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Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

The Wages of Financial Sin Is Debt (Among Other Things)

by Laura Rowley

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Posted on Wednesday, March 12, 2008, 12:00AM

Last week, in an interview with the Vatican newspaper L'Osservatore Romano, Monsignor Gianfranco Girotti, a close ally of Pope Benedict, unveiled a new list of deadly sins for the modern era. Girotti suggests that Catholics go beyond the "individualistic dimension" of sins like envy and sloth and avoid modern social evils such as dealing drugs and polluting the environment (or, as the headline in Britain's Daily Mail blared, "Recycle or Go to Hell"). 

Seven Up 

I get Girotti's vibe. A cradle Catholic, I usually attempt an individualistic sacrifice for the 40 days of Lent (giving up chocolate, say). This year, I'm trying to maintain better control of my attitude, and pause thoughtfully instead of immediately reacting when provoked (such as not yelling at my daughter when her math tutor told me she wrote "I would do anything to get out of here" in the "name" space at the top of her fractions worksheet).

Incidentally, one of the "new" sins is exploitation of the poor by the über-rich, which is not so new (see, well, about 90 percent of the Bible) -- but something that any Catholic involved in marketing credit cards to people with no incomes should ponder seriously.

In any case, I was inspired to create my own list of seven deadly sins. Commit these violations, and you'll create a financial hell on Earth for yourself:

• Sin No. 1: Failing to identify what thy money is for.

Yes, making money is to meet life's needs, like shelter, clothing, and buying enough Thin Mints so your Girl Scout achieves the 100-plus-boxes badge. (Good thing I don't always give up chocolate for Lent.) But then what? What are you here for? What do you really value?

If you never take the time to figure that out, and don't set priorities and write down specific goals that you want your money to help you achieve, I guarantee you'll never run out of ways to squander your cash. Click here for some questions to help you get started with identifying your values.

• Sin No. 2: Not living within thy means.

I live within my means (no debt except a low-interest, fixed-rate mortgage) and save prodigiously for retirement and college. But just as Jimmy Carter committed adultery in his thoughts, I haven't been living within my means in spirit because I endlessly surf real estate websites and ogle houses I can't afford.

The temptation seeps into the unconscious through the subliminal seduction of television, advertising, fashion, the neighbors' kitchen renovation, the number of luxury cars in the parking lot at work, or, in my case, a few mouse clicks.

The secret to avoiding this sin: Get a budget. Some people track their spending with a pencil and paper; some use Quicken software; I use an online tool called Mvelopes. It doesn't matter what you use. Find a tool that prevents you from spending more than you earn. (And shut out tempting media. Surfing real estate websites prevents me from appreciating my abundance, and makes me sort of cranky.) This will deliver you from the vice of revolving debt and the eternal punishment of exorbitant interest rates.

• Sin No. 3: Believing that material wealth will solve all thy problems.

People place a lot of symbolic meaning on money. We think money is power, status, security, freedom, or a host of other things. For instance, I once interviewed an investment banker who had sacrificed everything for her job -- partly because a childhood experience made her think money was the same as respect.

When she was eight years old, she was standing on a field where her dad was coaching a football team. She told me, "I kicked the ball really high. He looked at me and said, 'What a waste you're a girl.'" She vowed to show him that girls can do anything boys can do. So she muscled her way into Wall Street, and impressed her father with every promotion. But the unhappiness returned each time, because money didn't solve the problem -- her feeling that her father didn't respect her for who she was. And she would never make enough cash to fill that hole.

I'm not naïve. Money (especially investment-banker-sized money) can buy a measure of freedom and security and power. But money itself is none of those things. If freedom is a value, you have to think about the experiences, people, and qualities of life that make you feel most free, then be creative about making that vision a reality. It may cost less than you thought.

• Sin No. 4: Shopping while feeling sorry for thyself.

A new study finds that people who spend money while sad or self-absorbed unconsciously overpay. This differs from the more well-known phenomenon of retail therapy.

In the study, conducted by researchers at Harvard, Carnegie Mellon, Stanford, and Pittsburgh universities, one group of participants watched a sad video about the death of a boy's mentor, and then was asked to write about how experiencing a similar situation would affect them. A separate group watched a National Geographic special about Australia's Great Barrier Reef and was asked to write a list of their daily activities.

Both groups were then given the opportunity to bid on a sporty, insulated water bottle. The gloomy bidders offered as much as 300 percent more. In their paper for Psychological Science, the researchers suggest "that when self-focus is high, sad individuals experience an implicit devaluation of the self, which in turn triggers increased valuation of new commodities." (In other words, when it comes to your wallet, no looting while brooding.)

