She admitted her debt troubles and her concerns that they don’t have anything saved for the future, let alone emergencies. While I applaud her desire to fix things, I question the method and the seriousness of her effort.
A coworker of mine recently decided to get her finances in order.
I had to hide a chuckle when she showed up in the office after lunch the other day with two big bags. One was from Office Max and the other was from Barnes and Noble. She proceeded to show us all of her purchases: Quicken, a ledger, six books on personal finance, and a blank journal. She mentioned that she’d also joined a couple of websites (that make you pay for a subscription), that she’d bought a couple of ready made Excel spreadsheets online, and that she’d be taking Dave Ramsey’s Financial Peace University in a couple of weeks. My estimated total of her spending is close to $300. Maybe more.
So in order to begin saving money this woman just spent several hundred dollars. She claims that she needs all of this stuff to teach her what she needs to know and to keep her organized. She needs the software and the ledger and the spreadsheets because she’s not sure which method will work best. She needs the journal to record her feelings as she goes through this journey. She needs the books, the websites, and Financial Peace to teach her about finance.
I see this more often than you might think. Before launching a personal finance plan, many people go on a spending spree buying all the “necessary” tools. But this is exactly the wrong way to go about it. If you’re serious about saving money, all spending needs to stop. Immediately. Spending another $300 before you “start” saving is only adding to the problem, not solving it.
Everything you need to manage your finances can be found for free or very close to it. At the most basic, all you need is a pen and some paper with which to write out a budget. If you’re really math challenged a cheap calculator will help, although your computer probably has a calculator already built in.
Ledgers, spreadsheets, and Quicken can be helpful especially if you have a lot of investments and tax issues to track, but they aren’t necessary and you’re better off starting with a simple method. Complicated tools will soon frustrate you and put an end to your mission. If you just have to have an electronic tool, you can find free spreadsheets online and chances are that the spreadsheet program on your computer has a template already built in.
If you need financial education, you can find plenty of books at your local library. They may not be the latest releases, but the basics of finance don’t change much from year to year. Some libraries also offer financial classes. Your local community college or extension program may offer a free or cheap finance or consumer education class. Some bookstores sponsor free classes that may be taught by a personal finance author who is promoting a new book. Look around your community for all the resources available to you. If you don’t have a library or strong community resources, there are all kinds of resources online. Message forums, articles, and free eBooks abound.
There’s just no need to spend a ton of money improving your finances. Doing so is just an excuse to go on a spending binge under the guise of “saving money.” Do your finances a favor and start with the free resources that are available to you. If you find later that you really would benefit from more sophisticated tools, you can consider adding them to your plan but only when doing so won’t put you further into the hole.
If my friend had put the $300 she spent on tools into a savings account, she’d be well on her way to a good emergency fund. Instead she’s got another $300 of credit card debt to pay off. She should have started with a fifty-cent pack of notebook paper and a pencil.