Managing Your Money: Where Do I Begin?

CR 591
Revised Fahzy Abdul-Rahman
College of Agricultural, Consumer and Environmental Sciences, New Mexico State University (Print Friendly PDF)

Author: Extension Family Resource Management Specialist, Department of Extension Family and Consumer Sciences, New Mexico State University.

Introduction

Wouldn’t it be great to win the lottery and suddenly have enough money to pay off all of your debts and become financially secure for life? That’s a nice dream. But even if that dream came true, you would probably find that simply having a lot of money does not end financial concerns. It just means having to think about other things.

Money problems affect us all, no matter how much or how little we have. That’s why financial planning is so important. It’s hard to think about the future when pay day is a week away and your bank account is empty. You can make your money stretch further if you learn to manage it carefully. You can make your money stretch if you

Know what you want to do with your money.
Know where your money goes.
Know how to keep your money longer.
Plan your spending in advance.
Know and keep within your credit limits.

That is what this and the additional five circulars in the Managing Your Money series (Circulars 592-596) can help you do.

What’s Important to You?

Why do you spend your money the way you do? If 10 people were given a $100 bill, they would probably all spend it in entirely different ways. Why? Because people are different and have different values. The deep-rooted beliefs you have about what is desirable and good are known as values. Values grow from personal experiences. You have made and will continue to make choices based on your values. Values are not necessarily right or wrong; they express what is most important to you.

Stock photo of a man using a computer.

Families set goals based on their values. A major reason many couples argue about money is differing values and goals. To find out what you value, you should fill out Worksheet 1 and your spouse/partner should fill out Worksheet 2. After you both have completed the list, take some time to compare your responses.

Do you both value the same things? Do you want more new clothing, while your partner would prefer to go on a fishing trip? It’s hard for one person to decide what is most important, but even harder for two people to agree. What about your children? Don’t forget to consider their priorities as well.

Do you and your partner agree on your spending values? Are you spending money on the things that are really important to both you and your family? The next step is to take some time to compare your actual spending to your rated priorities to see if they match.

How to Talk About Money

Preventing and overcoming money problems takes honest and open communication. It also takes some time and effort. Talking about money is hard. It means more than just discussing the amount of income, who is spending what, and how much things cost.

Think about money—what does it mean to you? To some it means power. To others it may mean security or status. Take some time and find out just what you and your spouse/partner think about money.

Use Worksheets 3 and 4 to get your discussions started. Don’t wait until a problem occurs; try to talk on a regular basis. Also choose a place where you won’t
be interrupted.

Here are some other tips to follow.

Ask other family members for input. People, in general, are more supportive of decisions when they have been asked to give some input. Try taking the democratic approach. Include all family members, even children, in helping make decisions about money as a team. Let everyone have a chance to express an opinion. You will find that family members are more likely to be satisfied if they helped in making the decision.
Clearly identify the issue or concern. Just what is the problem? None of us are immune to problems. Some families may have more problems or different ones than others. Is the problem spending too much money, spending at the wrong time, or spending on unnecessary or unimportant items? Financial problems are made more serious by certain addictive behaviors (drugs, alcohol, gambling). If you suspect this might be the cause of the problem, please seek help from a local counseling/mental health center or from a qualified professional. It is imperative that you start working to solve these kinds of problems as you also work on your financial ones.
Every family member should state his or her feelings, wants, and needs freely. Others should not judge or criticize. Talk about the present. Try using “I” messages instead of saying “you always” or “you never”. For example, instead of saying “You never fill the gas tank,” say, “I get really upset when I find the gas tank close to empty whenever I want to use the car”.
Be sure to listen carefully to the other person. Let them know you understand what they said. For example, “Dad, you seemed upset when there was no gas in the car”.
Be willing to negotiate for a realistic settlement of differences. Family members must be ready to compromise. A verbal agreement is fine, but a written one may help even more to avoid conflicts. Example, when the gas tank gets down to a quarter-tank, the person driving is responsible for filling the tank.

