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Introduction to Psych Yourself Rich: Get the Mindset and Discipline You Need to Build Your Financial Life

Aug 17, 2010

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This chapter is from the book 

Psych Yourself Rich: Get the Mindset and Discipline You Need to Build Your Financial Life

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Facing the Enemy

Behavioral finance experts have made it crystal clear that when it comes to managing money, we're irrational. Our decisions are influenced by deep-rooted emotions and perceptions that are hard to overcome. I've seen this while working with people in debt, and what I've learned is that one's lack of financial empowerment has a great deal to do with his or her personal insecurities, fears, lack of confidence, overconfidence, false perceptions, and misguided goals. As Napoleon Hill wrote in the classic book Think and Grow Rich, "Both poverty and riches are the offspring of thought."

My Story: Finding My Financial Persona

In my early 20s, I made more money mistakes than I'm willing to admit. But thanks to my constant exposure to all-things money and access to experts and professionals in every financial field, I was able to reverse those mistakes. This access alone wasn't what gave me the motivation or the drive to stick to a sound financial regimen.

For me, my financial confidence and empowerment was an emotional and psychological journey more than anything else. I discovered that you can learn all you can about the do's and don'ts of money management, but unless you have the mindset and the right behaviors in place, it's very hard to make intelligent moves. What were the emotions I channeled to help me find this strength?

First, I felt obligated to be a financial do-gooder. I believed that if I was put in a position to offer people savings advice, I, for one, should not be in debt.

I also knew I had no excuse but to make healthy choices with my money. Looking back at how my parents, who journeyed to the United States with two suitcases and very little money, managed to build their finances and create a comfortable life for their family, I really had no justification for getting into financial difficulty.

I assumed control of the situation. I was also, frankly, a bit afraid of the consequences of not getting my act together. I knew that my parents wouldn't bail me out if I ended up over my head in credit card debt. (More on the benefits of scaring yourself straight in order to take control of your money in a later chapter.)

And I felt a little obsessed with my money, wanting to make sure I never lived beyond my means.

Finally, I recognized I had milestones and goals to achieve, and therefore I had the desire to become financially fit. I remember graduating from college and driving away from Penn State thinking, "My life starts now. No more waiting for when I 'grow up,'" and with that came immediate financial responsibilities. With everything having a price tag in life, I knew the earlier I started thinking and saving toward my goals, the more likely I could achieve them. Once I crossed that emotional and mental bridge, I was then able to execute on what I knew were sound financial methods. I never let go of these forceful emotions.

Searching for answers as to why personal finance is so difficult to digest, so tough to triumph, has been a preoccupation and intellectual pursuit of mine for the past couple of years. Almost immediately after my first book hit the market, the economy went into a fetal position. We slid into a recession, and many of us felt we had gone back to the drawing board. We didn't just lose money. We lost our bearings. Many of the goals we had identified, chased after, and hoped for, vanished. For me, it was an extremely busy time, fulfilling editorial assignments, answering people's questions on- and offline, and going on TV to break down the stock market crash, the housing debacle, and to offer shreds of positive news in this wretched economic environment. I interviewed economists, fund advisors, investors, entrepreneurs, cab drivers, therapists, and, most important, everyday Americans for their insight into where we went wrong, what they wish they'd known, and their hopes for the future.

Sure enough, consumers could tell you exactly where they went wrong. They hadn't paid enough attention to the "signs," they trusted the wrong people, they didn't work hard enough, they got scammed, they were lied to, they had too much optimism, and so forth. But why bother with the past? Putting the pieces back together was the main issue at task now for most people.

To do this, you need to understand the behavioral and disciplinary commitments needed to build a financial foundation based on reason and personal aspirations. At this stage in one's life, years after college and working the grind, making plenty of mistakes, learning the hard way, and experiencing the real world first hand, your financial curiosities have evolved and tend to be more philosophical and open ended than technical. It's not so much about definitions or calculators. You're wondering how to move into a more elevated world of managing your money to bring security for today and the rest of your life. It is about money, but it's more about you.