• Sin No. 5: Not saving for college because thou expects financial aid (or a higher power) to take care of it.

A study by AllianceBernstein Investments found that 87 percent of parents believe scholarships and grants will pay for at least part of their children's undergraduate expenses. But 92 percent of financial aid directors interviewed say parents overestimate what their children will receive. Moreover, 58 percent of families spend more on dining out and vacations than on saving for college.

If this is you, open a state-sponsored 529 plan with as little as $5. Your savings will grow free of federal and state taxes, and withdrawals are federally tax-free if used to pay for qualified education expenses.

It's far cheaper to save than to borrow, explains Mark Kantrowitz, founder of the informational college website FinAid. If you start when your child is 8 and save $200 a month for 10 years at a 6.8 percent rate of return, you'll accumulate about $34,400. If you borrow that amount at 6.8 percent interest instead, you'll pay back $396 a month for 10 years. Bottom line: Save in advance, or pay back twice as much afterward. (And 529 savings barely affect financial aid eligibility. See my blog for an example.)

• Sin No. 6: Receiving a whopping refund after filing thy tax return.

Thou shalt not give Uncle Sam a year-long, interest-free loan. Instead, ask your employer for a new W-4 form and adjust your withholding to reduce the amount of taxes taken out of your paycheck. (You may have to fill out the worksheet on page 2 of your W-4. For help, check out the IRS's online withholding allowance calculator.)

Then automatically invest the extra take-home pay every month in a mutual fund, and get your money working for you all year long.

• Sin No. 7: Not saving for thy golden years.

Enough said.

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75 Comments

Showing comments 6-35 of 75<< PreviousNext >>
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  • Yahoo! Finance User - Monday, March 17, 2008, 3:43PM ET  Report Abuse

    • Overall: 4/5

    Good common sense stuff. I filled out a new W4 immediately after reading--Great tip!

  • Yahoo! Finance User - Monday, March 17, 2008, 9:15AM ET  Report Abuse

    • Overall: 3/5

    Two words: Dave Ramsey. If you live well within your means now and put a little bit away each week, you'll be able to live like no one else. Ask your Grandmother; chances are she can provide the same advice almost word for word as it is written in this article.

  • Art - Sunday, March 16, 2008, 11:49PM ET  Report Abuse

    • Overall: 5/5

    Laura thank you for adding a spoonful of humor; sometimes people need that to make the medicine go down.

  • Yahoo! Finance User - Sunday, March 16, 2008, 5:15PM ET  Report Abuse

    • Overall: 4/5

    Why nail the writer for something that other people have done? Not the greatest article, but she deserves better than 1 star from you.

  • Yahoo! Finance User - Sunday, March 16, 2008, 3:49PM ET  Report Abuse

    • Overall: 5/5

    Debt is used for (fill in the blank) that you (individual or company) cannot otherwise afford. "Hey, interest is deductible!" I hear. Yes, and it's out of pocket as well. Kind of makes sense that you don't get taxed on what wasn't really there in the first place.

  • Pete - Sunday, March 16, 2008, 12:31PM ET  Report Abuse

    • Overall: 5/5

    Right on target, Laura. The core problem is too many pretend Rockefellers, and if the financial system is doing what it should do (versus what everyone wants), then many pretend Rockefellers would be regressing to their means.

  • Andrew - Sunday, March 16, 2008, 9:10AM ET  Report Abuse

    • Overall: 5/5

    Great article. Contains a lot of common sense wisdom that most people would be way better off if they had the discipline to follow. However, there's an "X" factor out there right now- the debasing of our currency by the United States government. It serves to reward borrowers and punish savers. A lot of boomers are getting ready to retire in the next few years, with their hard-earned life savings, whatever it is. But the reality is that, because our currency has been debased in order to give the government a free ride, a hundred dollars will buy only a third or a fourth of what it did when those people first started saving. And it's going to get worse, because the government keeps inflating. Savers beware!!!

  • Taxman - Saturday, March 15, 2008, 3:05PM ET  Report Abuse

    • Overall: 5/5

    It amazes me that many seemingly intelligent posters are so wrong on the tax refund issue. Laura is dead-on right, as usual. It is foolish to get a large tax refund. Period. Theres no grey area here. The goal should be to get a small refund or a small tax due, maybe under $100. If you lack the discipline to save the extra money, then set up an automatic monthly withhdrawal from your checking account to be sent to a mutual fund, invested however you please. I do this with T Rowe Price and they will do it with an amount as small as $50 per month. Doing this, you're just shifting the money transfer source from your paycheck to your checking account. If you get a large refund, you are transferring money from your paycheck to the IRS, interest free of course. If you automatically save this amount yourself, you are transferring the money from your checking account to the mutual fund company and will earn interest and/or growth on those funds.

