I’ve had good control of my saving and spending for nearly two years now. I still make poor choices now and then, but they don’t have the consequences they would have a decade ago. A decade ago, I was in debt. Today, I am not.

That’s one of the advantages of being debt-free: when you do something dumb, the repercussions are not as severe. But I remember a time when each bad choice brought me closer to the brink.

Fumbling in the dark
Night Lights by jdroth -- hey, that's me!During the 1990s, I had a spending problem. I was a compulsive spender. It’s not that I just bought books and comics and compact discs. I spent money on everything. I wanted everything. I had a house full of Stuff, most of which sat unused. I was filling some emotional void by buying.

Saying that makes it sound as if I were aware of the problem. I wasn’t. I had a vague idea that my spending was out of control, and carrying $20,000 in maxed-out credit cards was certainly causing me stress, but I didn’t know how to stop. Every time I paid one card down a little, I’d find some reason to buy something new. A small part of me knew that I had a problem, but I could not stop myself.

When I look back now, it seems as if I were fumbling in the dark. My wife would tell me how she was saving for retirement, and the idea seemed impossible to me. Because we’ve always kept separate finances, I would marvel that she had several thousand dollars in savings. I had nothing. I had no savings account. And my checkbook usually had less than a hundred dollars in it. (Sometimes the balance was negative!)

Although I knew I had a problem with debt, I continued to spend without thinking. Worse, sometimes I would spend with thinking. I’d be out with friends and they’d want to go for drinks or go see a movie, and I’d do it, even though I knew I couldn’t afford it. I’d do it, even though I knew my stomach would be in knots next time I saw my account statements.

As I spent compulsively — as I accumulated debt — I had no concept of proper money management.

I’m a smart guy. In high school, I won a national award for my “business math” skills. Were you to set me down and tell me, “If you spend more than you earn, you will continue to have debt,” I would have understood you intellectually — but I would have kept spending.

I read about budgets, but never used one. I had Quicken for my computer, and I would use it from time-to-time, but mostly I didn’t track my money. There were months at a time when I didn’t write anything in my checkbook register. I operated on a sort of voodoo finance system, where I sort of knew how much I had in the bank, but not really.

I had no idea what I was doing with my money. I had no financial goals.

The zeroth stage
Last month, I wrote about a theoretical “third stage” of personal finance, a place one reaches after mastering the basics of money management. At the time, I posited the stages of personal finance might look like this:

  • The first stage of personal finance is learning the basics: understanding compound interest, reducing debt, beginning to save.
  • The second stage is putting the basics into practice: choosing to live frugally, saving in earnest, and pursuing financial goals.
  • The third stage — the “what next?” stage — comes after we’ve mastered the fundamentals. It’s at this point that we begin to ask “why?” Why are we continuing to save? All of our debts are paid, so what’s the point? (There certainly is a point, but what is it?)

I’ve thought about this a lot over the past few weeks, and I’ve realized that there are at least two other stages that I didn’t include. The fourth (and final) stage is Financial Independence, as defined in Your Money or Your Life. This is the point at which you have “enough — and then some”.

But there’s also an earlier stage, one that comes before the first stage. In the system I’m trying to define here, a person enters the first stage of money management when she’s decided to take control of her life, is learning about the basic concepts, is paying down her debt and beginning to save. What comes before that?

Before that is the zeroth stage of personal finance, where a person doesn’t exercise any sort of financial skills at all. Often, he isn’t even aware that he should do so. He uses money without thinking. And, more often than not, he lives reactively, spending in response to things outside his life.

My behavior during the 1990s? That was all part of the zeroth stage.

Thinking out loud
During the month of March, I’d like to explore the notion of these stages of money management. Each Sunday I’ll write about the next stage. It’s a sort of thought experiment.

Generally my articles at Get Rich Slowly are polished and have a point, but these posts may be rambling. They’re a chance for me to think out loud, and for you to help me refine the concept of money management “stages”.

What do you think of my model? Am I missing steps? Are the stages not as clearly delineated as I would like to believe? What step are you on right now? What challenges do you face? These are the sorts of things I want to talk about this month. It should be an interesting discussion.

Even if nothing else comes of this, I’ve realized over the past few weeks that my goal in life is to help as many people as possible escape the zeroth stage of money management. If I can help more people to join me in the third stage, that would be awesome.

77 Replies to “Fumbling in the Dark”

  1. Funny about Money says:

    Interesting concept.

    I think I’m in the fourth minus .5 stage: Got to where I thought I had enough and then some, but then watched it disappear in the tanking economy.

    Not back at the beginning (yet…), but certainly not going to achieve the “why” of stage three: which for me was to quit trudging in to work.

    Don’t know how that would fit in with the staging scheme, except possibly to consider whether under some circumstances a person might backslide or be knocked back to a prior stage.

  2. Another Aaron? says:

    Great Idea JD. Maybe the financial stages should be numbered -1 to 3 instead of 0 to 4. It just seems appropriate that the number should say something about the financial and mental states of each stage.

  3. Rian says:

    I don’t have any thoughts on the zeroth stage, but I do have a thought about the fourth stage. I suspect the fourth stage can be quite scary, because people who have struggled with money in the past are reluctant to start spending more simply because they’re afraid to fall into old spending habits.

    Compulsive saving is a defense against compulsive spending.

    Just a thought.

  4. Chett Daniel says:


    I really believe it takes some type of crisis or life changing event to get who are in the “zeroth” stage as you call it to take action and move forward. The problem is as bloggers we share information, we have to find a way to use that to help people change the psychology of why they spend money and then help them change their behaviors. That’s a tough challenge. I will follow this discussion closely as I have been wondering essentially the same thing.

  5. ObliviousInvestor says:

    Sounds like a good plan to me. I’m of the opinion that the best stuff comes out of delving into new ideas, “thinking out loud” as you put it.

    I know that when I do that, 2/3 of what I write isn’t so hot, but the other 1/3 ends up being my most insightful stuff.

  6. Nancy L. says:

    While there are people who are completely clueless about finances and are in a true “Zero” stage, I think more often the issue is the attitude that one has in a given stage. For example, I fully understood the concept of delayed gratification and of spending less than you earn. I just refused to put it in practice in my own life. If I wanted something, I got it right away, and worried about paying for it later. But even as I did this, I knew it was the wrong thing to be doing. It wasn’t until I was ready to put in the effort and do the hard work of being responsible that I was able to start my own journey forward.

