Earning more without burning more

Because women sometimes lead a double life when it comes to money. Rather than computing their raises as simple financial additions, both women used the extra cash to enjoy a taste of affluence, a sense of freedom ("It's nice to eat out and not have to worry whether we can afford it," Stephanie says) and the illusion -- or secret hope? -- that maybe now their money issues won't require constant vigilance.

Rescue fantasies

I've written a lot about financial denial and the desire some people have to be rescued -- by a windfall or by Prince Charming. Stephanie, however, speculates that the real financial pitfall is that people want to play out their Trump-like fantasies.

"We're the TV generation," she says. "You see a nobody go on 'The Bachelor' or whatever, and you think that if you're in South Beach or getting the eyelash extensions just like Paris Hilton -- if you create this persona, somehow it will come back to you."

Stephanie admits that, as practical as she knows she can be, she finds it hard to resist the pull of Keeping Up, Living Well and Looking Good.

"You think: 'I want this' and you lock your rationality in a drawer. You don't think you owe taxes, or have to pay your holiday bills. You just think, Suzy down the street bought a diamond ring or a dog, and I just want a pair of pants -- and is that so wrong?"

Lyndsey's peer pressure

Lyndsey also sees a certain lack of financial reality among her friends. "Everyone makes a lot, and they spend a lot," she says. Given that they're all in their 20s, nobody talks about financial goals or what's affordable. An "anything goes" attitude prevails.

And Lyndsey finds it difficult to not behave according to those unspoken expectations. "If my girlfriends want to eat at an expensive restaurant, I'm there," she says.

As far back as high school, Lyndsey remembers wanting to shop where her friends shopped, "wanting to be up on the latest styles and all that stuff."

And, as Jerry Seinfeld would say, there's nothing wrong with wanting to belong, to have nice things or enjoy financial comfort.

But as I pointed out to Stephanie and Lyndsey (and myself, since I can always use a little reminding) -- when you try to invest in a fantasy, ultimately your reality is what suffers.

Some solutions

To use her raise more wisely, Lyndsey agreed to double the payment on her highest-interest credit card to $200 from $100 a month -- and pay off the $869 balance in five months.

• Meanwhile, she decided to commit to paying $500 every month, regularly, toward the rest of her debt (about $10,000 on two cards).

• She plans to open an ING Direct savings account and have $55 automatically transferred twice a month.

• And she's going to increase her retirement contributions to 6% from 4%, to get the full company match.

Stephanie has three priorities:

• Pay off her car loan as soon as possible: At a monthly payment of $300, which carries 5.9% interest, it will take her 39 months to pay off the $10,500 loan. By increasing her payment to $450, she'll have it paid off in just over two years.

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• Increase her long-term savings: I pointed out that since she and her husband quickly came up with $200 each for the past two months to pay off that IRS bill, they clearly can save much more cash than they have. So Stephanie agreed to double her savings from $50 to $100 per month -- a good start.

• Set aside additional money for a wardrobe more in line with her new managerial status (i.e. short-term savings): She will sock away $100 a month to spend on wardrobe upgrades. This has the double advantage of preventing unplanned splurges and, once her work uniform is up to snuff, she can add that amount to her total savings.

The beauty of being financially rational isn't just the peace of mind you achieve. By treating money like money, you're more likely to get closer to your financial fantasies than you thought.

Updated May 2, 2008

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