My Story: Lessons from Reality

I was recently able to test this thinking on SOAPnet's Bank of Mom & Dad. In 2009, I was intimately involved in this pioneering television series that revealed the financial skeletons in the participants' closets, making them come face to face with their financial hardships, their debt, and overspending. It was a far cry from the top-rated reality shows big networks backed season after season, like American Idol or The Biggest Loser. It was a risky show, not exactly escapist television. This was in-your-face, real-life drama about the one thing we, as a society, have yet to openly and wholeheartedly discuss: our money conflicts.

My task each week was to provide the participants—women in their late 20s and early 30s—with solid advice that we hoped would give them the necessary tools to resolve their financial messes. In return, I received an education as to some of the reasons we, as a society and particularly women, overspend and compile debt. In many cases, these women were highly educated, came from supporting families, and made above-average salaries. So why were they $20,000, $30,000, or $60,000 in debt? It was not because they failed to understand the slippery slope of credit card usage, that spending $1,000 on boots was beyond their means, or that their daily $4 Starbucks latte destroyed their ability to save for a rainy day. The problem ran much deeper than that. To get to the root of the issue, I needed to take money out of the equation, at least at first. Instead of beginning our meetings with lengthy sermons about sound money management, I dug into their childhood a bit, into their personal relationships, their goals, and what in life made them happy. I had to know, where's your head at? What do you want? Where do you see yourself in five years? What would Dr. Phil ask?

I really got under people's skin for the first time in my career as I tried to open the emotional and mental floodgates and encourage these individuals to face their fears, weaknesses, and dependencies. My theory was if I could get them to care about their lives and their personal goals first, then suddenly making the right financial choices would not be so difficult or so detestable a task. And I was proved right.

The emotional baggage on Bank of Mom & Dad ran the gamut—from poor self-esteem to strained personal relationships, dependency on others, and a reluctance to just "grow up."

For some women, their money (or borrowed money, as it usually was) had become a substance that they abused to make themselves feel better and live their ideal life (or what they perceived to be ideal).

Shameeka, a 29-year-old nurse from Brooklyn, New York, came on the show, desperate to rein in her $60,000 of debt and begin a new chapter in her life that included marriage and family. Granted, most people may not be in as dire straights as Shameeka. (In fact, viewers would write in to me, relieved to know that their financial mess wasn't as bad as the women on Bank of Mom & Dad.) That said, the show had significant takeaways for people experiencing difficult financial circumstances. Money aside, many viewers could still relate to Shameeka. She was the girl next door, a hardworking nurse with a beautiful smile. She was your friend who always dressed perfectly and gave the best restaurant recommendations. But beneath the Louis Vuitton handbag and Tory Burch flats, Shameeka was an emotional mess who used money like a pill. Spending money made her feel better, but only for a short while, just until her underlying pain resurfaced. She knew enough to realize there was a better life out there for her, but didn't know how to cross that bridge and start building her financial life. She just wanted to be happy.

As was usually the case with the participants on Bank of Mom & Dad, their drama was never over the money. Their behavioral issues with money stemmed from deep-rooted emotional struggles. Shameeka, for example, had an extremely strained relationship with her mom. Just as much as she wanted to be debt free and have a clean financial start, she wanted to develop a closer bond with her mother. In our first meeting, she confessed that she wished she had a healthier relationship with her mom and that until that was achieved, she couldn't imagine getting out of her rut. She filled the void in her heart by filling her closet with high-end clothes and shoes and by taking expensive vacations. Her bond with her mom was cordial at best, volatile at worst. Some background: Mom had Shameeka when she was just a teenager, and it was decided that Shameeka's grandmother would assume the role of Shameeka's primary caretaker. As a result, that mother-daughter bond never quite formed, and now almost 30 years later, Shameeka desperately longed for a deeper connection with her young mother. But the two often failed to see eye to eye, and knowing Shameeka's money troubles, her mom was openly critical, which didn't do much to help her daughter's confidence.

Their relationship continues to be a work in progress. But after coming to terms with the ultimate root of her financial mismanagement and confronting her mom and getting her feelings out on the table, Shameeka felt a huge weight lifted and was compelled to finally change her behavior and begin building a foundation for a secure financial life, with or without her mom's companionship. Her mom didn't quite give her the support she was hoping for, and although Shameeka felt lonely, she somehow found it within herself to commit to change, to dedicate herself to her future, and to ignore the hurt feelings stemming from her past. Shameeka accepted that she is the only one responsible for her actions and must therefore face reality on her own.

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