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Editor's note: This article originally ran on the personal finance website LenPenzo.com and is an updated version of an article originally published on May 17, 2010. It has been reprinted here with permission.
I was looking at my son’s midterm progress report a few weeks ago when I noticed that he was getting an F in one of his classes — physical education, to be exact. I know.
“How in the world does anybody fail phys ed?” I asked the Honeybee, shaking Matthew’s report card in my hand for added emphasis.
“Beats me, Len. Why don’t you ask him?”
Genius. Where would I be without the Honeybee? So I marched upstairs and confronted my son.
“Matthew, why are you getting an F in PE?” I said in my calmest possible voice.
“Beats me, Dad. I don’t think Coach likes me.”
Of course. The old my-teacher-hates-me-and-that’s-why-I’m-getting-an-F excuse.
Needless to say, Matthew and I had a nice little talk about his grade. Let’s just say I sincerely doubt he’ll be finishing the year with an F in PE.
8 big reasons why you’re getting an ‘F’ in Personal Finance 101
That little incident with my son got me thinking about what people would have to do to earn an F in Personal Finance 101. For me, Personal Finance 101 is all about mastering my first commandment of personal finance: spend less than you earn.
If you’re always swimming in debt and living paycheck-to-paycheck, then you’re at risk of getting an F in Personal Finance 101. Here are eight reasons why that’s probably so — along with a little extra credit to help you get a better grade:
1. You don’t have an emergency fund.
In life you should expect the unexpected, such as the sudden loss of a job, and the last thing you want to do is be caught off-guard and forced to rely on credit cards or a loan, which could get you into deeper financial trouble.
Extra credit: Establish an emergency fund of at least three to six months of expenses. And don’t delay; you should start building your emergency fund as soon as you get your first paycheck.
2. You don’t know how much money you have in your bank accounts.
Overdrawing a checking account by just a few cents could result in lots of expensive bank fees. To ensure you’ll never write a check for more than what you have, you should always know how much money you’ve got in all your accounts.
Extra credit: Set your overdraft limit to $0, and your debit card will not be allowed to overdraft your account. True, you could bounce a check; but if you are being a responsible household CFO and balancing your checkbook regularly, that shouldn’t ever be a problem. You can also consider using money management software to help manage your finances more closely.
3. You don’t understand the difference between a want and a need.
Being able to distinguish between wants and needs is directly tied to your ability to accept personal responsibility.
Extra credit: Understand that when taken down to the most basic level, all of us have only four or five primary needs. Those needs are food/water, clothing, shelter, transportation (for most of us), and health care. Everything else is a want.
4. You don’t know how much money you spend.