Beware... the Great Money Monster

“The mon­ster was the best friend I ever had.”

— Boris Karloff

The mon­ster of Franken­stein is arguably the most rec­og­nized hor­ror movie char­ac­ter of all-time. The work deliv­ered by Boris Karloff has been rec­og­nized for decades by both pro­fes­sion­als and pop-culture alike as both mas­ter­ful and iconic. But did you know that Boris Karloff was not even rec­og­nized as the star of the orig­i­nal film? Not only was the char­ac­ter listed fourth on the Play­bill, but the name of the now famous actor was not even listed, but rather dis­played as “?” to cre­ate addi­tional mys­tery. Real life mon­sters are not so dif­fer­ent are they? We rarely rec­og­nize the hor­ror we have cre­ated until it is too late, patch­ing and weav­ing the mon­ster, all the while, through unno­ticed mis­steps and unbri­dled deci­sions. It’s Alive! It’s Alive! While movie mon­ster mak­ing seems to hap­pen overnight, real life Money Mon­sters are rarely cre­ated overnight. They are typ­i­cally a com­bi­na­tion of deci­sions or lack of deci­sions over a longer time span. Here are some strate­gic essen­tials that will pro­tect you from cre­at­ing the Great Money Monster.

1. Don’t wait for a full moon to start an Emer­gency Fund. While your tar­get should be to main­tain three to six months of liv­ing expenses in an emer­gency sav­ings account, this huge task can scare some peo­ple from ever try­ing. Start by mak­ing it a major goal to get $1,000 into the account and then con­tribute at least some­thing every month to build up to your tar­get amount.

2. Do not hang onto debt like a creepy fam­ily pet. If you must bor­row from a bank or credit card, have a plan to pay much more than the min­i­mum pay­ment. Use a debt snow­ball to elim­i­nate unse­cured debt. Pay­off your small­est debt first, then add the pay­ment from your first debt towards the pay­ment for your sec­ond debt, and so on…

3. Do cre­ate a spend­ing plan for your monthly Mon­ster Mash. Liv­ing on a true bud­get that decides where every dol­lar is going before it is spent is a dif­fi­cult idea for many, but is likely to be the most impor­tant finan­cial deci­sion you may ever make. While there are many ideas for bud­get­ing out there, I rec­om­mend a straight enve­lope method for those who can pull it off. This method requires that each dol­lar is placed into an enve­lope for each spe­cific spend­ing cat­e­gory at the begin­ning of the month or pay period. When the money is gone from the enve­lope, so is the spend­ing until the next month’s refill. For the less ana­lyt­i­cal, look into the 50/20/30 method. This method directs that no more than 50 per­cent of your take home pay to be used for basic liv­ing expenses. At least 20 per­cent is used to pay down debt or for sav­ings. And finally, if both of those are sat­is­fied, no more than 30 per­cent to be used on lifestyle choices. A Google search for “enve­lope bud­get­ing” or “50/20/30 bud­get” will bring up many addi­tional exam­ples and guide­lines to get you started.

4. Gather a team of pro­fes­sional mon­ster hunters. Money Mon­sters can be chal­leng­ing to sup­press and down­right over­whelm­ing if full-grown. While there is a pop­u­lar mind­set that many finan­cial plan­ners will not help you unless you are inde­pen­dently wealthy, there are many fee-based or fee-only plan­ners that will sim­ply charge a fee for time spent. A Cer­ti­fied Finan­cial Plan­ner™ cer­ti­fi­ca­tion should be a min­i­mum require­ment for your finan­cial advi­sor of choice. Addi­tion­ally, there are a grow­ing num­ber of web­sites like LearnVest.com that can sup­ply great tools and eco­nom­i­cal finan­cial advice from cer­ti­fied pro­fes­sion­als as well.

No need to grab the torches and pitch­forks this Hal­loween. Get started on these core essen­tials and rid your life of Money Mon­sters for good.

RC Arse­neau is a Cer­ti­fied Finan­cial Plan­ner and lives with his fam­ily in Delaware. Please sub­mit any ques­tions or topic requests to AskRc@mail.com.

The infor­ma­tion and opin­ions in this col­umn are pro­vided only for edu­ca­tional and enter­tain­ment pur­poses. Any ref­er­ence to a finan­cial prod­uct or strat­egy is not to be con­sid­ered an endorse­ment or rec­om­men­da­tion. The infor­ma­tion is of a gen­eral nature only and does not take into account your indi­vid­ual objec­tives, finan­cial sit­u­a­tion or needs. It should not be used, relied upon, or treated as a sub­sti­tute for spe­cific pro­fes­sional finan­cial, legal or tax advice. Invest­ment Per­for­mance may vary due to tim­ing and expenses. Rc rec­om­mends that you obtain your own inde­pen­dent pro­fes­sional advice before mak­ing any deci­sion in rela­tion to your par­tic­u­lar require­ments or circumstances.

Posted by RC Arseneau on Oct 30 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.