3 steps to fix your finances for good

By MP Dunleavey

Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the ongoing quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money.

So why is it that some people are able to triumph over their financial setbacks and achieve sanity and serenity where money is concerned while others are not?

I'm preoccupied by this question because of what two of the Women in Red went through this year.

Lyndsey and Stephanie, both founding members of the Women in Red, seemed so alike when they first joined about three years ago.

Both were in their mid- to late 20s, both were young professional women living in high-cost urban areas, and both were carrying quite a bit of debt. Lyndsey had about $12,000 in credit card debt when she joined; Stephanie was struggling with a daunting $29,000 in cards, car loans and student loans.

Given their high spirits and the fact that they both seemed to be getting raises and promotions every time I turned around, I assumed they would make steady progress and become dazzling examples of the Women in Red's power to vanquish debt.

2 different endings

That's not what happened. Stephanie plowed ahead and paid down more than half of her debt before proudly joining our first graduating class of 2007.

To my consternation, Lyndsey stalled.

Despite a total income bump of some $20,000 during her tenure, Lyndsey's debt remained the same. She acknowledged her shopping habit, her closet full of clothes -- some with the tags still on (a shopaholic's red flag). She vowed to make better progress.

Somehow, it never happened. More than disappointed, I was baffled.

During our final heart-to-heart this summer, Lyndsey decided to withdraw from the Women in Red. I supported her decision. Something wasn't right.

In that conversation, she told me she was starting a new job, with an even higher salary -- to match her even higher debt, which now totaled about $14,000. Then the strangest confession of all: Because of her new commute, she said, she had bought a car.

No, not a Honda. Or a Saturn. A Mercedes. She took out a $30,000 loan to buy a used Mercedes. She told me what her monthly car payments were, but I think I fainted dead away and didn't catch it.

Searching for insight

The lesson is clear: Here at WIR headquarters, we need a deeper, more scientific understanding of what enables people to make a serious financial transformation, which requires changing deep-seated attitudes and behaviors.

One of the most confusing things about money and how we humans handle it is that financial decisions don't revolve around dollars and cents alone.

Why, why, why did you do that? I've asked myself that question a thousand times if I've asked it once. In fact, my husband asked it just last week, when I bought a cute l'il red L.L. Bean coat that was finally on sale.

"You already HAVE a coat," my husband said. "If you're going to splurge, why not get something you don't have?"

"I don't have a red coat," I pointed out. Duh.

This just shows that despite many years writing nonstop about personal finance, I, too, am capable of being irrational. The good news, sort of, is that there seems to be a biological basis for getting your financial wires crossed.

Continued: Money and your brain

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