First Step: Setting Financial Goals

It is necessary to take a look into the future and see where you want to be before you can get there. Families set their financial goals based on their values. One family’s goal list will be different from another family’s. Some examples of goals include owning your own home, paying off all debts, saving for your children’s college education, or taking a family vacation.

Think About Your Goals

A list of goals could go on and on, it just depends on your family’s needs, wants, and desires.

Use Worksheet 5 to help plan your family goals. Now is the time to think about what you want. Take time to write down your goals so that you can see what is really important to you and your family. What do you really want for your future?

Financial goals are the specific things you want to do with your money within a certain period of time. They will give you a purpose for the way you spend your money today and tomorrow.

Short-term goals include things that can be done soon, perhaps in a week or a few months, but no longer than a year. Examples include buying new clothes or saving for a vacation.
Intermediate-term goals include things that can be accomplished in one to five years. Examples include buying a new car or paying off debts.
Long-term goals include things you would hope to achieve in five or more years. Examples include buying a house, putting children through college, or saving for retirement.

As you set your financial goals, remember these three basic ideas.

Set realistic goals. Goals that are set too high may frustrate you and cause you to abandon your plans. Maybe it is impossible to save $100 a month right now. Why not try for $10 or $25?
Be specific. State your objectives concisely. Visualize your goals by drawing pictures or cutting pictures out of magazines that illustrate what you want to accomplish. If goals are vague, you may not be able to meet them, and others in your family may have different ideas about the goal. An example of a specific goal might be, “If we save $100 a month for the next 12 months, we can afford new carpeting for the living room”.
Be flexible. Plans may require adjustments as your income and lifestyle change. Don’t be so rigid that you have to start over with an entirely new plan. For example: An unexpected expense comes up. You can’t save the entire $100 that month. Don’t let that get you off track. Continue to set aside something toward your goal no matter how little it may be.

More Thoughts on Goals

You and your family probably have some ideas about the things you want in the future. An advantage of setting goals is that you know you have something to work toward. All too often you can get so caught up in day-to-day problems that you end up accomplishing very little. While this may not be a problem in the short run, in the long run (whether it is college or retirement) a lack of financial planning can mean real problems.

Some goals require resources other than money to achieve. In order to reach some goals, you may decide you need to earn more money. In order to do that, you may need more training or education, which requires time and other talents.

Reaching long-term goals may depend on achieving several short-term goals along the way. It may be hard to give up things now to have something in the future, yet short-term sacrifices may be needed to provide for the future. Knowing what your goals are and how much money you need to achieve them may help you make decisions about spending money now.

Take time to prioritize your goals. Of the ones you have listed, which are the most important to you as an individual? Which are the most important to your family? Can you agree on an order in which to accomplish goals?

Conclusion

Discussing financial priorities with your family is essential to creating a successful money management plan. Planning for the future with your family now ensures financial security later on.

Excel spreadsheet versions of some of these worksheets are available at https://pubs.nmsu.edu/_g/#circ.

Original author: Constance Kratzer, Extension Home Economics Specialist.

Fig. 2: Fahzy Abdul-Rahman, Extension Family Resource Management Specialist, New Mexico State University.

Fahzy Abdul-Rahman is the Extension Family Resource Management Specialist at New Mexico State University. He earned his Ph.D. and M.P.H. from The Ohio State University. His Extension programs focus on various personal finance topics, from basic banking to retirement planning.

Worksheet 1
Values Assessment (for you)

Read over the list below. Put a 1 beside the things that are most important to you, a 2 beside the things you consider somewhat important, and a 3 beside things that are not important to you. After you and your spouse/partner have completed the list, compare and discuss your answers.

____ religion
____ education
____ vacation
____ saving money
____ our own business
____ jewelry
____ family
____ health

____ cultural events
____ sports
____ job success
____ food
____ insurance
____ lots of money
____ friends

____ new car
____ pay off debts
____ our own home
____ clothes
____ entertainment
____ boat
____ other?

____ cultural events
____ sports
____ job success
____ food
____ insurance
____ lots of money
____ friends

____ new car
____ pay off debts
____ our own home
____ clothes
____ entertainment
____ boat
____ other?

Worksheet 3
Let’s Talk About Money (for you)

Money is often a source of conflict in families. It is a difficult topic to discuss. This worksheet will help you learn more about your values and feelings about money. Each spouse/partner should use the worksheets provided and answer separately, then take some time to compare and discuss your answers. You will also want to include other family members in some of these discussions.