  7. Sarah says:

    Great idea to post about financial intelligence levels! Right now we’re at level 3 and throwing money at a high yield savings account that isn’t so high, in preparation for buying our next house.
    Zeroth is where we used to be!!! Funny how foolish it seems now!!

  8. Aim says:

    Very interesting. I needed to hear this, and will be tuning in throughout March!

  9. Jim_W says:

    JD- Your stages may align with psychologys’ human motivation theory/model Maslow’s Hierarchy.


  10. Jorge says:

    I like the idea of stages, it makes a lot of sense to me. There is an old framework, I’m not sure where it comes from but it has to do with the stages of ignorance:

    – first, you don’t know what you don’t know
    – second, you know what you don’t know
    – third, you know everything you need to know and are keeping abreast of new info

    Seems to me there is some sort of a parallel there somewhere…

  11. Linda says:

    Tangential to Chett’s comments, you might want to include something on how we think about money at various ages in our lifespan also. I think perhaps more of us at at a true “zero” stage at age 20 than at age 50, although some people have money maturity early. I do believe my relationship with money has changed as my life maturity has increased, and they are related.

  12. Jenna says:

    I agree with the above posts. Personally, I am in stage 2, putting my new attitude and knowledge into practice. All consumer debt paid, but still have student loans. Chett’s post hit it on the nose for me. What changed me and I still find fascinating is the psychology of spending, consuming and having stuff. Why do Americans in particular feel the need to upsize,upgrade,consume and literally stuff ourselves and homes with crap? I also think that our society has created a bunch of “self entitled” monsters. When we are in the 0 stage, we think we deserve it all and deserve it NOW. The media certainly has a role in this. We now have access to the lives of the rich through tv, internet, magazines analyzing what the stars have/wear. We are bombarded every day with images of what we need to have in order to be enough. Until you can work it all out in your head, you’ll be stuck at the 0 stage. Great post and I look forward to reading on this in the future.

  13. Michael Neumann says:

    I like the “stages” idea. I guess I am at the 3rd stage, the “frugality” part. Alot of people would say I am there and working on it all the time. But, I fail when it comes to food/eating. I hate to cook, I am 39 single, (40 this month, ouch) and it is so much easier to eat out than to learn a skill (cooking) that I hate doing. any thoughts?

  14. racy says:

    Lee Eisenberg’s book, The Number, explored alot of these concepts. From the inner jacket: “How much money do you need to secure the rest of your life? Do you know what your number is? Do you know how to think about it? Do you know what you want to do with it?”

  15. katy says:

    I think (for me) there is a step between 2 and 3; you’ve got the basics down but try to increase the income and allocate it better; put aside money for charity.

    I could be fumbling in the dark too!

  16. Jenni in NC says:

    We are also in the 3rd stage…

    like comment #1 (Funny about Money) I worry about falling back to the 2nd stage…

    DH was laid off mid-January (construction); we knew this was likely and saved accordingly… We have $25k in E-fund (HY MMA @ our credit union) roughly equal to 18+ months of all expenses for after unemployment runs out…

    The only debt we have is our mortgage, and DH has not filed for Unemployment as he’s been able to find work for friends and friends-of-friends doing handyman & carpentry work…

    That said, we’d like to NOT have to spend a dime from our e-fund and continue adding to it, to eventually be in stage 4… which in our minds is 100% debt free, house paid off and able to work odd jobs at our convenience and not be slaves to ‘work’…

    So, while we have part of our WHY for the 3rd stage, I can see in the months and potentially years ahead (if this crisis is as bad as some say), having to use use our e-fund to pay for necessities and slowly slipping back to the 2nd stage… Something I’m not looking forward to…

    In any case, JD, I really look forward to your future posts, and the comments and discussions that are generated from them!

  17. Tyler Karaszewski says:

    I’v gotten myself into a strange position where I feel a lot more like I’m in the zeroth stage, back where I was in college, instead of in the third stage, where I’ve been for the last year or so.

    Th strange thing is I did it by *saving too much*. It sounds ridiculous, but it’s because of the way I’ve saved. I have a lot of money tied up in accounts that I can’t access. My 401k, for instance. I also have a lot of money being tied up in an Employee Stock Purchase Plan. It’s a fantastically productive plan, giving a guaranteed 15% return over 6 months, and more if the company stock does well.

    My company’s ESPP matures every six months, the next time being in may. I’m maxing out my contribution to that, so that when it pays out in May, I’ll be able to pay off my last debt — my car.

    But in the mean time, that money is completely inaccessible. Combined with my 401k, I’m having over $1500/month deducted from my paycheck (mostly post-tax, too) to fund different savings accounts.

    This has impacted me pretty significantly, and I’ve been slowly eating through my emergency fund while I wait for May to roll around so I can get my money out of the ESPP, and pay off the car.

    I feel like I’m using up all my savings because my account balances are shrinking, even though I’m technically saving faster than I’m spending. This would be easier if the car was *already* paid off, but it’s not, so I still have the car payment, too.

    That’s mostly a divergent anecdote, but does sort of address Funny about Money’s issue with “backsliding”. I do see how it can happen, even without going back to previous behaviors.

  18. Lizz says:

    In 2006, two very important things happened to me: I turned 18, and I discovered Get Rich Slowly. Though I’ve read every post, I’m not sure I’ve ever commented, and I wanted to chime in that J.D. and this blog are probably solely responsible for introducing me to the ways of personal finance – Turning on the light, so to speak, in such a way that I was no longer fumbling in the dark.

