8 big reasons why you’re getting an 'F' in Personal Finance 101

By Len Penzo

Published: Thursday, May 1 2014 8:03 p.m. MDT

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.

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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.

It’s pretty simple: What you save is the difference between how much you make and how much you spend — but it’s tough to save anything if you don’t know how much you can afford to save. So look at your expenses and determine exactly how much money you’re spending and where it’s going.

Extra credit: Audit your expenses by writing down everything you spend your money on for a couple months. The trick is to be as detailed as possible; use a spreadsheet to capture even the smallest purchases. Assign categories for your expenditures such as: housing, automobile, groceries, utilities and entertainment.

5. Your tastes exceed your spending capability.

Understand that this is not a problem so much as an excuse. When your expensive tastes starts impacting your ability to save, you’re in trouble.

Extra credit: Ratchet your tastes down a notch or three — and stop making lame excuses.

6. You can’t say no.

Being able to say no is a crucial skill in the world of personal finance. Those that can’t will always have the most trouble keeping their personal finances on an even keel.

Extra credit: Master the art of saying no.

7. You’re an impulse shopper.

Impulse buying is a nasty habit that can best be cured by careful planning.

Extra credit: When buying groceries, make a list of everything you need. Establish and adhere to a household budget. And always know exactly how much you plan on spending before walking out the door. In short: Think before you buy.

8. You worry about what others think about you.

People who are highly competitive, or worry about what others think of them, often have a predilection for conspicuous consumption, otherwise known as the desire to keep up with the Joneses.

Extra credit: Forget the Joneses; nobody cares. Besides, odds are they’re probably broke anyway.

Len Penzo is a personal finance blogger with a strong disdain for debt. His blog, Len Penzo dot com, has been featured as one of Kiplinger's Personal Finance Best Money Blogs in 2010 and 2012.

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