Facing the reality of your finances

Jul 6, 2010 at 5:16 a.m. ET

Some people believe that you are either wired to understand your finances or you're not. This common misconception convinces many women to completely ignore their financial realities either because they feel incapable of doing so, or because living in a fantasy is easier than tackling the truth. The delicate nature of our economy makes exerting control over your household budget increasingly important, however. For many of us, the first step is simply facing the truth, which is often easier said than done.

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1From denial to participation

When you don't understand your finances, it may seem like a good idea to ignore them. According to Jackie Weitzberg, a certified financial planner in San Diego, California, "Managing your finances can be daunting. Who wants to see that they don't have enough money for the things they want?" You shouldn't have to hit rock bottom to take control of your money. Use our faltering economy as motivation to participate in your finances.

2The business of YOU

Weitzberg encourages her clients to treat their finances like a business. "Any funds left over at the end of the month are profit. These funds can be reinvested in you or saved for access later." Just like a business, you have to analyze your input and output to gauge your success. If a business owner ignores this number, the business fails. If you ignore this number, your finances may meet the same fate.

3Behave yourself

Richard Reyes, a certified financial planner from Maitland, Florida, says, "Becoming financially wise is not rocket science, nor does it require extensive study or even a great understanding of markets or investments." So, what does it take? "It's all about behavior," he says. "It's about understanding the basic formula that you live on less than your income. That is it!"

4Fact over fiction

According to Michael J. Guarino III, financial advisor with Guarino Wealth Management in Denville, New Jersey, "Many people ignore their finances hoping to eliminate stress in their lives." Ignorance usually yields just the opposite result, though. Chances are, you will not win the lottery and your parents are not sitting on a secret inheritance, so it's crucial to face your financial facts. "Deep down, most people know they need to be on budgets," says Guarino. "I have to tell a lot of clients that they can't continue with the lifestyles they are accustomed to if they want to retire in their sixties."

5Where to start

Once you've acknowledged that you need a financial makeover, deciding what to do first can be difficult. Neil Palache, certified women's money coach in Westlake Village, California, says, "Once you've faced reality, you have to decide whether you're going to decrease spending or increase income." Of course, this is a choice nobody wants to make, but once you've reviewed your spending habits over the past three months to a year, you'll start to see a financial pattern.

6Believe in yourself

Facing reality often means taking a huge hit to the ego. Realizing what a mess you've made of your finances can make you feel completely inept when it comes to money. Mourn the past and then get over it. To turn things around, you'll need to muster the confidence to do so successfully. Pam Krueger, investing expert and television personality, says, "Women make great money managers. In fact, twice as many women are in charge of budgeting, spending and planning their household finances." The bottom line is, you can do it!

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