    Once that light was on, it was still my responsibility to keep my eyes open to what I was doing with my money, and I wasn’t always smart about it over the last two and a half years. Though I did open a 401k to get the matching contributions from my company, I also obtained some credit card debt, loaned out money to friends that didn’t need it or pay me back, and used my savings to buy my first car a few months ago for $4,700 when I could have made do with a beater for $2,000 or less — But as imperfect as these moves were, I was at least *informed* when I made these choices. Without GRS, things would be much worse:

    – Instead of making do without a car for two years until I could afford a used one I liked (and until my budget could support the insurance and gas that goes along with it), I guarantee you I would have bought a brand new car at 18 and saddled myself with car payments, astronomical insurance fees, and a depreciating asset.
    – I’d have no retirement savings, missing out on years of matching contributions and compounding interest.
    – My apartment would be more lavish, more furnished, and much more expensive, instead of my cute studio with included utilities. Right now, I’m saving $200-$500/month off of what I’d be paying elsewhere for a 1-bedroom, and I still get to live within walking distance from my office and from a train station.
    – Most likely, I wouldn’t have bothered returning to college because, without perspective or insight into what life is supposed to be like as we get older, I’d have no motivation to pursue a future I couldn’t visualize. My employer offers me $10,000/year of tuition reimbursement payments, of which I would have seen exactly $0 if I didn’t take advantage of this opportunity.
    – I’d own probably three times as much “stuff” and subscribe to twice as many paid services as I do now. Video games, DVDs, CDs, an iPhone, various gadgets, cable television with movie packages, and a gym membership I don’t have time to use would translate to empty bank accounts, high credit card balances, and less overall life satisfaction. “Stuff” has no allure for me, because I love, love, love knowing that my wealth is growing as a result of my being smart and responsible about what I spend my money on.

    Okay, so you know those bad habits I mentioned earlier in my post? Here’s the good news: Blogs like this one motivated me and led to real change in my life. Within three months of discovering GRS, I began taking college courses while continuing to work full time. My credit cards have barely been touched since November 2007, when I curbed my spending and began saving for my first car. It worked out in my favor to pay the minimum on the cards instead of paying them off entirely, because my insurance payment would have been much higher if I had to resort to a car loan. In October 2008, I negotiated my way into a paid internship at my company on top of my normal responsibilities, taking me from a 32-hour workweek to a 48-hour workweek, and rewarded myself with a 2000 VW Beetle with shiny yellow paint and only 64,000 miles. Even though I was scared of driving as it is, I forced myself to learn to drive a stick-shift car to save around $1,300 off the sticker price of an automatic with twice as many miles. When factoring in the cost of potential repairs that come along with a high-mileage car and the extra gas used by an automatic, I probably saved twice that amount.

    With the car taken care of and no major expenses on the horizon, it became time to get a head start on my 2009 New Year’s resolution to retire my credit card debt. To start, I committed to maintaining $825 in my ING Orange checking account and $1000 in my ING emergency fund savings account. Every Friday, I shave off whatever amount is left and pile it onto my credit cards in a debt snowball, paying off the highest interest cards first. How effective have I been at this goal? Well, I’ve paid off over $3,400, with exactly $2044.95 to go. A few months from now, I’ll be able to say “In 2009, two very important things happened to me: I turned 21, and I became a debt-free, financially responsible adult thanks to Get Rich Slowly.”

  19. James says:

    JD, this post came at the right time for me.

    I’m 29, I’m in school full time (I got a late start). I’m living on campus, away from my home town, and I hit a financial aid snag this term that I just learned about. Now I’m faced with two months left of this term, and then a summer of limbo. I hope to get a job over summer, my class schedule won’t accommodate one now. I’m completely stressed.

    The money I knew I’d be getting, I spent on credit for things like gas and groceries. I can make my minimums for several months and be fine, but it still stresses me that they can’t be paid in full.

    Reading this post made me realize that my response to this stress has been to spend, even though I know I could be doing smarter things. I’m not a stupid person. I’ve spent about $200 on books in the past few days. (Though, they’re book clubs, so I’m averaging about $7 per book, that’s part of my flimsy justification. That, and I spent more than that on a single textbook this term and I’ll actually enjoy these books. Still not good excuses.) I also went out to eat, spending half of what I’d normally spend on groceries for the month.

    It’s all completely pathetic, I know. And I didn’t make the connection between being lonely and stressed about money (!!) with my recent spending spree until just now. Hopefully next time I’ll make the connection before I pull the trigger. I know better, dammit!

  20. Tina B says:

    JD- I would like to hear more about your wifes part in your reformation, if she played a part? Did she ever bail you out? or did you never ask her to? I would imagine if you had a spouse that was always covering your shortfall you’ld never learn.

  21. J.D. says:

    @Tina B (#20)
    Kris played a role in my reformation, but sort of indirectly, I guess. She was always encouraging me to make smart choices, and she put her foot down on my most egregious stupidities. Mostly she was a good example, although one I didn’t understand.

    She never bailed me out, and in retrospect, I’m glad for that. But I never asked her too, either. I need to make it clear that even when I was deficit spending, I never neglected my obligations. I never missed a payment. I was never even late on a payment. But for about 15 years, I walked the line: spending as much as I could without falling behind. A single huge disaster, and I would have been in trouble.

    (Actually, I just realized, that Kris did bail me out, in a way. In the exact same way the government is bailing businesses out. She gave me loans. So, for example, when my car was totaled by a careless driver in 2000, I couldn’t afford a down payment. Kris loaned me several thousand dollars, which I repaid over the next five years.)

  22. Ross says:

    JD – Check out the crown money map – http://crownmoneymap.org

    It follows the same concept of stages going from living paycheck to paycheck to being financially free, although it focuses more on each action that you will need to take. I think you are going a little bit further though, and I am excited to see what you come up with for the “zeroth” stage. What is next for those of us who understand money and are already practicing frugality and personal responsibility?

  23. Michele says:

    Not everyone goes through each of those stages. It seems you are taking it from a perspective of someone who started adulthood in debt or not knowledgeable about money and finances. I grew up with parents who were smart with their money. So technically I was in stage 1 when I was 5 years old or so and opened my first passboook account. Since that age I always managed my money well. When I got out of college, I started saving toward buying a home right away. A year later I started saving toward retirement. I have always saved part of my income, living below my means. Step 3 seems hazy to me – I think most people need to be continuing to save to some degree until they retire. Their allocation of money might change throughout their pre-retirement days, though. Step 4 sounds like a person who has successfully reached retirement. Just my thoughts from a different standpoint from someone who has never been in debt.

  24. CJ Smith says:

    I think I did the stages in a strange and twisted order. I knew my “why” (stage 3) from the start: financial independence and financial security! I want to retire some day. Low to no debt, healthy savings, and sound investments will be the only way I’ll ever achieve that. But stage two took some serious work for me, and as for debt, I’m still working on a mortgage.

