Introduction

Welcome toThe Motley Fool Personal Finance Workbook.It may not look very high tech, but what you have in your hands is a streamlined financial Global Positioning System. Snazzy. It'll tell you where you stand right now, and it'll help you find where you want to be. And it comes without the mess of instruction manuals you can't figure out.

In these pages, we'll explore as many ways that money touches your life as we can -- from saving and spending to insurance, retirement, taxes, and big purchases. At every turn you'll get step-by-step directions to help you make the best decisions every day, week, month, and year. No matter who you are, what you earn, what you own, what you owe, or what you drive, a sound financial GPS -- you know, Global Positioning System -- can help you find the most direct path to your goals.

B-o-o-o-o-R-I-N-G.

We hear ya. The topic of money management is rife with dry how-to textbooks, mountainous budgeting spreadsheets, and countless unsolicited lectures, letters, and e-mails from lenders, bankers, brokers, newscasters, mothers, and dental hygienists. It's just no fun.

That's why we've hidden crisp five-dollar bills throughout the pages of this workbook to entice you to press on.

Go ahead, look.

Okay, welcome back.

As you can see, we haven't hiddenactualcurrency in these pages. (So, yes, please put the other Fool Workbooks neatly back on the bookstore shelf and apologize to that toddler for shoving her stroller.) What youwillfind here is an easy and fun guide to managing your money. If you implement just a few of the suggestions you read here, you'll save hundreds of dollars over the course of a few months. That we guarantee. (And sorry about pulling that five-dollar-bill stunt. We hope that there's far more in this book for you.)

So there you have it -- a guarantee that you'll save a bucket of money by using this book. But we still feel cheap,realcheap, relying on that gimmick to win you over. So try this on for size: What would it be like to know that you made the very best decision for every dollar you spent or saved? Can you imagine looking forward to balancing your budget at the beginning of next month? Wouldn't it be great to listen to a pro's advice and know whether or not it was right for your situation? What would it feel like to have in your hands a financial plan that would serve you for life?

Now we're talkin'!

So how can a bunch ofFoolshelp you achieve all that?

Fools and their money, the long-running joke holds, are soon parted. Believe you and us, we're going to find out who started that vicious rumor and make them pay. Demons! Scoundrels! Nothing could be further from the truth. In Elizabethan times, the Fool was the only one who could tell the truth in the royal court without having his head severed. Look it up in Shakespeare. When the King's Wise men gave him bad, self-serving counsel, in stepped the clever Fool, the honest Fool, The Motley Fool. He (or she; therewerefemale Fools) would set the record straight...while juggling flaming batons and generally making a ruckus.

We Fools are on hand to caution people not to overpay for insurance or stock trades. We're quick to point out which mutual fund is the best choice in a 401(k) plan. Some of us Fools even know what the "k" in 401(k) stands for! (It's the section of the tax code in which it resides, for the two of you who're curious.) We feel that the best person to manage your finances is, well, you! There are no conflicts of interest there. We do acknowledge the occasional need to call in an honest and good professional. Aha, but that in itself reflects your management decision. We believe we can help you sort through the charlatans who would sell you investment products and plans based on commissions.

Most of all, we love to share commonsense money management tidbits while, we hope, having a bit of fun along the way. So thank you for choosing to tackle your money matters with us and for politely laughing, even when Tom's jokes fall flat.

HOW TO DRIVE THIS WORKBOOK

With each page you turn, we'll toss another moneymaking/money-saving tool into your bag of tricks. Rest assured, this isn't a typical workbook. We actively encourage cheating! In fact, we'll give you as many answers as we can.

Now, we know how hectic twenty-first-century life is. So we're doing our level best to meet you on your terms. Each topic in the book is broken out into bits so that you can take frequent breaks to check on the ball game, keep an eye on your kids, play a game of Ping Pong, or just check on your microwave popcorn (do you burn the stuff as often as we do?) without losing your place.

You won't be graded on anything. And we promise not to humiliate you if you fill in a wrong answer.

Time is money, and we know that your time is priceless, or something near to it. Out of tens of thousands of years of human history, you'll get only a few decades around here. So we want to get you through this stuff efficiently. To help whisk you through, we kick off every chapter with a sixty-second overview. Use it to identify the main steps to mastering the given topic.

Then we go deep (well, deeper) by making lists, gathering some papers, crunching a few numbers (nothing harder than grade school math), and drawing turkeys (yep, you just might have to do that). Then at the end of each chapter we offer a ten-point refresher -- your financial crib sheet.

As you progress, you'll be building a comprehensive savings and spending plan that, with minimal updating, you can use for years hence. We call it "The Global Master Asset Tracker T-4300 (Version XI.3)." Please fill it out in triplicate before you begin Chapter 1.

