More Money Isn’t the Answer

How many times have you heard people say “If only I had more money.”? When you want to purchase a new car or a house, or pay down bills such as credit card debts and student loans, you can easily fall into the trap of thinking that more money is the answer to your problems. Most often, it is not.

The question to face is how to manage money – not how much you make. Granted, folks need a certain amount of money to survive. Think of it this way: If you are poor at managing the money you currently make, how does an increase in income make you a better money manager?

Let’s say you were a bank, and you lend to business owners. Every year, they come to you and ask for more money. After looking at the businesses’ financial records, you find that they blow through the money in weeks – yet your clients still ask for more, claiming they’d be in a better financial position. It’s only sensible that, after a while, you’d cut these clients off. It’s clear that they cannot manage their money.

Unfortunately, some folks don’t realize the folly of trying to get rid of debt by adding more debt. People apply for more credit cards to pay off existing balances on other cards – which often compounds their money troubles.

Certainly, financial imprudence is not confined to individuals. Governments are equally culpable, and sure don’t set a good example. Here’s a glaring example that more money is not the answer on that level. Illinois has one of the highest tax revenues among the U.S. states, yet also has one of the largest pension fund deficits.

Government irresponsibility aside, here are some rules you should follow to better manage the money you do have:

1.      Pay yourself first. Set aside a certain amount of your income each paycheck for retirement and savings.

2.      Live within your means. Stop over-spending, and before making a purchase, ask yourself: “Do I really need this?”

3.      Admit you are horrible at managing money.

4.      Commit to educating yourself about money, personal finance and investing. There are books that can help you build a solid financial education foundation.

5.      Practice frugality. Clip coupons, shop for deals and ask for discounts.

6.      Be thankful for what you have. Acquiring more possessions does not make you happier, and leads to excessive spending that can put you in the hole.

7.      Forget about the Joneses. Don’t keep up with them – they may be on the wrong road.

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Sterling Raskie, CFP, is an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill. He is an adjunct professor teaching courses in math, finance, insurance and investments. His blog is Getting Your Financial Ducks in a Row, where he writes regularly about investments, retirement savings and financial planning. His latest book is Lose Weight Save Money.

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