    Like Funny about Money in comment 1, I’ve also regressed in a way. I hated my well-paying career so much that I threw it away, and I’m now in school full-time, living on my savings while I train for career number two. Retirement is farther away than ever. The good part is that my ability to be frugal is helping stretch those savings dollars immensely.

  25. KF says:

    Be careful with that fourth phase! The norm in America is to constantly redefine what “enough” means so that we are never content, we never stop wanting and “needing” more, and we constantly feel entitled and deprived. “Enough and then some” can mean just about anything. In America, it’s possible to earn very little, meet your truly basic needs, and still have “and then some” for all sorts of extras like travel if one chooses to live frugally in other areas of life (as you saw with your friend who passed away). It’s equally easy to take on a huge mortgage and a million other bills and then feel like you’ll never reach the “enough” part.

  26. Steven says:

    I would say that I am at stage 2 right now. I have learned the basics of money management for stage one and have begun to change my lifestyle to live more frugally and am saving money on a regular basis. I was able to pay off my last credit card the other day and have been working hard to unbury myself from all of my debts.

    I have created a list of life goals and am proactively working towards accomplishing them. I started my website to help inspire other people to do the same. I am very new at all of this, but what better time to share my stories with people than while I am struggling alongside with them.

    I look forward to the days when I am entirely debt free and have achieved financial security so that I can really do what I want in life. I can tell you that it isn’t working in a box factory like I am right now.

  27. Greenman2001 says:

    Your personal story is a very engaging one, JD, and I enjoy hearing it. But in all the times you’ve told it, you’ve never talked about the moment that you changed your thinking and your behavior. I’m interested in hearing about the exact moment you moved from stage zero to stage one, and actually succeeding in changing your behavior in a meaningful, lasting way.

    One reason I’d like to hear about that moment is that I think that, where your physcial fitness is concerned as you’ve described it at Get Fit Slowly, you’re still at stage zero. You make a change, then fall back again; make a change, then fall back again. I know you’re going to make it to stage one there too. I’m just wondering if your experience with financial fitness can help inform your experience with physical fitness.

  28. Matt says:

    For me the Third stage came first. I was able to reach the point where theories began to form about what money means and why people spend it as they do, and that set the motivation for the other three stages. The point was to financial mastery as a whole, not separately to getting out of debt and to getting rich.

  29. ML says:

    It’s interesting that you wrote about buying stuff to fill an emotional void.

    “I was filling some emotional void by buying.”

    Now, instead of hoarding stuff, like comic books and DVDs, you’re hoarding cash. Are you still trying to fill “some emotional void?”

    I’m curious about this because I’m in a later stage of saving, where I’m trying to figure out what the right balance is, both a literal savings balance and the more metaphorical work/life balance.

    When you’re comfortable with yourself, when your wants are simple and your work is fulfilling, how much do you need to actually have in a savings account?


  30. Katrina says:

    These are going to be great. Go ahead and think out loud — you’re onto something your approach is very organic. We all need that, and you’ll stumble upon some great discoveries.

  31. Mark says:

    I really like how you’ve called it the “zero” stage. It already implies that you’ve done nothing toward any sort of ‘money control’ in your life.

    However, as one person pointed out above – perhaps a ‘-1 stage’ is needed. That one is reserved for those that have gone wildly out of control and are already at – or very near – the brink.

    The zero stage would be reflective of the total available cash – about zero. Never saving but not deep into debt either.

  32. Charlotte says:

    Very interesting concept. I am not as far along as you, I am debt free and just beginning REALLY saving but when I think about the economy and how unstable my husband and my positions at work are I don’t think I would be able to sleep at night if I were still at the zeroth stage. Right now if we lost our jobs we could get by with unemployment and our odd jobs that we like to do. We have some money in savings that we could sustain a bit past unemployment running out if we were having trouble finding employment, a year ago I think I would have lived in constant fear of what the next day would hold. I look forward to the day when we have 6-12 months of living expenses in the bank – 2 more years and we will accomplish that goal!

  33. Rose Fox says:

    Your stages talk about skills, but not about motivation. As you point out, it’s entirely possible to have the know-how without the give-a-damn. I think for many people, the turning point from 0th to 1st stage isn’t learning what to do but experiencing some emotional or psychological shift that makes them a) believe that there is such a thing as the future and b) care about the future more than the present. Without that shift, all the money smarts in the world won’t put a penny in your savings account.

  34. Kerry says:

    Hi JD & everyone else – I’ve been subscribing to your blog for about two months & I really enjoy it. I have a question though (Bare with me!)

    I am a student teacher working 40 hours a week in a school, not getting paid, I work two extra jobs and am getting married in May. I’ll be finished with my teaching certificate then, as well. My fiance is a full time student and will be one for the next 3 years (convinced him to go back to school – almost through his first year, yay!)

    I know it will be a struggle for us, but I want to know how appropriate this is!

    I have two Roth IRA’s, I am saving 10% of my income for an emergency fund and we just opened up a bunch of Orange Savings from ING Direct (Thanks to this blog). He doesn’t save anything. He is in the zeroth stage and doesn’t save a dime (except $20 every two weeks for a TV I told him we could only buy if we SAVED for it, so maybe he’s beginning to see the picture?)

    Was there one day that you just woke up and saw that you were making bad life choices? How does it work in a marriage where one person isn’t saving and the other is trying to survive and save? How can I help him see his spending habits are going to be detrimental to us? Every time I send him your blog he reads it, says he understands, and then goes and spends $7.00 on McDonald’s breakfast in the morning, and eats dinner at work – he’s a waiter.

    So, after that long rant, is there anything I can do to help ourselves be more conscientious about our savings and what we are working towards in life – buying a house, saving little money here and there for a baby in 5 years ($10.00 a month!) and paying for everything we want in cash, sans a house?

  35. Regina says:

    I am very thankful to have been graced with a husband who has a balanced life when it comes to money. I was the zeroith of the zeroisms – with a drug problem. I’m thankful, everyday of my life, for his insight into my being. He didn’t leave me, and now we are rebuilding our family. Thank our Lord and Savior Jesus Christ that our finances are not ruined.

    Throughout my “problems” we worked. Hard. He managed money – wonderfully. There is HOPE guys. Whether it be drugs, shoes or “control” of the money (because it’s your Savior,) you can LEARN the art of LIVING, in this world, LOVING, your life, means, family, and SAVING your life – financially, emotionally, personally, collectively and MOST IMPORTANT – SPIRITUALLY………….

