Seven financial planning diseases

By Scott Reeves

updated 3:44 p.m. ET Jan. 15, 2006

The basics of personal finance are simple: Spend modestly, save, invest for the long term, protect yourself with insurance and don't pile up credit card or other debt.

Surprisingly, many people don't know the basics, and some unknowingly twist the fundamentals of money management and put themselves in a hole despite their good intentions.

"A major illness or some other unavoidable problem can cause people to fall short of their financial goals, but more often than not, long-standing barriers to dealing well with money are to blame," says Eric Tyson, a financial counselor and author of "Mind Over Money". "I've worked with more people who need to overcome significant obstacles in their attitudes and behaviors concerning money than those who just need a bit of sound financial advice."

Tyson recommends starting with a "historical inventory" of your attitudes toward money. Ask yourself some basic questions: Were your parents savers or spenders? How much freedom did your parents give you to handle money as a child? Did you manage money well? How important were financial considerations in what you chose to study and in selecting a career?

Tyson says there isn't a right or wrong answer to these questions. But thinking about how you developed your attitudes about money can provide insights into the way you now manage your finances and can lead to improvement, if needed.

Tyson, whose other books include "Personal Finance for Dummies" and "Investing for Dummies", has discerned what he calls a "money personality." Here are the symptoms and cure of what can be pathologies, or at least troubles, that erode your finances and make your life miserable:

1. Disease: Excessive Spending -- Some people overspend because it gives them a sense of power and provides an adrenaline rush, while others spend because it's a social activity and it gives them something to do. (See: "Kids Say 'Charge It;' Granny Says 'Make Do' " and "Living Debt Free" and "Using Credit Wisely.")

Cure: Tyson says there are basic tactical steps such as cutting up excess credit cards, tearing up unsolicited applications for additional credit and substituting the use of a debit card for a credit card in most instances. But the long-term fix will come only after you understand why you overspend. Is it an effort to keep up with the Joneses? Impress your co-workers? Wow women? Think.

Some people need psychological counseling, and Tyson says many over-spenders have success with Debtors Anonymous, an organization patterned on Alcoholics Anonymous. (See: "Deciphering A Credit Report" and "Fixing Bad Credit.")

2. Disease: Workaholism -- Men are especially prone to this malady, but women are catching up. Among the first questions asked when you meet someone new is "What do you do?" Work is a big part of our identity. The danger is that the drive for fancy job titles, the corner office and a fatter paycheck takes over your life. Many find that a bigger pay check is never quite big enough, because wants have a way of expanding as you climb the career ladder and outrace your current paycheck.

Cure: Tyson says balance is the key to managing work. Your children and spouse are more important than work, and you don't need a bigger house and a fancier car. No terminally ill patient ever said, "Golly, I wish I'd spent more time at the office." So, what's more important: putting in 80 hours a week or attending your daughter's dance recital? (See: "Addicted To Work" and "How To Work For An Idiot.")

3. Disease: Herd Following and Information Junkies -- There's a cascade of information available and those who think they can beat the market often spend hours researching their picks. Many love the chase and get caught up in the game while overlooking performance.

Cure: Tyson urges people who spend hours in front of the computer each day in search of winning stocks to ask a basic question: What's your return? You may do better in an index or mutual fund. If so, relax and enjoy more time with your family. You'll also save a bundle on transaction fees.

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