1. You’ve just won $10,000 in the lottery. What will you do with the money?

1. You have just been laid off from your job. You must make a major cut in spending. What would you cut first?
2. I’d like to see us spend more money on ________________________________________________________.

1. How much money does your household spend monthly on the following?
  
  Rent or mortgage payment: $ __________
  Groceries: $ __________
  Car payment: $ __________
  Clothing: $ __________
  Utilities (electricity, gas, water, telephone, cable): $ __________
  Entertainment: $ __________

What money problem is the most frequent cause of arguments?
What is the most foolish thing you’ve spent money on in the last year?
What is the most sensible thing you’ve spent money on in the last year?
How do you feel about buying on credit?
Do you agree (A) or disagree (D) with these statements? Circle your answer.

A D   I am too tight with money.
A D   My spouse/partner is too tight with money.
A D   I want to be included in making decisions about spending money.
A D   I like to buy things because it makes me feel good.
A D   I feel good about the way our family handles money.
A D   Our family needs to develop a better way to manage money.
A D   I think it is important to set goals and plan for the future.
A D   Why worry about tomorrow? I live from day to day.
A D   I would like to go out more often, even if it means doing without something.
A D   I would rather do without some things for now to have a more secure future.
A D   If one of us were to get sick or lose a job, we’d be able to pay our basic bills for a few months.
A D   If one of our vehicles broke down and we needed $1,000 for the repair, we could pay it without a lot of financial stress.

Worksheet 4
Let's Talk About Money (for spouse/partner)

1. You’ve just won $10,000 in the lottery. What will you do with the money?

1. You have just been laid off from your job. You must make a major cut in spending. What would you cut first?
2. I’d like to see us spend more money on ________________________________________________________.

1. How much money does your household spend monthly on the following?

What money problem is the most frequent cause of arguments?
What is the most foolish thing you’ve spent money on in the last year?
What is the most sensible thing you’ve spent money on in the last year?
How do you feel about buying on credit?
Do you agree (A) or disagree (D) with these statements? Circle your answer.

A D   I am too tight with money.
A D   My spouse/partner is too tight with money.
A D   I want to be included in making decisions about spending money.
A D   I like to buy things because it makes me feel good.
A D   I feel good about the way our family handles money.
A D   Our family needs to develop a better way to manage money.
A D   I think it is important to set goals and plan for the future.
A D   Why worry about tomorrow? I live from day to day.
A D   I would like to go out more often, even if it means doing without something.
A D   I would rather do without some things for now to have a more secure future.
A D   If one of us were to get sick or lose a job, we’d be able to pay our basic bills for a few months.
A D   If one of our vehicles broke down and we needed $1,000 for the repair, we could pay it without a lot of financial stress.

Worksheet 5
Setting Your Family Goals

(Worksheet Download)

Now it’s the whole family’s turn. Take some time to really think about what you want for the future. Then use this worksheet to write down your goals. List the goals that are most important to both you and your family. As a family, discuss the ideas and develop a plan for your future. Identify your highest-priority goal by placing a 1 next to it. Place a 2 next to the second-highest and continue until you have prioritized each goal.

Short-term (within one year): Example: Save $1,000 to pay for family vacation next summer.

Goal Amount To Save Each Month	Priority	Target Date	Total Cost	Amount Already Saved

Intermediate (one to five years): Example: Save enough to have an emergency fund worth three to six months of take-home pay.

Goal Amount To Save Each Month	Priority	Target Date	Total Cost	Amount Already Saved

Long-term (five to ten years): Example: Save money to pay for child’s college education.

Goal Amount To Save Each Month	Priority	Target Date	Total Cost	Amount Already Saved

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Revised and electronically distributed June 2012, Las Cruces, NM.