  36. David says:

    I’d like to see more posts about the stages.

    I would bet that most of your readers are somewhere in stages 0-2, so it would give us something more we can relate with.

    You should be proud of how much you’ve helped people…I’m on the cusp between stage 1 and 2, and you were the spark that started my turnaround.

    I’m sure there are at least a thousand other people who could say the same thing.

  37. JK says:

    I definitely agree that there is a “pre” first stage that, unfortunately, most people fall into because of their lack of financial literacy. I believe the transition from that stage to the first stage is the hardest of all, and why many never begin to improve their finances. I definitely look forward to reading the fourth stage (and the zeroth).

  38. Gustavo says:

    For more than 2 years I kept track of every dime I was spending, but I didn’t use that information. At certain point, in the past few weeks I realized that my system was far from efficient (as I would love to think). I realized I was always spending more than I earned but fortunately I always had some unexpected income which helped me to balance the books. In January there were no extra income and tons of bills. My balance went below zero. Fortunately, I realized the problem and started a budget, in February. I’m excited about taking full control of my financial life and start saving. I read GRS and Simple Dollar to keep my mind used to the basic concepts.

    BUT… I don’t know what stage I’m in!

  39. Snowballer says:

    Great post.

    I can so empathize, I’ve got tons of book knowledge that I just didn’t use for years. JD, your story and mine are all too similar, the only difference is you’re doing better than I think I probably ever will!

    It wasn’t that long ago I realized I was out of control. I realize now, that suddenly, I am just not the same person and I don’t ever want to be that other person ever again.

    So I’d say I’m probably pulling out of that zeroth stage. I’m in stages one and two simultaneously, stage one taking the form of relearning what I’d forgotten and stage two being the aggressive debt snowball I currently have underway.

  40. Sarah says:

    I am kind of curious about how in your post you said you had a house full of stuff, now that you are making better spending decisions, do you find it more liberating to have less stuff to deal with? I’m also curious if all your stuff ever gave you problems with keeping it orgainzed, or put away. I know that free spending can lead to massive clutter, that’s one of the problems that we face, and though we are in stage two, and pretty muh always have been, that’s still one of those monsters that we can’t seem to get rid of! Too much stuff!

  41. indio says:

    JD, What you are describing is known as a capability maturity model, which is fairly commonly applied model in business and technology. Stage 0 is chaotic – no controls in place, no vision or direction. Stage 1 is Reactive – fire fighting mode, solves discrete problems as they come up (eg car breaks). Stage 2 is Proactive – controls and tools in place. Stage 3 – business aligned or have a vision of how to save the business money or run efficiently. If you want to learn more about and apply it to personal finance it was originally developed by Carnegie Mellon and is called CMMI. The names of each stage might be slightly different but the concept is the same.

  42. Nicki at Domestic Cents says:

    You’re doing your job well 🙂 Your site has been an encouragement to me as I’ve been doing my best to quit the ‘fumbling’ and be purposeful with my finances.

    Keep it up. I’ll be reading.

  43. ldk says:

    Interesting post….we are 38 and at the ‘now what’ phase and finding it the most difficult. We are debt and mortgage free and will have “enough-plus” saved inside of 5 years. Paying off the mortgage and student loans, starting businesses and learning to save and invest has definitely been a priority…now what? Will enjoy reading your thought process as you struggle with the same question.

  44. Sundance says:

    Any encouragement out there for those of us with (expensive) teenagers? Seems like many in your post are single or two income earning adults. This fall I took a higher paying job in hopes of putting half my paycheck toward debt reduction. This fall we had a 13K home equity loan. Despite lots of belt-tightening on the part of my husband and me, we STILL have the same balance on the loan. Braces, car insurance, sports fees…we can’t get ahead! Anyone else been there?

  45. Wealthier Every Day says:

    I could have written that post myself, down to the details about having Quicken but not using it. And not balancing the checkbook? I did that for a long time as a method of avoidance.

    Seems as though, depending on the person, you enter what you call “the stages” from a different route. Therefore, rather than a zeroth stage, perhaps it’s identified as a “source stage.” There are those who enter from a position of strength – they’ve never had debt and just manage their finances properly from the get-go. There are those who enter with debt and are essentially starting over. There are those who have managed their finances well for a period of time, accumulate debt, and then have to re-learn how to do it right.

    Great post, as usual. You’ve inspired me to document my own path to debt freedom.

  46. Michele says:

    I completely agree with the poster who mentioned backsliding. Twice now I’ve watched my scrimping and saving dissolve into dust after a layoff.

  47. sai says:


    The conceptual framework of the three stages of personal finance is excellent. When reading, it instantly makes the reader slot himself in his current stage and then think of the next level to aim for.

    I’ve become conscious about my finances four years back and am now, probably at the second stage.In the inital days, I concentrated on educating myself but didn’t involve my spouse in the learning process. My present challenge is to get her to learn these concepts so that she can appreciate my efforts in the direction of financial independence better.
    And thank you for the excellent blog. It really helps people like me to aspire to reach the third stage.

  48. Ben says:

    J.D., I think you should write a post on how exactly you and Kris handle your finances together and the pros and cons. When I saw above that Kris loaned you money and you payed it back, it sounded weird because my parents always used the “combined” money model. Anyway it sounds interesting and probably lets each of you feel a little more independent in your finances.

  49. Sundance says:

    Still hoping for advice from other parents on how to pay off debt with kids in the house. I’d like to add that the expenses we’re incurring are not extravagant and we’re encouraging them to get summer jobs, etc. We do not over-indulge our kids. As a matter of fact, my 16 year old cracked up one of his teachers lately explaining the woes of being the only one without a cell phone. He said, “My family is practically Amish!” 🙂

  50. Tyler Karaszewski says:

    I agree with Ben that accepting a loan from your wife and paying her back sounds strange. It’s just not the way my marriage works. In general, I pay for everything in the house. I’m in charge of earning the money and paying all the bills. My wife does work though, part time, and covers a few things herself. The biggest is a student loan she still owes some money on, but she also pays for her own gas, and her own cell phone bill, and for her clothes and such.