  • Yahoo! Finance User - Saturday, March 15, 2008, 1:09PM ET  Report Abuse

    • Overall: 1/5

    I like the comment below: 'an expert yahoo'! A daily humor column would be a lot more productive and useful than these amateur financial blogs. We could all use a good laugh while the economy goes down the tubes.

  • just a man - Saturday, March 15, 2008, 1:04PM ET  Report Abuse

    • Overall: 2/5

    If you can get air into your lungs, then you too can be a Yahoo expert, or is it an expert yahoo?

  • Yahoo! Finance User - Saturday, March 15, 2008, 12:55PM ET  Report Abuse

    • Overall: 5/5

    Decent article. The vatican changes as it feels suited too for god's will. I remember when you were going to hell if you ate meat of Fridays. Then the vatican said "no, god has recinded that rule and now it's ok." Until then however, all were hell bound. What next? Priests given the ok with alter boys?

  • looneytarian - Saturday, March 15, 2008, 8:52AM ET  Report Abuse

    • Overall: 4/5

    Very good article, cleverly written. Most of the onestar posters show how clueless they truly are. It makes no sense to me to give an artilce a one star just because it is basic advice. Basic does not equate to bad. The economy is in the state it is in more so because of the large number of clueless, apathetic and I-want-it-now consumers in this country than because of corporate greed. I like most of Laura's points though I noted that sin #5 is often the result of sin #7. Almost every financial expert worth their salt will tell you to put away for retirement before you put away for your kid's education. If you can only afford to put away for one or the other, then you should choose retirement. If you put away for the kids college first, then you cut the time you have to put away for retirement in half. But remember that by then, you are getting up in years and medical problems may crop up and if they do, there goes your chance to save for retirement. In short, do not sacrifice your retirement savings for your kids educations, because they have alternative means to finance their education. If you can do both, then by all means, help them all you can, but even so, I would suggest not just paying for everything and teach them financial responsiblity while they go to college (save some back for an emergency bail out, if it is needed). I personally do not agree with the point about taxes, I would rather pay too much on taxes up front and get a refund than risk not paying enough and have to scramble to pay Uncle Sam on April 15. I may see what I can do to get more money up front, but I want to make sure that I pay more than what is required. A big refund is nice and it usually goes into the bank until I figure out where I can best apply it.

  • Yahoo! Finance User - Saturday, March 15, 2008, 12:21AM ET  Report Abuse

    • Overall: 4/5

    Common sense, but apparently it is not very common these days. If more people took these sins to heart, our country would not be in the economic ruin it currently is - setting up for a disaster on par with the great depression.

  • donald - Friday, March 14, 2008, 9:56PM ET  Report Abuse

    • Overall: 5/5

    This goes right with the two deadliest sins on Wall Street. Fear and Greed. Excellent Article.....Too bad she is married.

  • henke - Friday, March 14, 2008, 1:31PM ET  Report Abuse

    • Overall: 5/5

    "Paul Grignon's 47-minute animated presentation of "Money as Debt" tells in very simple and effective graphic terms what money is and how it ... all » is being created. It is an entertaining way to get the message out. The Cowichan Citizens Coalition and its "Duncan Initiative" received high praise from those who previewed it. I recommend it as a painless but hard-hitting educational tool and encourage the widest distribution and use by all groups concerned with the present unsustainable monetary system in Canada and the United States" http://video.google.com/videoplay?docid=-9050474362583451279

  • A - Friday, March 14, 2008, 1:25PM ET  Report Abuse

    • Overall: 2/5

    Laura, you still haven't addressed this: Saving and living within your means is rational only if there is a future payoff that exceeds the value of the present consumption you must sacrifice. But government policies (tax policies, welfare in all its forms, bankruptcy laws, etc.) do everything possible to destroy the natural incentives and disincentives. One person by committing mortgage fraud gets to live in a $500K house for $1000/month, realizes $100K in appreciation, cashes this illusory equity via a HELOC and blows it on toys; when the mortgage payment adjusts and the price crashes, leaving him upside-down and with no hope of making the payments, he simply walks away, and the bank has no recourse. Then Bush even exempts him from the taxes he'd normally owe on the debt forgiveness (imputed income). Then when he can't afford medical care or food for his kids or retirement or whatever, the government provides it. Another person takes your advice. He opts for a modest house with a FRM, lives within a budget, works hard to increase his income (which is taxed progressively), and saves in his IRA; he foregoes all the consumption the first person enjoyed in terms of both house size and HELOC-funded toys, planning to move up to the bigger house when he can truly afford it. But then the government freezes ARM adjustments; the Fed pushes interest rates to the floor and orchestrates a massive bailout of the insolvent MBSs, leading to inflation, negative real returns on savings, and ultimately higher tax rates when he withdraws from his IRA. Oh, and SS payments have become means-tested by then, so what little he does have to withdraw from his IRA simply replaces SS, giving him no more retirement income than the guy who saved nothing. The second person is happier how?

