Personal Finance Workbook for Beginners: Practical Exercises for Smarter Money Management and Financial Empowerment

PART I

Essential Steps to Get Started with Personal Finance

One of the most difficult aspects of being a beginner and learning something totally new is simply getting started. The sooner you begin, the faster you can pay off debts and start growing your money.

Keeping in mind the metaphor of the cross-country road trip, consider this the preparation stage. First, you map out your route. Then you figure out where to stop along the way. And before you drive off, you can tune up the car, top off the gas, and check the tire pressure for the long journey ahead.

Part one of this book will help you do similar preparation for your financial journey. You’ll examine your relationship to money and how your priorities and behaviors influence your finances. Then you’ll assess your priorities to help you set realistic and attainable goals. Finally, you’ll learn which steps to take to set up your all-important financial foundation.

CHAPTER 1

Focus on the Person in Personal Finance

There is a reason it’s called personal finance. Your finances are unique to you: influenced not only by your background and socioeconomic status, but also by your habits, priorities, and behaviors. In this chapter, you will discover how these traits shape your relationship to money and impact your financial life.

Everyone has memories, good or bad, of their early interactions with money. If someone’s parents or caregivers constantly argued about the household finances, then discussing money could make them anxious. For others, they may have fond memories of earning their first dollars from a paper route or lemonade stand. Reflecting on your personal relationship to finance, and how it has influenced your financial habits and behaviors, is the first step on your journey.

In this chapter, you will discover why finances are difficult for everyone, no matter their background or level of financial literacy. You’ll learn why it’s important to engage intentionally with your finances, as opposed to going through your financial journey without a plan.

If you were preparing for a cross-country road trip, you would likely gauge how comfortable you feel and how prepared you are, so you can plan accordingly. This chapter is the equivalent of checking in with yourself on your finances.

Kevin’s Shopping Habit

Kevin has been slowly climbing the corporate ladder at work. He is 35 years old with two school-age kids at home, and much of Kevin’s career ambition is to provide a good life for his kids.

He loves his job, but it can certainly get stressful at times. He has 12 associates reporting to him, rigid deadlines, and an unforgiving boss. To alleviate the stress, Kevin has gotten into the habit of going to the local shopping mall during his lunch hour.

Exploring the different department stores, pricing clothes, and trying things on gives Kevin a mental break from the demands of his job. What started as leisurely browsing has turned into a regular purchasing habit. Kevin justifies his purchases with the belief that they will help his career. He needs to look polished and professional to get his next promotion.

As his wardrobe starts to overflow, Kevin begins to reconsider his shopping habit. Then he discovers the clearance section, and his mindset switches to one of not wanting to miss out on a sale.

Eventually the costs of Kevin’s shopping habit start to catch up with him. Reviewing his credit card statements, he realizes he can’t afford to keep buying clothes he doesn’t need, even at sales prices. He decides to bypass the store on his next lunch break and walk outside instead. Ultimately, he finds the walks help alleviate his stress in much the same way as perusing the sales rack, but without the price tag.

When Finance Is Personal

Your personal finances encompass a wide variety of activities and decisions you make about your money. It includes any income you generate, the money you use to pay for groceries, and the investments you make so you can retire someday.

Many people don’t consciously think about their money decisions. As you travel through your financial journey, try to be intentional with your money by thinking about how your habits may affect you in the long run. Let’s look at some examples.

Without an intentional plan for your money, you may go to work each day hoping your boss sees that you’re trying hard and will offer you a raise. You go to the grocery store without a list and buy whatever looks enticing. Since you’re not tracking your spending, you can’t be sure you’re putting away money for the future. You can see how this approach to financial success isn’t the best.

With an intentional plan for your money, you would create a 6-to-12-month strategy to get a promotion or raise. You set up a budget for your household expenses and highlight areas that could be comfortably trimmed or with which you have difficulties. You make a plan to start building an emergency fund and eventually a retirement account.

As you continue learning about financial concepts, you will become more mindful about your earning, spending, and saving. This awareness will lead to more confidence about your money decisions and better overall financial health.

Personal Finance Is Difficult for Everyone

Personal finance is one of the most difficult aspects of life. It is like planning a road trip: You are trying to create a path from where you are to where you want to go. Because you’re not given a road map at birth, finding your way can be difficult without some guidance.