    If I were to get into a situation such that I needed money and didn’t have it, but my wife did, It’d be given to me without hesitation, with no expectation of repayment. However, there’d have to have been some reason that we got into that sort of a predicament in the first place, and that would warrant some serious conversation.

    She lets me spend any money above and beyond what we need to cover all the household expenses pretty freely, but there’d be a problem if I couldn’t make the rent payment, and came to her for help, if the reason I couldn’t make the payment was something like, “I spent the money that was supposed to go toward rent on comic books.”

    I’m certainly not trying to be judgmental or anything, I’m just pointing out that your marriage seems far more decoupled than mine, from a financial perspective.

  51. Charlotte says:

    Lizz #18

    What an inspiring story!

    Ben, Tyler:

    How JD and Kris manage their finances has always been strange to me. In my marriage, there are some financial stuff we manage separately, each one has money for free spending etc but at the end of the day, our principle is “your money is my money”. We like this method because we keep each other accountable but at the same time, have independent money management. We also have an approved joint budget. How about if one spouse loses his/her income? Would he/she have to borrow money from the other person? What about retirement? If one person did not save for retirement, is he/she going to be poor while the other enjoys life?

  52. Charlotte says:

    …and no judgement either. As JD says, “do wat works for you”…

  53. liz says:

    OOOH! As someone who is currently in a 1.5 stage I’d say (I’ve got a great consolidation loan, and have an emerg fund starting, am downsizing my apt to something a bit more frugal, etc)… I’d love to hear about other people’s strategies for decluttering – ie getting rid of *stuff*… I don’t have a lot, but I’ve got books/ CDs/ clothes, etc that i’d like to pitch, but I’d like to get the most out of so I can put it towards debt…

  54. Anelly says:

    Is so difficult even to get into first level and to understanding compound interest, reducing debt and beginning to save.

  55. Michelle says:

    Ramble on! I am learning a lot!!!! 🙂

  56. Holly says:

    Comment for Sundance (as well as GRS readers): YES, kids are real budget-busters. I know that w/my husband’s 105,000 salary, we should have a LOT more saved, but with 15,000+ annually for private, Catholic education for our 3 kids (the public schools here are HORRIBLE-only 60-70% even graduate!, we’re constantly swimming against the tide. Also, we put $700+/mo. in a deferred retirement account but if we have 3 more weeks of these declines in the market, we will be eating into our initial capital. Not to mention that my husband will lose $12,000 from his gross pay this year due to the strain on our economy BYE-BYE $$! But it’s only money, so just keep a smile on your face, thank God for your wonderful gifts (children, health, family, & friends) and pray for contentment. 🙂

  57. Murphdognyc says:

    JD – Thank you for all of your great posts. I’ve been a GRL reader for a few months now and I often think you and I could have been seperated at birth. I have many of the same financial bad habits you’ve had.
    I’m working through mine and would say I’m finally in First Stage but spent most of my years in Zeroth Stage.

    I’ve worked to get my emergency fund set up (from Total Money Makeover). A close friend’s mom passed away this week and because of finally having some savings I was able to buy an airline ticket, rent a car and a hotel room for the weekend. If I hadn’t saved for an unexpected event I wouldn’t have been there for one of my closest friends.

    I will work twice as hard to replinish the savings I just spent but I learned what having cash on hand will allow me to do. As Suze Orman says “People first, then money, then things.”

  58. gfe--gluten free easily says:

    These are the kinds of posts you write that I like the best. I don’t know that I could be as open to the world as you are. I look forward to this continuing discussion.

    My husband and I have the combined money system, with one exception. He has a savings account of his own that he funds from work he does in addition to his 40-hr per week job, selling firewood and laying hardwood floors. That is his “play” money and he uses it mostly to fund scuba diving excursions without affecting the family budget. Sometimes some of his money gets donated to the family funds just as a boost. Sometimes I’ve borrowed money from him for sudden family emergencies (on a weekend or something), but I always repay him/his fund. No interest or anything. This method works well for us. I think that’s the key … what works best for the couple or family.


  59. DanL says:

    I’m interested to see at what stage you think the “Ah-ha!” moment would come. For me, it came after I set up a monthly budget and tracked it for a couple of months. The first month I was able to excuse certain behavors, but if it continues to a second month, there is no denying a problem!

  60. Paul says:

    Previously: “Now, instead of hoarding stuff, like comic books and DVDs, you’re hoarding cash. Are you still trying to fill “some emotional void?”

    I’d say “Hoarding” money (saving) is not done to fill an emotional void in the negative sense, it’s done to fill an emotional (and potentially physical) void in the positive sense.

    Many more people are likely to lose their jobs. Many more people are likely to lose their houses. The Dow is likely to go below 5,000 before this is over (with occasional bear market rallies that will make people think that maybe new deficit spending in the trillions is a good idea).

    Savings can be used to keep body and soul together as things get worse.

    Keep saving!!! (Even if some call it “hoarding” and denigrate that which they apparently don’t understand.)

    And if you are a fiscally conservative saver, write to the President, your Senators, and Congresspeople to urge them back to fiscal sanity. The only ones they appear to be hearing from are those who have their hands out for bailout money. Let them hear from those who DON’T want new trillion-dollar deficits starting under President Obama.

  61. Amy says:

    Love the idea of this post! I’m looking forward to hearing more of your thoughts. I think the stages idea is a good one. I further think what’s going to make it interesting is when you delve into ‘what’ makes people start or exit a stage and ‘why’ at that particular time they did it. The action or ah-ha moments inbetween the set stages, those are going to be the inspiring stories GRS is known for! The set point where people commit to start a stage, or aim higher by leaving one stage for the next, I hope that you can start by sharing yours, JD, and I hope that others care to share theirs! Thanks for writing this blog. I check it more regularly than the news now 🙂

  62. DDFD at DivorcedDadFrugalDad says:

    Sounds like you had what I call the “A-ha, I get it!” moment.

    For some of us it comes later than for others. Thankfully– it came in time for you and for me.

