What Keeps You On Track Financially?
| February 17, 2011 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
As we gain ground financially, there will undoubtedly be temptations to give up or at least deviate from our chosen paths. Regardless of whether your goal is independence, comfort, or significant wealth, life happens. What keeps you on track financially when something disrupts your plan?
Financial Distractions
The unexpected car accident…the newly identified roof leak…the surprise orthodontics bill. There are many ways to derail a budget. On a daily basis, we are constantly assaulted with opportunities to ruin our finances and ultimately destroy our good habits. Nonetheless, whereas some people are able to resist financial distractions and stay (or quickly get back) on course, others become overwhelmed. If you have ever aggressively paid off debt (i.e. becoming debt-free) or quickly saved up a significant sum, the focused intensity and exhilarating momentum involved in achieving such a goal alone can be enough to keep you on track.
However, after you have achieved such “quick” successes, maintaining your discipline can become the biggest challenge in long-term wealth building. In other words, once you take the temporal blinders off, it’s easy to get distracted by “shiny toys” and “doodads.” In fact, part of the motivation for paying off debt, for some people, is so they can feel comfortable “living a little.” How does one know whether it’s too much though?
Short-Term versus Long-Term Goals
Your time horizon in receiving the benefits of your labor matters with respect to maintaining discipline. For example, if someone told you that you would NEVER get to experience any rewards, but you should still donate your money because it is the “right thing,” would you participate? I would argue many people wouldn’t. Let explain, even if the only reward that you get is gratitude, knowing that you made a difference or spiritual enrichment, that’s more than enough motivation more millions of people to participate. Many charitable organizations realize this simple fact, which is why they constantly trying to communicate with their donors regarding the benefits and implications of their giving. However, if there is no clear benefit, it’s hard to make the case to contribute for many. Of course, not everyone is like this though. Some people are sadistic, glorifying and cherishing self-deprivation. If that’s how someone is wired, it’s fine. However, it is important to realize that such people are in the minority.
Delayed gratification and no gratification are very different for most people. This is one of the reasons why I always discuss paying off consumer debt QUICKLY. As painful as it is, financial counselors say people tend to have more success when they temporarily delay fun while paying off debt rather than trying to do it all at once. Many people can put up with a lot of unpleasantness for a short period. Note, wanting to realize some fun, even if it’s in the future, is not being childish. It’s childish to ignore the need of having some fun, just as it is childish to want to play all the time. The problem arises in reconciling your need for fun with your financial situation. Balance is key.
It can’t ALWAYS be about living for tomorrow!
What Keeps Many People On Track
One of the most powerful tools to keep your family on track is to have a plan. Short-term and long-term budgeting for investments, education, paying off the home, giving, maintenance and repairs, and even fun can spare you a lot of grief. Remember the old saying: failing to plan is planning to fail. There’s so much truth in that statement. Budgeting is perhaps one of the most underutilized methods of hitting your financial goals. It’s just as amazing to see your future on paper, as it is motivating.
Along that vein, visualizing your future is one of the best ways to birth longevity to your plan. In your “mind’s eye,” if all you can see is scrimping and saving, then I doubt you will feel motivated to continue for too long, regardless of how you rationalize the virtue of your efforts. However, if you see a life with no lack, an ability to give like never before, and enough resources to accomplish your life’s work, then that leased BWM seems a lot let appealing and you consequently stay on track.
Another way people stay on track is to know their weaknesses AND develop strategies to overcome them. Study yourself as your greatest enemy thus becoming your greatest friend. If you can’t go to the shopping mall or electronics store without spending way more than you have for such purchases, why torture yourself? One way to apply this is through the miracle of automation. Eventually, we tend to be the humans that we are, and as such, it’s somewhat easy and predictable to lack financial-discipline if we don’t set up systems to keep us on track. If you are one who cannot stick to a plan on your own, make it easier for yourself. For example, consider automating your investments and savings. Also, add some accountability to your life: interact with like-minded people, and use your network as a support system. This could mean joining a forum, creating a mastermind group, or creating your own support network. Discipline is unnatural anyway. We’re creatures of habit…not discipline! One way that I honor this principle is by not allowing certain foods in my house. That way, I’m not nearly as tempted to eat badly, as I would normally be.