Very few schools offer personal finance education, and not everyone has the same advantages or the same access to information. Many people simply don’t have family or friends who can explain how to invest in stocks or how credit scores work. Everyone has a unique upbringing and situation, and that’s why personal finances are personal.

Financial challenges come in many forms, including controlling spending and maintaining financial self-discipline. According to a 2007 study by Yankelovich, a market research firm, the average consumer is exposed to as many as 5,000 ads per day! Just think about all the ads you come across on social media, search engines, television, radio, and billboards.

Less-controlled spending can have a domino effect on your finances. You spend more, which increases your debt, and that in turn reduces the amount you could be saving. Fortunately, you can overcome these obstacles by acquiring the knowledge to make better financial decisions.

What Your Relationship to Your Finances Reveals about You

Examining your relationship with money can be illuminating and give you a better understanding of how your values and interests relate to your finances. For example, does money excite you or overwhelm you? Are you patient when facing financial difficulties, or do you get easily frustrated? Do you find money talk interesting or boring? There are no wrong answers here, as long as you’re being honest with yourself.

Your spending and overall relationship to money reflect your priorities, thoughts, and habits, many of which are unconscious. For example, if you have always ordered take-out food, then you may not even consider that you could save money by preparing your own meals. Ordering food becomes a habit that eventually affects your finances.

Going back to Kevin: His clothes-buying behavior became a habit that impacted his life in a variety of ways. What started as an innocent practice slowly turned into a more destructive habit, even though the sales prices made it feel like he was being a smart consumer.

What does Kevin’s relationship to his finances reveal about him? It certainly shows that his job is stressful, and that he is driven to succeed in his career to help his family. It also indicates a tendency to spend habitually without much thought. Fortunately, if you are mindful about your financial behaviors, you can make positive changes. Kevin was able to find ways to get his mental health break without breaking his financial bank.

To Change Your Finances, You First Have to Examine Your Priorities and Behavior

Learning about personal finance is wonderful, but it can only take you so far without good habits to help you apply this knowledge consistently. To really improve your financial situation, it’s important to understand what motivates your money decisions. Think of it as Financial Psychology 101.

The decisions you make can be influenced by your life experiences, your values, and your personality. Some factors that affect how you relate to money include:

PRIORITIES AND VALUES. These often take the form of long-term goals or powerful motivations. When making a decision, they outweigh other concerns to tip the scales. Family, health, a hobby, work-life balance, friendship—there’s no wrong answer when it comes to what you choose to prioritize.

THOUGHTS AND BELIEFS. This is everything you were taught or told about finances throughout your life. It could be that all debt is bad, that you should stay loyal to one employer throughout your career, or that investing is overly complicated. These beliefs can either empower you or limit you.

HABITS AND BEHAVIOR. If priorities and values are motivations, then habits and behaviors are the routines designed consciously or subconsciously to get you there. For example, if you value health, then you may go to the gym regularly and eat healthy foods. If friendship is a priority, then you may spend your weekends going out to dinner with your friends.

Self-analysis in these areas will help you identify your financial motivations and provide you with the necessary adjustments to improve your finances over time.

There’s No Shame in Being a Beginner

Even the most amazing outcomes can come from very humble beginnings. For instance, several major companies started in a garage, including Apple, Hewlett-Packard, Google, Amazon, Disney, and Mattel. There is absolutely no shame in being a beginner at anything, especially when it comes to personal finance.

In fact, you should embrace your beginner’s mind. Zen Buddhism even has a term for it called shoshin. It refers to having an attitude of openness, eagerness, and lack of preconceptions when studying a subject. If you start with this mindset, you open yourself up to getting the most from the material you’re learning.

Think about when you were a child in preschool or kindergarten, and everything was fresh and new. Or, if there are children in your life, think about how they approach learning right now. Young kids absorb new concepts such as drawing, counting, and socializing like a sponge. You can find that beginner’s mindset again, no matter what your current circumstance might be.

As you go through the rest of this book, try to bring a sense of curiosity and self-compassion into the learning process. Your relationship to money and finances is a lifelong journey, so be patient and enjoy the ride.

This Book Will Help Guide You

Before you go further, you