5 Steps to Overcome Your Worst Financial Mistakes

The 5 Worst
Mistakes You
Make with Your
Personal Finances
How to overcome fear,
uncertainty and doubt
about your present and
future finances

Personal Financial Problems In
America Today…
© Time & Money, LLC - 2010
• In 1980, household debt
amounted to $1.6 billion
• By 2009, that amount had
increased to $14 billion
• Then in 2010, despite
the recession, it only
dropped by $500 million
to $13.5 billion
Source: Household Sector: Liabilites: Household Credit Market
Debt Outstanding, Federal Reserve Bank of St. Louis, accessed August 26, 2010
2

What’s your financial IQ?
© Time & Money, LLC - 2010 3
• In a recent financial IQ
quiz, the average score
earned by those tested was
“D+”
• Areas of lowest scoring:
– Credit management
– Cash flow management
Source: Household Financial Management: The Connection between Knowledge and Behavior, Federal Reserve Bulletin, July 2003

Lack of personal savings
• In 1982, the personal
savings rate was nearly 11%
of disposable income
• In contrast, by 2005
personal savings dropped to
1.4% of disposable income
• Then in 2009, personal
savings had inched up to
only 4.3%
Source: Personal Savings Up, National Savings Down, Federal Reserve Bank of Cleveland, March 19, 2010

Are you ready to retire?
• A study revealed that two out of
three boomer households are
financially unprepared for
retirement
• The percentage of workers
planning to work after they retire
has increased to 72% in 2009 (up
from 66% in 2007)
• The average 401(k) retirement
account fell 24.3% in 2008
Sources: Not Ready to Retire?, Entrepreneur Magazine, March 2009; The 2009 Retirement Confidence Survey: Economy Drives Confidence to
Record Lows; Many Looking to Work Longer,” EBRI Issue Brief, no. 328, April 2009; 401(k) Plan Asset Allocation, Account Balances, and Loan
Activity in 2008, Investment Company Institute via Business Exchange, October 2009
5

Mistake #1: Habitual Spending & Borrowing
• Excessive spending and borrowing leads to
living paycheck to paycheck
– 61% of workers say they live paycheck
to paycheck
– 20% save nothing each month
– 42% of workers believe if they had $500 more
per month, they would live comfortably
– HOWEVER, 30% of those making over $100,000
say they live paycheck to paycheck
Sources: More Upper-Income Workers Living Paycheck to Paycheck, CNBC, September 16, 2009;
Living paycheck to paycheck, CNN, October 8, 2008

Living in denial
• The rude reality of being so far behind
on bills coupled with our inability to
purchase necessities can together
create denial — we continue racking up
debt despite our hopeless
financial predicament
• In a recent survey, 7 in 10 respondents
found their investment statements
incomplete or hard to understand
• Many Americans live in a constant state
of financial ignorance and denial
Sources: 2008-2009 Winter Issue: Dealing With Debt, Consumer Action News, January 30, 2009;
Understanding Your Account Statement, investorED survey cited by The Globe and Mail, 4/16/09

Mistake #2: Incomplete Solutions
• Poor economic conditions have prompted more
people to limit their use of credit — as of June
2010, Americans had cut credit card use for
21 straight months
• However, spending is only one piece of the puzzle
• Other important aspects of the financial puzzle
that are tied with how we spend are:
– Debt
– Savings/retirement
– Taxes
Source: Credit-Card Delinquencies Slump In 2Q; Balances At 8-Year Low, The Wall Street Journal, AUGUST 25, 2010
8

Throw in the towel?
• Will filing bankruptcy really
solve your problem and
change your behavior?
• Many Americans think this is
the solution
• From 2007 to 2010, the
number of personal
bankruptcies more than
doubled from 751,056 to
over 1.5 million
Source: Bankruptcy Statistics 1980-2010, BankruptcyAction.com, August 17, 2010
9

Mistake #3: Doing It Yourself
• A report recently stated that the
majority of Americans today lack
critical knowledge of important
financial concepts such as:
– How inflation works
– Financial risk
– Investing for the future
Source: Americans’ Financial Capability, Report Prepared for the Financial Crisis Inquiry Commission, February 26, 2010

Results of our lack of knowledge
• The report further stated that one in
five Americans have used alternative
and costly borrowing methods (payday
loans, advances on tax refunds, pawn
shops, etc.) in the past five years
• Because of our lack of knowledge, too
many Americans will have to work past
retirement age, are overpaying taxes,
paying too much interest or earning
too little interest on their investments
Source: Americans’ Financial Capability, Report Prepared for the Financial Crisis Inquiry Commission, February 26, 2010
11

Mistake #4: Looking For A Quick Fix
• Many Americans want to
pick up a book and fix their
financial problems in an
instant
• In 2008, the self-help book
industry made an
estimated $8 billion in the
U.S. alone
Source: Is Modern Self-Help Just a Massive Money-Making Scam?, PsyBlog, January 9, 2008