KIDDING!

Wearegoing to build a comprehensive savings and spending plan. But you'll complete it bit by bit. Since we couldn't come up with a better name, we're calling it the "Bit-by-Bit Budget Kit." Too bad we couldn't afford marketers at The Motley Fool. Regardless of the name, you'll be amazed at how much information you've amassed after just a few chapters without significant pain.

Go ahead and flip through a few pages to get a sense of what we're describing. We'll wait. And please know that we won't fault you for choosing to focus on particular sections now, leaving the rest for later. For instance, if you just want to save a few thousand bucks buying a car or want to be sure you're getting the right house, you can jump ahead to those chapters. The remainder of this book will always be there waiting for you.

WHAT'S AHEAD

Great, you're back!

Before we get started, let's get a bird's-eye view of the oncoming chapters.

• First we'll take a look at how you handle money and set some priorities to help guide your financial decisions.

• Next we'll get a clear picture of the state of your finances by taking a quick inventory. Based on that, you'll begin setting financial goals.

• We'll also attack the big bad "B" word -- budget. Don't worry, we're going to make this as painless as possible. The "B" word is not a four-letter word. Budgeting isn't so bad when you realize that what you save now can make life in the future pretty sweet.

• The only thing less palatable than budgeting is facing debt. We'll tackle it head-on with a surefire system to help you pay it down and avoid it in the future.

• Then onto a sunnier topic: making your money grow by developing a basic long-term and short-term investing plan that lets you sleep well at night.

• Next, time to daydream. You'll map out your dream retirement and make sure that everything's in place for you to achieve it.

• And finally, because life happens, we've included a chapter about adjusting your Global Master Asset Tracker T-4300 (Version XI.3), er, we mean your Bit-by-Bit Budget, to account for major and minor life events.

Don't worry, we've also included chapters on hiring professional advisers, making big purchases, such as homes, cars, college, and RVs, getting insurance, and -- the most riveting topic of all -- taxes. We consider it a thrilling challenge, degree of difficulty 10.0, to make tax planning interesting. We also want to remind you once more that if you want to jump to the topics that matter most to you -- perhaps skipping the tax section if your sister does all your returns for you (have her read it) -- that sounds great to us.

One last thing: We can't take full credit for all of the great information you're going to get out of this workbook. As with all of our books, online seminars, and the thousands of articles we've published over the years, we continue to get great ideas -- and jokes -- from the community of Fools who join us every day at Fool.com. There are millions of them -- seriously, we've counted -- who gather at the forum we provide at Fool.com to share ideas and firsthand advice on money issues. Again, we would also like to thank our staff for their wonderful contributions.

This book is just another way for us to learn together -- part motivation, part education, and part chocolaty goodness. We believeThe Motley Fool Personal Finance Workbookwill give you a customized financial plan that'll serve you well for life.

So let's get started.

Chapter 1: Your MoneyandYour Life

SIXTY-SECOND GUIDE TO YOUR MONEYANDYOUR LIFE

Let's kick things off with a one-minute preview of Chapter 1. We have to admit that this first chapter may seem frivolous. But play along with us for a few pages before we get down to business. We need you to figure outwho you arebefore you can really excel at this workbook.

Remember, the next sixty seconds is just an overview of the different projects we'll work on together in the chapter. So here's where we're headed.

0:60 Take time out for self-reflection.

In general, would you call yourself a saver? A spender? A procrastinator? A realist? An avoider? An Abstract Expressionist? Reflect on the past and how you handled financial matters (and how they were handled -- or mishandled -- by the role models in your life).

0:51 Define in concrete terms how your spending matches up with your priorities.

When you make a big purchase, are you able to enjoy the item, or do you feel guilty? Do you spend money on smaller, less meaningful things because you feel you'll never be able to afford the ones you really want?

0:44 Go on a spending spree...in your imagination, that is.

Put that credit card down. Instead, commit to paper your list of goals -- at least, those that will require capital. Don't dwell too much on the details; just write down a mega-master list of things you want to achieve (such as home ownership, a debt-free existence, a trip to China).

0:23 Pick the really important ones.

Scour your mega-master list of goals and pick out the top five that best match up with your priorities. Select only the ones thatreallycount. That's what we'll be working toward in this book.

0:16 Make them real.

Put together a plan to figure what it'll take to achieve those five goals -- what each will cost, when you want them to be completed, and so on. Break each one up into monthly or weekly savings goals and commit them all to paper.

0:03 Celebrate you!

Now bask in the glow of self-knowledge and self-actualization. You've completed the chapter, voilà.

