This feature first appeared in the Summer 2016 issue of Certification Magazine. Click here to get your own print or digital copy.
We hear a lot lately about the need for "soft skills." While the right certifications are critical to getting a job in IT, employers are looking for candidates who also have workplace skills. Much of the conversation centers on communication skills, problem solving, critical thinking, teamwork, work ethic, and even personal appearance.
Additionally, however, a savvy IT professional must consider other skills that are needed to remain productive and sustain career growth. Once on the job, what "life skills" do you need to stay on track and keep moving forward?
Experience has taught me that one of the most critical "life skills" needed for ongoing success is personal money management. I've seen too many cases where highly productive employees start to falter when their personal finances get out of control. In this article I'll share some personal principles of money management that have helped my family and me for many years.
First, consider some interesting statistics. Setting aside student loan debt, consider the personal debt load that many carry. In 2014, the typical college student had seven credit cards. Ten percent of these cards held balances greater than $15,000. The average annual percentage rate (APR) was 13.14 percent.
This debt load, when coupled with a lack of fundamental personal money management skills can start to weigh you down very early in your career. Today's employees are entering the workforce at a time of economic uncertainty. Just as your parents and grandparents learned vital lessons through tremendous economic adversity, what you learn and do will greatly impact your prosperity — either for good or ill.
The Real Problem
You may have heard it said that "money is the root of all evil." I'm not a believer. The fact is that we all need money — there's no free lunch, and the last time I checked, breakfast and dinner aren't getting any cheaper. So what is the real problem? It's really pretty simple. The real problem comes when you want more than you can afford.
Unfortunately, in today's world too many adopt the following philosophy:
"I'll be happy and live within my means, even if I have to borrow the money to do it."
Laughable perhaps, but not funny. Unfortunately, it's far too real for many.
The Solution — It's Simple
Just as the problem is pretty easy to pinpoint, the solution is theoretically pretty simple too — live on less money than you have. Note, I don't say live on less than you earn. I'll discuss this shortly.
The most fundamental element of wise money management is discipline. Just as keeping your body fit requires discipline, discipline is an essential element of financial fitness. This will be a common thread as I share seven principles that have worked for me.
1) Think of Others First — Why would thinking of others first be the number one principle of wise money management? Simple. It helps you guard against selfishness, which is the root of many problems and is the enemy to discipline. When you think of others first, you are less likely to want more than you can afford.
A lot is said about "millennials," and it's not always flattering. But what I have seen is that, contrary to popular chatter, many millennials have altruistic beliefs — they show a concern for the well-being of others, the environment, and the earth's creatures. Let this altruism lead to generosity regarding charitable causes. Giving will help you avoid selfishness.
2) Be Grateful For What You Have — If you find yourself thinking about what you don't have, or perhaps of what others have that you don't, then you run the risk of not only wanting, but actually buying what you can't afford.
If you are grateful for what you have, you won't be nagged by the need to "keep up with the Joneses." The times when I have tried to keep up with my neighbors have never turned out well. I should never have bought that blasted minivan!
Related to this principle, avoid "dream shopping" activities. For example, my wife and I now avoid home shows. In the past, as we went from model home to model home, we found ourselves wanting features and furnishings that we simply couldn't afford. To remove the temptation, we simply agreed "no more."
I'm also a car buff. At one point, I found myself going to car dealers in non-business hours (when a salesperson wouldn't bug me) and fantasizing over the car I wanted. Eventually, I realized this could be dangerous and might lead me to find ways of "affording" a car that I really shouldn't own. If you are grateful for what you have, then you will avoid the pitfalls of this type of behavior.
3) Know How Much Money You Have — Most people know how much they earn. But how much money do you actually have at your disposal? To illustrate, I'll share a personal experience:
Early in my career, I had an employee (we'll call him Val) who was the epitome of optimism. Val was always happy. But there came a time that he just wasn't himself. So, in an HR-compliant way, I asked him what was going on. To make a long story short, I discovered that he was consumed with worries about money.
