and ESTJ.

 

[MichaelW]

Similar Minds alright!

I'm an ENTJ too, and am off the scale in almost all of the attributes except for the J which I sometimes slide back towards P. i.e. Judgemental versus Perceptive.

I read an article in a mag once which described ENTJs as Executives Need Tough Jobs.

Being an Intuitive (N) I tend to focus on the big picture stuff. I've often been guilty of not dotting my I's and crossing my T's. My tax returns are always a bit painful and pulling everything together for them is a nightmare. However, I do monitor my Credit Card expenditure online regularly and keep an holistic view of my income/expense position. If things are getting a tad out of control I just stop some of that discretionary expenditure for a while until the big bills have past and I've got surplus income again. That's surplus "after" investing of course.

Cheers,
Michael.