Thursday, June 9, 2011

Financial Recovery

This is a book review by Mrs. James who I thought might better understand the emotional side of money and whether this book might actually help people with money troubles, not that she's necessarily nice to people who handle money poorly.

The book Financial Recovery by Karen McCall makes a link between our relationship with money and how that relationship affects how we make money, how we spend money and how we save money.

This book does a good job explaining some of the behaviours I have seen in friends and colleagues concerning how they handle their money and what decisions they make that seem to an outsider to be completely self destructive with respect to their finances but are an undeniable pattern. The wife who buys herself something expensive just because her husband went out with the boys is likely substituting an object for the attention she feels she is not getting from her husband. The person who knows that they don’t have enough to pay the bills so they simply stuff the envelopes unopened into a drawer and hope they go away.

Seems easy to fix, right? Well, McCall says that it is as long as you can change your relationship with money, starting with being aware of what is actually going on. Letting go of the shame associated with feeling like a bad money manager is essential. Being conscious of income and expenses, regular as well as periodic, is the first step to getting out of crushing debt.

One key point McCall makes is that in order to have a healthy relationship with money we need to fully understand the difference between a “want” and a “need”. Her explanation of a “want” is something that entertains us while a “need” is something that sustains us.

Throughout the book, exercises are used to bring awareness to the different aspects of financial matters in a manner not intended to blame the reader for bad habits or poor decisions but to provide information which can then be used to make good choices based on the reader’s individual wants and needs.

The first part of the process to get to financial recovery is to track everything. For expenses, tracking is done for cash, credit and cheques and the amounts are separated into different categories and subsections. For example, food could be broken down into groceries, lunch out, drive through and so on. In some ways I can see this being the most difficult part of the process. For me, it would certainly change what I bought so I wouldn’t have to write down something frivolous on the sheet.

The second part is to create a monthly spending plan. Examples in the book give a good sense of the types of things that should be included in such a plan. The idea isn’t to create an austerity budget but to keep in mind the wants and needs that were identified and to be creative in meeting those desires in a spending plan. A similar exercise follows for an annual spending plan. This seemed to be quite a useful exercise.

The final part is “Saving your way out of debt”. This section seemed to hurt my brain a bit since it recommended building up a savings account before paying off credit card debt. The idea goes back to your relationship with money and credit cards and attempting to change how you use, or more specifically, don’t use credit cards. Her advice is to stop accumulating debt first. So, you build some savings to handle your spending plan (which includes some debt repayment and non-periodic expenses) instead of yo-yo-ing your credit card debt. Once you stop accumulated debt, there will be money to pay off the debt. The idea is that the benefit of changing your habits is worth the interest difference between the savings account and the credit cards.

I think the main take away message from this book is to not bury your head in the sand, to understand what it is you want and need from life, to rationally develop a plan to get you there and to not beat yourself up if you falter. With your head out of the sand, you can compensate for your mistakes. The tools are similar to those presented in other books but the idea of looking at your own personal biases on earning and spending money make this an interesting read.


  1. Good review, for sure. Reminds me of one time I kept a food diary for a couple weeks and realized how few vegetables I ate.

    I think one of the hardest parts of change is staying with the new, improved habit. I'm fine with money, but consistently eating well is tougher for me. Short-term change based on willpower is possible, but I think long-term change has to be based on a deeper emotional commitment.

  2. @Gene: For me, change is about creating the right habits. When I was young my habit was to accept all offers of donuts. I managed to change that so that now I reflexively turn them down. Even if I were very hungry I think I would turn down a donut at first and only after thinking about it change my answer.