I told him, "If you're willing, come back with a list of your obligations ... Tell me what you have to pay out on a monthly basis." His problem soon became apparent. His monthly expenses were $340 greater than his take-home pay. While it wasn't my responsibility, I helped him create a budget.
He agreed to live by it, and within a few months he was Optimistic Val again! Most interesting was a comment he made: "But I earn enough, I should be able to afford these things." Val soon realized, however, the value of knowing how much money he had, not just what he earned.
4) Implement Your Own Wise Spending Habits — This is the most "personal" of my seven principles. Come up with your own wise spending habits. The key is keeping your spending under control. Here are a few things that helped me:
- Make and stick to a shopping list. — I do our grocery shopping. Believe me, this is not easy. But I let discipline reign (most of the time).
- Plan purchases only around sales. — Know when your favorite stores (both brick-and-mortar and online) have sales and buy when the time is best. For big-ticket items like cars, furniture and appliances, re- search the best times to buy.
- Don't go wild online. — Online shopping can be a shopaholic's nightmare. Just like online gambling, it's easy to get sucked in. Beware!
- Don't be ashamed to buy used. — You can save thousands on homes, cars, furniture, and even clothing. Remember, vintage is vogue.
- Watch car expenses by planning. — Instead of dashing here and there, map out your errands for greatest efficiency.
- Regardless of your spending habits, set limits. In other words, be disciplined.
I know it's old-fashioned, but believe it or not, merchants still accept cash. My wife and I (kids not so much) set our limits by using cash for household expenses and entertainment. When the cash is gone, our spending stops (while we keep emergency cash on hand).
5) Manage Debt — The image of a shackle is appropriate when speaking of debt. Personal debt and its associated interest payments can constrain you like nothing else. A heavy debt load can weigh you down, lead to personal despair, and drag your professional productivity down.
Most people choose to go into debt to own certain things. I'll focus here on what I see as the "Big 3" to watch out for — those things that can lead to the biggest problems.
Avoid Being "House Poor" — Remember, there is a difference in what you qualify for and what you can afford. A good rule of thumb is to never take a mortgage that amounts to more than 2.5 times your income. To be really safe, stay within 2.5 times of your disposable income. Note also that the weight of a heavy mortgage has a "drafting effect," driving more debt to cover other needs.
Avoid Credit Card Debt — Remember, every time you swipe a credit card you are incurring additional debt. Be particularly cautious with department store cards. The rates are HUGE! Convenience is an enemy to practicality.
Avoid Debt on Luxuries — We all want nice things. We want "toys." But if the burden of debt is weighing you down, how fun is that boat going to be? One other thought: Whenever you get new sources of income — a raise, a bonus, a dividend — it's human nature to buy more stuff. Instead, use new income to pay down debt. As your debt burden shrinks, you'll eventually be able to get plenty of "stuff."
6) Save! — We've all heard that it's good sense to "save for a rainy day." I've never been able to figure out exactly what a rainy day costs, but everyone should have an emergency fund. I save specifically to stay out of debt. My wife and I have been successful at this by always following our "stairway to savings" plan.
When we were first married, there were things we needed and wanted. The apple crates we were using for book shelves just weren't cutting it. One of the first things we decided to buy was a bookshelf. We found one we wanted at $300.
At the same time, we wanted to start building our savings. We decided that before we purchased the book shelf, we'd discipline ourselves and wait until we had $1,300 in savings. So when we bought it, we had $1,000 left. Each time we wanted something, we set a new higher threshold. We were amazed by how quickly we built our savings. It's a principle that we still use today.
7) Live on a Budget — No matter how much you make, live on a budget. There are apps that can help, or like me, you can do it low-tech. For me it's simple. The evening before every payday, I make a list of all my expenses, then determine the budget to cover them. After savings, all else is discretionary. Whether you use an app or a notepad, just do it!
So, why does it matter? Will you be wealthy? I can't promise that. But I'm confident this life skill will give you greater chances for a successful career and a richer life.
Note: A video presentation that covers these principles is available online.