  63. writer88 says:

    Hi everybody –
    For me, the “a-ha” moment as a zeroist was a comment by Louise Hay in one of her books (I think it was “The Power is In You”). She asked, “what are you getting out of being in debt? What is the benefit?” I was stunned by her question…I mean wasn’t it obvious? I was “in” debt so how could I “get” anything? Especially a “benefit”! When I finished snickering I started to seriously ponder her question. Then it hit me: There WAS a benefit to my being in debt. Debt enabled me to pretend I didn’t have power and responsibility over my choices. Debt made me think in terms of scarcity instead of in terms of abundance. For someone who thinks “scarcity”, sudden “abundance” can be a scary thing. That’s why so many broke people who win the lottery return to being broke soon afterwards. It’s scary living a life of abundance

  64. chacha1 says:

    @ Kerry no. 35: sweetie, I hate to be a downer but please do not marry this guy yet. He is not ready. From what you write, you are acting as his parent, and he is not acting like your partner.
    Best financial advice I can give you from long years of trying to carry a partner: DON’T DO IT. You are doing an awesome job of managing your own life, but it is HIS job to manage HIS life. You cannot live for (or support) both of you, especially if you want to have kids in the short term (5 years is short. Your guy will barely be done with school by then – if he finishes – which may be doubtful if you had to convince him to enroll).
    You love him, so keep doing what you’re doing, but please do NOT create a situation where HIS lack of financial responsibility could lead to YOUR bankruptcy.

  65. chacha1 says:

    sorry, that was Kerry 34. fell all over myself there.

  66. Greg says:

    Check out the Stages of Change model, detailed in the book Changing for Good by Prochaska, Norcross and DiClements (Morrow 1994) The stage you’re describing they would call “precontemplation”, where one indulges in “foolish freedom” and one’s behavior is more obviously problematic to others than it is to oneself. They describe strategies that can be useful in helping folks move along to the stages in which meaningful change can be accomplished. It’s a model that’s applicable to a variety of difficulties, well researched and useful.

  67. Jen, of the Seattle Jens says:

    Tyler –

    From what you wrote about you and your wife’s money management, you seem to assume the wife’s income is optional? So his income is the “real income”, and hers is “extra”?

    It’s certainly possible to have one common pot for a marriage. It’s also possible to keep them more separate. My husband and I do pool our money, but it’s made a bit more complicated because I usually make 3 or 4 times what he does…if anything he’s afraid of spending much on himself because he feels it’s not “his”.

  68. Joy says:

    I think I started out in the second stage and have repeatedly dipped into some other stage that might look from the outside like the “zeroith” but which from the inside is something else entirely…

    Sometimes the choices aren’t “do I buy this thing I think I want” or “pay down debt and save for something better.” For me they’ve been more like “stay home with my sick baby or keep my ‘good job'”

    At times I’ve spent on credit, knowing that it was going to cost me big time later, but feeling it was for a higher purpose – “hold onto the house that is appreciating or end up losing it, destroying my credit, and trying to find rent as cheap…”

    These choices have actually worked out for me in the past…. I’ve gone as far as bankruptcy, and I’ve also repaid tens of thousands of dollars in debt.

    Right now my net worth is up… I’ve got liquid savings, investments, and no debt aside from my mortgage. I’ve read the books, learned the concepts, know how to run the numbers, yet I know that I’d take my life over my money every time.

    I don’t know how that fits in with your stages. Got one for me? Or is this actually that zeroith stage masked with complex rationalization?

  69. DJS says:

    I was a zero when my husband was a 2.5. We maintain separate checking/saving accounts and separate credit cards, tied to each of our credit unions. While he was piling up money in his saving account, I was running up credit card debt for clothing, books, fun stuff, etc. I was not extravagant in any single purchase, but I bought too many “bargains” I didn’t need–and they added up. And although I never had a problem meeting payments, I wasn’t reducing my debt. Then one day, my husband asked me how much I owed on my credit cards. I actually didn’t know, to my embarrassment. But when I totaled it and told him (it was about $12,000), the look on his face–total dismay–was the emotional event that turned my financial life around. He helped bail me out by contributing money to my pumped-up monthly payments. With his help, I was able to pay everything off within about 18 months. That was a few years ago. Now, I have a good emergency fund, pay off my credit card balance every month (I use it only at the gas pump and for online purchases) and put about 15% of my income into my 401k. Even as my 401k plummets in value, I feel good about my finances–finally.

  70. AnnieJ says:

    I would encourage you to add some kind of “Big Picture” stage and also something about keeping your “Personal Balance Sheet” in mind.

    By “Big Picture” I mean the country’s and the world’s political and economic trends. My husband and I believed that the house market in California was unsustainable. We sold, banked the money, and moved to a less expensive area. It is now pretty certain that fuel will be going up and with the enormous debt our country is taking on, inflation and higher interest rates are in our future. A fixed rate mortgage is important and don’t get money locked into low rates for too long.

    The “Big Picture” also means look at the income side of your plans as well as the expense side. Consider buying a rental property for future income. Keep it in excellent shape so that you don’t have huge expenses coming down the pike and so that you can be proud of what your tenants get for their rent.

    By “Personal Balance Sheet” I mean make decisions about capital expenditures differently from cash flow expenditures. In my book, spending money on good insulation trumps lowering the thermostat (though, of course you can do both). Insulation raises the value of your property and saves money on heat. Doing quality upkeep on your home and on any other properties you own will pay off in the long run, with higher property values and fewer headaches. (Notice that I say “quality” not luxury. You’re going to be stuck with a granite countertop long after you’re sick of it, but can change a laminate inexpensively and use the old laminate for in the basement or garage.)

    A personal balance sheet will help you to have a long view so that you feel that you are moving ahead even when you are choosing the basic model of a good car rather than the luxury model.

  71. Dana says:

    @Lizz – I enjoyed reading your story. You should consider keeping one of the fiscal fitness journals in the forums here! Congrats on figuring things out early.

    @ People with kids – I don’t have kids (hope to someday), but I grew up in a family where we were three children in 4.5 years. I know my parents stressed about money, and they did things for us that in retrospect I don’t think they should have (ie: paying for the insurance on our cars, not making us save part of our income for college).

    But one thing that I think they had right was expecting us to have a part time job (full time in summer) and still maintain superior grades at school. Once we hit the age where we could work they no longer bought us anything like clothes, shoes, gas, movies, entertainment, etc. All through highschool I worked 2-3 jobs at a time and I think it provided me with the knowledge that my time is worth money, and it also taught me a work ethic and time management. Working at Wendy’s and Walmart really puts in perspective why you should work hard to do well in college, and also how lucky you have it if you’re able to go to college!