• • •

There's the synopsis. Now let's get started.

KNOW THYSELF

Who are you? And what does that say about the

way you use money? Think about it: Are you the sort who tirelessly searches out the four cents that won't let you balance your checkbook? Or do you believe, against all evidence, that there's money in your account just because there are still checks in your checkbook?

The Greek Oracle at Delphi read, "Know thyself." That's the first step in all good money management. We are all different. We all have unique talents and rare gifts. We all have flaws -- terribly sad but true. The challenge, the great challenge, is to know ourselves and then to adjust our lives accordingly.

As this short lesson pertains to money, we'll be laser-focused in this chapter on how your strengths and weaknesses affect your financial circumstance. Money might not be the root of all evil for you. But it may be a hot button in your relationships (a bubbling cauldron, in some cases). It may be a source of worry. It may be a cause for celebration. Or it may hold the clue to your high blood pressure. (If so, eat more leafy greens, shorten your breathing, get eight hours of rest a night, and get a sound financial plan into place.)

At the very least, the topic of money has probably given you pause during some uncomfortable experiences. Now remember these moments, briefly.

Then proceed.

YOUR INNER FINANCIAL CHILD

Some of youmustbe rolling your eyes.My inner child?Hey, we don't want this to sound like daytime talk television. But before we get to crunching the numbers of your financial future, take a step back, just for a moment, and consider your financial history. The legendary Bob Marley put it right: "Don't know your past, don't know your future."

To get you started, we asked a couple from The Motley Fool Online to share some dark secrets from their past. In their own words, here are four financial discoveries they've made over the years. Consider this a starter list for your own journey:

Discovery 1: The past matters.

Shannon and I grew up very differently. Unfortunately, it took us a while to realize how much this matters in our relationship -- especially when it comes to how we handle money as a couple. When you don't acknowledge the importance of where you come from, it comes back to haunt you in the form of agitation and misunderstanding.

Discovery 2: People react differently to their pasts.

My father worked at Walt Disney World his entire career, and my mom was a homemaker. I never worried that they couldn't pay the bills. Shannon's parents, on the other hand, divorced when he was seven, and his mom was the primary breadwinner. One result is that I'm much more of a short-term thinker in relation to money. I just have faith that everything will work out. Shannon is much more serious and interested in a long-term approach. Ah, how opposites attract.

Discovery 3: Your approach to money matters is as individual as you are.

One tangible result of our different backgrounds is the varying comfort levels we each have with debt and spending. We got married really young and moved to New York City. What does that spell? Trouble -- in the form of serious credit card debt. Because my parents didn't "believe" in debt, I totally freaked out about our credit card balances. I thought we were going to have to hit the streets. Shannon, on the other hand, seemed pretty comfortable with them. It took a while to develop a common language in this area.

Discovery 4: Knowing where you're coming from helps.

Shannon values having a secure retirement plan, whereas I value living our dream lives (the specifics of which change as we mature together). Again, developing a common language and really taking in what your partner needs is more than half the battle.

YOUR RUMINATIONS

Now it's time for your self-reflection. As a warm-up, we present ten questions about money management. Your answers will help set priorities later in this chapter. Be frank. It'sokayif you're not the ideal chief financial officer yet.

1. Do you balance your checkbook? (Circle the appropriate answer.) Yes No

2. Are you a long-term planner? Yes No

3. When was the last time youreallytook a hard look at your finances (meaning more than glancing over your account statements)?

4. On a scale of 1 to 5 (5 being very much), how important are the following?

• Cutting coupons 1 2 3 4 5

• Going to the gas station with the cheapest gas 1 2 3 4 5

• Renting videos instead of going out to the movies 1 2 3 4 5

• Comparison shopping 1 2 3 4 5

5. How much is too much to spend on...

• Going out to dinner? $ _______

• A gift (for a friend, a significant other, children, a pet)? $ _______

• Vacation? $ _______

• A wireless sterling silver ab buster? $ _______

6. If you were to inherit $10,000, would it be most important to:

• Pay off debt

• Buy a new car

• Invest the money

• Take a vacation

• Throw an awesome party for your other relatives so that they, too, can see what an awesome and deserving daughter (granddaughter, nineteenth cousin twice removed) you are

• Other _________________

7. What are a few comforts you wouldn't want yourself or your loved ones to do without?

8. When do you expect to buy your next car? Will it be new or used?

9. What are your top three long-term financial goals?

10. Who shot J.R.?

ALL ABOUT YOU

Now let's get really personal.

What's your ATM PIN?

Kidding.

Here's our legitimate question: From your past, what primarily has affected the way you approach money?