  • Jill - Friday, March 14, 2008, 10:52AM ET  Report Abuse

    • Overall: 4/5

    All common sense to me. The only hard part for me is not paying too much or too little to Uncle Sam in withholding taxes. I would rather get money back than have to pay more in anyday.

  • Yahoo! Finance User - Friday, March 14, 2008, 10:21AM ET  Report Abuse

    • Overall: 4/5

    I enjoyed much the preamble discussion on ethics in the modern era. Engaging in the marketing credit cards to those with no income is something that all people of good conscious should think hard about. Getting those same people into untenable mortgages might gravitate one from the venial variety of sin, to the mortal type.

  • Yahoo! Finance User - Friday, March 14, 2008, 9:58AM ET  Report Abuse

    • Overall: 5/5

    As usual, an A article from Laura

  • MikeD - Friday, March 14, 2008, 9:52AM ET  Report Abuse

    • Overall: 2/5

    Good advice, but recycled from very recent work. Good advice may need repeating, but not every other week!

  • Alan - Friday, March 14, 2008, 9:22AM ET  Report Abuse

    • Overall: 5/5

    unfortunate that the obvious needs to be repeated, but valuable info for the open minded, most open minded are already following it. close minded will think it is stupid. i think is author is kind of cute too. :)

  • Dave - Friday, March 14, 2008, 9:03AM ET  Report Abuse

    • Overall: 3/5

    Clever Title....pretty author....dumb story :(

  • Yahoo! Finance User - Thursday, March 13, 2008, 11:19PM ET  Report Abuse

    • Overall: 5/5

    I love all you idiots who trash the experts. Most of you are people who just don't like to face facts. One of you idoits is touting how you get back a huge refund every year "...to pay of credit cards." How stupids is that? Idiot.

  • Yahoo! Finance User - Thursday, March 13, 2008, 10:26PM ET  Report Abuse

    • Overall: 1/5

    This was dumb

  • Jerry - Thursday, March 13, 2008, 9:45PM ET  Report Abuse

    • Overall: 1/5

    How do you find such uninteresting ways to state the obvious week after week? I learned most of what you write about before I was 13.

  • vindication - Thursday, March 13, 2008, 5:15PM ET  Report Abuse

    • Overall: 2/5

    I've read somewhere that you should go against the advice of "Receiving a whopping refund after filing thy tax return" IF you are having a problem saving money. It's better to put your money in a yes, interest free Uncle Sam bank than to not have anything. As the year ends and we find out that we don't pay taxes (I actually know people who OWE money because they under-pay Uncle Sam and they're scratching their heads about how to pay their taxes) and we get a whopper of a refund. We then are elated to find this "hidden money" returned to us and apply it to paying off bills or credit card.

  • Mac - Thursday, March 13, 2008, 4:41PM ET  Report Abuse

    • Overall: 4/5

    As my father approached retirement, he and his banking buddies started spending more and more time salmon fishing in Canada. I came to realize that many of those successful bankers were intensely envious of the lifestyle(and lives) of the Guides that they hired to find fish. People spend a lifetime working to save a fortune so that they can go fishing, golfing, boating, etc. Yet, all these retirement dreams can be attained more abundantly without the rat-race component. Given the number of men I have known that have passed away well before 75yrs, I'm not certain that the fishing guides don't have it right.

  • JC - Thursday, March 13, 2008, 4:34PM ET  Report Abuse

    • Overall: 5/5

    Laura. You are the man!

  • Herbert - Thursday, March 13, 2008, 3:48PM ET  Report Abuse

    • Overall: 5/5

    Christians are not allowed to charge interest. I believe that they are allowed to pay interest.

  • Yahoo! Finance User - Thursday, March 13, 2008, 3:31PM ET  Report Abuse

    • Overall: 5/5

    Laura, you have hit yet another home run as far as I am concerned. This article should be required reading at colleges and in churches. Among citizens of my home state of Delaware, I believe the issue of usury by credit card issuers is particularly blatant if not directly then at least by proxy.

Showing comments 6-35 of 75<< PreviousNext >>
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