    I wish I had saved more of the money I made back then, but I notice now that the friends of mine who had parents who refused to let them work in high school and college (afraid it would interfere with their studies) went through the stage of spending recklessly with no thought for savings after getting out of college (most are still in that stage…). While I spent my meager $4000/yr income in highschool with abandon, it didn’t really harm me too much in the long run, but I have friends who make more than $50k/yr who can barely make ends meet, yet continue to live a lavish life style and wonder why they can’t get out of debt.

    I think it was better for me in the long run to go through that zeroeth stage in highschool than to be in it in my mid-twenties like most of my peers are.

  72. Allan says:

    I think it’s important to emphasize that not everyone goes through all of these stages and not necessarily in a 0,1,2,3,4 order. I can’t really see any points in my life where I could definitively say “I was in stage 1, but now I’m in 2.”

    I’ve understood the general concept of compound interest ever since whenever they taught that in school. I’ve had a credit card since high school that I’ve paid off fully every month. I just graduated from college a couple of years ago, so I never really had much of an income/opportunity to save previously. Within 1.5 years of graduating, I paid off my 10 year student loan, and since last fall I’ve been saving for my retirement (maxed out 2008 roth and almost done with 2009).

    Throughout all of this, there hasn’t ever really been a change in how I think about money — there have only been changes in my situation and the opportunities available to me. In high school I spent however much money I had. When I was in college with no money, I took out loans. As soon as I was making money, I paid the loans off as quickly as possible. Once that was done, I used the extra money to start saving for retirement. Now that I feel I’m doing well on that front, I’m looking into saving for/buying a house.

    I’ve never made any really long-term goals, I’ve always just tried to be responsible with money and use it as best I can depending on my current situation. In a year, I hope to own a house, continue to have no non-mortgage debt, and to save about 25% of my salary for retirement. To me it sounds like I’ll be ready for your third stage, but I can’t really see any transitions in my past that changed my thinking about money.

    So I guess my basic point is that I’m not sure everyone falls into the stages you’ve laid out. For someone starting in stage 0, I can see how the stages could be a valuable tool to assess their personal progress. But as you continue to develop your theory, I’d recommend being careful to explain where and when your ideas do or don’t apply.

  73. La BellaDonna says:

    Kerry@34, I was the primary earner in our family. I didn’t start out that way, but I sure wound up spending most of my life that way. Your husband is NOT ready to be a parent. He may or may not be ready to be a parent in five years; he sure isn’t ready to be one now. He doesn’t seem to be a fully participating partner now. You are working three jobs, he’s working one and going to school – and YOU had to “convince” him to go! It doesn’t sound as if he’s ready to be a fully participating partner, much less a parent. Take it from me – being the one who works three and four jobs while your partner says “Yeah, I read what you sent,” and then continues to indulge himself can get really old. It can also break a marriage – especially when you stop and think, What, we save $10 a MONTH here and there to have a child, but he can spend $7 in a DAY for breakfast at McDonald’s?? How is this balanced? It sounds as if you’ve absorbed JD’s message and you’re asking how you can convince your fiance to save more. If someone were to present these facts to me and say she was planning to marry this guy soon, I would tell her what I learned: love, by itself, is not enough to keep a marriage together.

  74. LeAnna says:

    I suppose I’m in the first stage…which is kinda sad, considering how long ago it was that I read Your Money or Your Life! (like three years?) But I think my course in life has fundamentally changed, and while I’m at a stage in my life that is pretty typically dominated by debt in the form of student loans and a mortgage, I doubt I’ll ever be in worse financial shape. I have a financial cushion and such, and I’m just now starting to really take saving seriously with a good rewards checking account. I pay myself first, but not as much as I probably could, and with everything that’s left I don’t pay much attention to where it goes. Not a compulsive shopper, I only get what I need and then I get it from cheap sources or on sale, but I haven’t been paying attention to my cashflow so I keep getting late fees, etc. Not good at all, but I haven’t figured out how to make time to balance everything…it feels like such a HUGE thing to start right now…so I’m definitely operating under the voodoo money management system. 😉 So maybe I’m actually at the .5 stage?

    BTW, I’m a new reader, and your blog ROCKS.

  75. bo says:

    JD, Look, my very first comment!!!
    Here is the way I see the stages…
    Stage #1: You are paying everyone else.
    Stage #2: You are paying yourself.
    I’ve always understood where I wanted to go and how to get there, but I always TALKED a big game, and didn’t really walk it. Then one day I realized that every penny I spent that wasn’t part of my plan, was just an impediment to me quitting my job and spending time with my family. Now, I understand that stuff is just stuff, and I know I don’t really need it.

  76. Matt says:

    I’m good with stage 0 and I’m good with stage 1 but for me stage 2 is too broad. I don’t see getting out of stage 2 until my kids are grown and gone. Yet your remarks for stage 3 would indicate I’m in stage 3 because I’d like to think I’ve mastered the fundamentals, every day I ask why, yet I know why I continue to save and yes, all debts are paid.

    Currently 39 and always been debt free except the house I’m about to take advantage of the current housing market to upgrade my 3 bedroom, 1 bath, 1400 sq ft house. When I bought it 11 years ago I wasn’t married and had no children. Now with a wife, 3 girls and a boy (all 6 and under) I need to think about bathroom space and other quality of life issues looming. I invest 8% for retirement (I recently decided to cut back from 15% because I got a really good start at age 23 and I need the extra money for a house payment), give 10% to charitable causes and currently under fund college. So here I am just a few years from paying off the house and about to get into another 15 year mortgage commitment. UGH! Ahead of me are the teen years, college bills, weddings, etc. I look forward to every moment! I consider all of this stage 2.
    Once my wife returns to work (after the kids are in school) we will use her income to start saving for things like the vacation home, the ski boat, weddings and even putting more into college and retirement. While some or all of these may fall into stage 3 I consider myself to still be in stage 2.

  77. M.K. says:

    This is a great idea – I think understanding which stage a person is currently at for money management really helps you to take control of your finances. I think I’m just coming out of the “fumbling in the dark” stage that you describe. I’m living a little bit more frugally, but I don’t exactly have a set budget each month yet, but I’ve paid down my debt and am trying to manage my expenses better by cutting down on unnecessary expenses.

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