5 financial fibs - and how to come clean in 2011

Washington Post Staff Writer
Saturday, December 25, 2010; 9:09 PM

One of my favorite movie quotes comes from "A Few Good Men," when Jack Nicholson, playing a Marine colonel, shouts, "You can't handle the truth."

And when it comes to money, people often fail at keeping their New Year's resolutions because they don't honestly assess their financial situation.

I was answering listener questions recently on "The Audrey Chapman Show" on Washington's WHUR (96.3 FM) when two callers found themselves caught in some money untruths.

I asked the first caller whether she had a budget. She paused and then gave a hesitant yes. But when you get a brief silence or a pause followed by an "um" or "uh," it can indicate that the truth may be otherwise.

Experience told me to press her. Turns out, the woman didn't have a budget. She was, however, trying to pay off debt. Budgeting will help you identify expenses you can cut and, as a result, the savings you'll need to devote to reducing your debt.

Another caller was fretting because she couldn't keep up with her bills and was losing hope. She earned a good salary. She said she had cut out every possible luxury - cellphone, cable, dining out. Then I asked her what percentage of her monthly take-home pay was going toward her mortgage (many experts suggest it should be no more than 36 percent).

She quickly answered 30 percent.

But something didn't add up. If her expenses were low and she didn't have any debt except her mortgage, then why was she still broke?

I asked again. "Are you sure your mortgage is just 30 percent of your take-home pay?"

She confidently answered yes again. But with additional probing, I found out she had lost the part-time income that was used to help her qualify for the mortgage.

I pointed out that if her income had dropped, then the percentage of her current pay going toward the monthly mortgage couldn't still be 30 percent. It was obvious to me that the woman wanted to cling to the belief that she could still afford her house. By facing the reality, she could put more effort into finding another part-time job, take in a boarder or move to a more affordable home or apartment.

Here are five of my favorite financial fibs:

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