Paying someone else to make your
problems go away
• Maybe you or someone you know
has paid someone to provide debt
relief?
• Those who sign on with debt relief
or debt settlement companies
often end up with more debt than
when they started
• Desperate consumers are paying
thousands of dollars with no
guarantee that even one penny of
their debts will ever be settled
Source: Be wary of promises from debt relief companies, MSNBC, July 8, 2010
13

Mistake #5: Going With The Crowd
• A study has shown that
heads of households
primarily obtain their
financial knowledge from
experience, friends, family
and media rather than from
financial experts
Source: Household Financial Management: The Connection between Knowledge and Behavior, Federal Reserve Bulletin, July 2003

But do all advisors have YOUR best
interests in mind?
• Reports show that most people get
financial advice from many different
types of professionals:
– Real estate agents
– Mortgage brokers
– Sellers of financial products
• High sales quotas tend to cause
providers to promote products that can
exploit a consumer’s tendency to
behave irrationally
Source: How About a Stimulus for Financial Advice?, The New York Times, January 17, 2009
15

Five Ways To Combat Your Financial
Mistakes And Change Your Future
1. Decide to change your financial cycle for good
2. Realize this process may take time
3. Fix the whole problem
4. Create a solution that fits your unique needs
5. Find the best financial program and coach for you

Step #1: Decide To Change For Good
• Recognize that money
matters are emotional
• Resist going with the status
quo or choosing to do
nothing at all
• Resolve that this time will
be different — take action
now!
Source: Why Habits Are Hard to Change (And Printers Hard to Buy), Psychology Today, March 18, 2010

Difficult decisions require self-
efficacy
• Self-efficacy — the belief
that you can make a change
and overcome obstacles — is
one of the best indicators of
successful change
• What is the source of your
motivation to succeed?
• What will give you the
confidence that you will
need to see you through?
Source: Why Habits Are Hard to Change (And Printers Hard to Buy), Psychology Today, March 18, 2010
18

Step #2: Take The Time To Do It Right
• You can’t always go on a “crash
budget” to solve your financial
troubles
• A daily action like eating fruit at
lunch or running for fifteen
minutes takes an average of
sixty-six days to become a solid
habit
• Spending and saving are daily
habits that take time to change
and develop
Source: Stop Expecting to Change Your Habit in 21 Days, Psychology Today, October 21, 2009

You can learn from your mistakes
• 73% of people with the
highest scores on a recent
cash-flow and credit
management survey
reported having learned
better habits from personal
experience
Source: Household Financial Management: The Connection between
Knowledge and Behavior, Federal Reserve Bulletin, July 2003
20

Step #3: Fix The Whole Problem
• See your finances as one large picture, not as
individual pieces of a puzzle:
– Debt
– Spending
– Savings/retirement
– Taxes
• Understand that everything a person needs to
know to be successful financially is contained
within these four areas

How to put the puzzle back together
• Regain control of these
four areas
• Understand that they are
interrelated
• Cause these areas to work
together in harmony

Step #4: Tailor A Solution For You
• You might consider financial
programs containing books,
workbooks, CDs, DVDs, and
seminars with live speakers which
can reach out to various types of
learners:
– those who learn from reading
– those who learn from watching
– those who learn from listening
to speakers and asking
questions
Source: Some Thoughts on Personal Finance
Coaching, The Simple Dollar, November 14, 2008

Coaching can be an effective tool
• Many simply thrive on having someone
motivate them to make better choices, such
as dietitians and personal trainers
• In a recent study, households that had
participated in just one personalized
financial counseling session…
– Were less likely to be late with payments
– Had higher credit scores
– Had better credit management
Sources: Some Thoughts on Personal Finance Coaching, The Simple Dollar, November 14, 2008; Household Financial Management: The
Connection between Knowledge and Behavior, Federal Reserve Bulletin, July 2003
24

Step #5: Find The Optimal Program
And Coach For YOU
Look for a financial program that…
1. Has the tools and techniques to
help you to permanently change
your behavior for the better
2. Has a time-tested, well-proven
program for success
3. Uses a holistic solution
4. Treats the root of the problem,
not just the symptoms

The right tools
• To leapfrog you over any learning
roadblocks, consider a program with
varied tools such as:
– Books and guides
– Software
– Audio CDs
– Planners and organizers
– Diaries and tracking tools

Well-balanced approach
• Make sure the program you select
addresses all aspects of finance:
– How to spend money
– How to save money
– How to pay off debt
– How to not overpay taxes
• And most importantly, how to do all
these in the right order

Our purpose is to
educate, inspire, and
motivate people to make
significant changes in
their lives through the
application of ten proven
financial principles — the
Money Mastery®
principles!
Our Mission

• Has the tools and techniques to
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• Uses a holistic solution
• Has robust program material and
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• Treats the root of the problem,
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• Has a time-tested, well-proven
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• Is developed and led by true
professionals
Benefits of our
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33
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5 Steps to Overcome Your Worst Financial Mistakes

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