Think about how your family handled financial issues when you were growing up. Reflect on the last time you had to make a big purchase or found yourself even just a bit worried about your financial situation. What do these tell you about yourself?

Now list a few of your own financial self-discoveries. This may sound a bit sappy. But remember, our task right now is to help you understand yourself and how you approach money.

SETTING PRIORITIES

Excellent. You're learning about yourself. You're glowing. Doesn't it feel good to be so self-aware? You can really do this stuff. Stand up from your chair and beam for a minute, Fool. You really are amazing.

While most of that's true, let's face it, you haven't done much yet. Now let's get planning. We need to figure out your priorities. Provide answers to the following questions.

List five uses of your money that have made a significant positive difference in your life.

1. ___________________________

2. ___________________________

3. ___________________________

4. ___________________________

5. ___________________________

List five uses of your money that have added little to your quality of life.

1. ___________________________

2. ___________________________

3. ___________________________

4. ___________________________

5. ___________________________

List five uses of your money that will affect your lifepositivelya decade or more from now.

1. ___________________________

2. ___________________________

3. ___________________________

4. ___________________________

5. ___________________________

List five uses of your money that will affect your lifenegativelya decade or more from now.

1. ___________________________

2. ___________________________

3. ___________________________

4. ___________________________

5. ___________________________

Kinda interesting, no? We don't often take the time toreallythink about the role money plays in our lives, beyond putting a roof over our heads and funding the purchase of a polka CD collection without rival (speak for yourself on that one).

As you look over what you jotted down, you'll begin to get a sense of where you'd like to redirect your money.

SETTING GOALS

Having set your priorities, you now need to form some goals. Making the above dreams a reality is the mission of this book.

BIG GOALS

Setting major goals and priorities means identifying the one or two things you really want to strive for -- things that keep you excited and motivated. The best goals are the ones that you love so much that the steps required to achieve them become easier. It turns into a game. So when you delay buying a new car, instead of thinking, "My Yugo is the oldest one on the block!" you think, "By driving this old carriage for a few more years, we'll be able to afford a down payment on that cabin in the mountains."

BABY STEPS

Being able to achieve a lofty goal such as a new house or a wedding or a beveled-edge Corian countertop won't happen overnight. It requires smaller tactics that help you save money for your monster goal. The best tactics are:

1.Specific:Define exactly what you're going to do differently. For example: "I will increase my 401(k) participation from 5 percent to 10 percent of my salary per year to save for retirement faster." Or "I will limit shoe shopping to one pair every two months," rather than just "I will buy fewer shoes."

2.Realistic:You know yourself. You know what spending patterns are "must haves" versus "nice to haves." We won't ask you to deny yourself every new polka band release, if that's what makes you happy. Instead, we'll acknowledge the realities of temptation and have you allocate a certain amount of money to spend on your burgeoning CD collection.

3.Well known:Goal-setting theorists (yes, there are such people!) have long known that people are more likely to meet goals if they've made them public. Those with the best chances of quitting smoking, for example, have told all their friends and family about their dream. Tell your friends so they can help you meet yours. Put goal "check-ins" on your calendar. Use online "nag" services to remind you via e-mail (e.g., "Have you paid an extra $100 on your credit card bill this month?").

FOUR TACTICS FOR THE GOAL-AVERSE

What if you've tried this all before? You are awful with money. You spend like royalty but are paid the wages of a chimney sweep. Here are four tactics for people who hate goal setting.

1. Set up (many) automatic deductions from your paycheck -- to your 401(k), a government savings bond program, a brokerage account.

2. Start tracking all of your expenses, even if only for one month. You'll probably end up curtailing them just to save yourself the bookkeeping.

3. Specifically budget "play money" and create an envelope with that play money in cash. Give yourself permission to freely spend that money -- you'll feel rich! You'll likely spend less than if you had no budget. Remember, when the envelope is empty you need to stay home. Read a book. Or reread this workbook.

4. Leave your credit card and checkbook at home when you go out. Make cash your king. When you have to pull out actual dollar bills, you may find that you're more reluctant to part with them.

DAYDREAM BELIEVER

Now close your eyes and daydream. Where are you? What are you doing? Sitting on the beach, drenched in the proper SPF (30 or higher, please), drinking something with rum in it, and giggling? Maybe you're raising a family in a quiet setting, leaves rustling high in the trees around your patio, kids playing sweetly together (dream on!)? Or maybe you're raising a glass of bubbly with ___________ (fill in the name of your heartthrob here)?

Here are some other common goals. Depending on where you are in your life, one of your big goals may be:

• Buying a home (or a vacation house)

• Getting out of debt

• Having/adopting a child

• Living on one salary

• Retiring early

• Sending a child to private school/summer camp/college

• Starting a business

• Getting a new car

• Giving money to those in need

• Getting a new chin

• Changing careers

• Taking a dream vacation (from the aforementioned children)

• Going to graduate school (to show off the aforementioned new chin)

• Remodeling the kitchen

GOAL-SETTING FREE-FOR-ALL

Now it's your turn. Jot down all the goals that you can think of, large and small:

Nice job!

Most likely, not all of them are realistic. (Well, youmightsuddenly become U2's background vocalist. But let's play it safe for now and assume you won't be hanging with Bono anytime soon.) Achieving your goals will mean focusing onone or twonow, then setting new ones. If you try for everything at once, you'll likely end up with nothing. (We don't wantthat.)

In a perfect world, your spending-to-saving ratio would directly align with what you list as your priority goals. Now, we want your mind to be focused on this stuff. So flip back and find your answer to the question "What are the comforts you wouldn't want yourself or your loved ones to do without?" And see what your list looked like after you pondered this one: "List five uses of your money that will affect your lifepositivelya decade or more from now."

Those are some of your priorities. They'll vary greatly from person to person. But whether you're looking to buy a stone house in the Scottish highlands or pay off a credit card, the only way to get there is through some planning. Dreadful thought, we know, yet true. So, let's keep on at this. A few more questions for you to answer:

Q: Do you have debts to pay off? How important is it to pay off those debts as soon as possible?

For example, you probably want to pay off credit card debt as soon as possible, but you may choose not to put extra money toward your mortgage. As a general rule of thumb, debts with interest rates in the double digits should be paid off before you do anything else.

Q: Are the necessities taken care of?

These could include establishing a six-month cash emergency fund, fully funding an IRA or 401(k) account, getting life insurance policies, etc. The reason? Well, for instance, without an emergency fund your savings plan could be completely thrown off course by an act of God.

Q: What major life events are you expecting in the next three to five years?

Is your income likely to change in any big ways -- going back to school, changing careers, becoming a stay-at-home parent, retiring?

REAL GOALS FOR REAL PEOPLE

We hope these questions have focused your attention on just a few goals. Now it's time to write 'em down. Think carefully before committing them to the blanks below, though. Why? Because we're going to spend much of the rest of this book trying to help you finance these dreams. Name your top five dreams that demand capital. Also, pick a date by which you want to meet that goal.

TEN TIPS ON PUTTING MONEY INTO PERSPECTIVE

1. Remember that every financial decision you make is emotionally informed by your past. Strange but true.

2. Regularly take time to think about how you handled past financial situations. Don't simply dwell on your distant past, but analyze decisions you made even just the previous week. What would you do differently if you had it to do all over again? Now call your therapist.

3. Keep your most important goals in the forefront of your mind.

4. If it helps, carry around a list of your goals so that with every dollar you spend your cash is directed towards the things that truly bring you joy.

5. Make sure you have both short- and long-term goals. It's hard to work toward achieving your dreams if the payoff for all of them is years away.

6. If you don't mind the cleaning lady psychoanalyzing your lifestyle, post your list of goals -- including the dates you want to achieve them by -- on the fridge or your bathroom mirror.

7. Do a reality check, especially if your financial situation changes. If your goals are unrealistic, you're setting yourself up for disappointment.

8. Regularly review your list. Life happens, and goals change. We won't think you're flaky.

9. Do some extra research. If you want to buy a château in Provence or a French mastiff puppy, chat with someone who already has done so. Get a sense of what it'll take to get there.

10. Call your best friend and brag about how in touch you are with your inner financial child.

ONE LAST THING: YOUR BIT-BY-BIT BUDGET ENTRY

In the Introduction (you didn't skip it, did you?) we promised to help you build a master saving and spending plan to serve you for life. We also promised not to overwhelm you with it all at once. So here's your first painless assignment. Turn to the Bit-by-Bit Budget on page 223 in Chapter 12. Now transfer your five main goals to the first column of the Bit-by-Bit Budget under "Expenses." Please use pencil, though. It's not that we think you're fickle; it's just that your goals may change as you work your way through this book. (Okay, that means we do think you're fickle.)

In the coming chapters, we're going to figure out how much money you have coming in and how much is going out to cover your necessary expenses. Then we'll divide up the leftovers (we're crossing our fingers right along with you here) to help you pay off any debts and start socking away dough to reach all of your goals.

Excerpted from The Motley Fool Personal Finance Workbook: A Foolproof Guide to Organizing Your Cash and Building Wealth by David Gardner, Tom Gardner
All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.