Check your allocation. Does your budget pass the reasonableness test? It’s not normal for a family of four to only spend $200 a month on groceries and never do any traveling, so why budget as such, especially if you have some flexibility. This isn’t about making a budget for the perfect month. That’s ineffective at best and demoralizing at worst. Budgeting is about identifying the resources your family has available and properly allocating them towards corporate goals you deem valuable.
These are some of the best ways to I think one can stay on track, but how do you make sure that you hit your financial goals?
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
Oh my goodness, I was just thinking about this very thing last night. Things have been a bit crazy for me lately, and money is the last thing I am worried about at the moment. You could say I am quite off track. I am not spending like a maniac or anything, but I am also not being as careful.
Hopefully a personalized financial plan helps everyone stay ontrack and focused on the right goals.
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Personally, I like rewards! nice vacations, going out to a nice restaurant or some other reward works for me. The other way that keeps me on track is making things automatic like a payroll deduction for my 403B, IRA and Roth IRA. It also works for paying off my mortgage to coincide with my retirement. It helps to be disciplined, but I use automatic methods so I don't have to think about it.
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Know yourself and moderation. If you want to teach algebra forget the fancy car and bling. Remember: credit isn;t money. Grouch is right: have a personalized financial plan. Your plan should lead to having choices at 65 because you've saved and invested appropriately. Visualize that b-day party and reaching your goals. The plan should incorporate an emergency fund to handle the unexpected.
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A support group (or your spouse) is an excellent idea for those struggling to manage their finances.
Just like having a gym partner – you keep each other motivated when feeling down.
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That's another point that I wished I would have mentioned. Sometimes the problem isn't temptation as it is being overwhelmed with too much to do. It's easy to get a little "sloppy" if we're not being "careful" as you say.
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Like you I like my rewards. I do have some things automatic out of convenience. Right now, I'm really motivated 🙂
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I agree on all accounts. I think people don't truly appreciate the risk involved in credit. Personalizing it is important, but so is not thinking that you will be different and that caution is unnecessary.
My recent post What Keeps You On Track Financially
Absolutely. I wish I would use partners more often in many areas. Whenever, I have had one, I have generally done so much better at hitting my goals.
Thanks for the comment.
My recent post What Keeps You On Track Financially
The biggest mistake people make [when they set life goals] is picking the wrong goal in the first place,â says Talane Miedaner, author of Coach Yourself to Success. âNever set goals that are over a year old, because theyâre old and tired.â For instance, if youâve been trying to save enough money to retire early for the past 20 years, then you need to retire that financial goal! It has passed its prime
I think the path I've been on for the last 12 years is an opposite path than most people have been on. While my house is paid off, my 401k, 529 plans, and overall brokerage account is growing, I think I've lived in a bit of a scarcity state for too long. As you said above, Balance should be the goal.
Budgeting can help people that spend too much, but it can also help people like me that live like they are aways broke… Next week, I'll going to post my article about it.
Nice writeup on this topic, as always!
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I agree. I think that sometimes we set such large goals that we never get the "joy of success." We're always working towards something that takes way too long to complete!
I never thought of the early retirement goal in that way.
One more thing: I do think that one can break down long-term goals into small and intermediate steps that are achievable within a sufficiently short/reasonable time-frame.
Thanks so much Don!
I'm going to challenge on this one. I don't think that it is even fair for you to compare yourself to most people because you are on a vastly different path. Just because your paper assets are not as high as your contemporaries, you don't have nearly as much risk in your overall financial picture because you have a PAID OFF HOME! I think your ability to build wealth has also dramatically increased because now you can add an extra (i.e. $800-2400/mo) into investments. I think you will have to wait at least 3-17 years before it would be fair for you to compare yourself to most people because that's when the mortgages of your contemporaries would theoretically have been paid off.
That said, your comment about budgeting helping you to live a little is a constant conversation in our household because we recognize it's importance and the danger of not doing it!
Cheers,
Shawn
I think in terms of this: if I lost my ability to earn money today, how would I survive? This keeps me going in terms of being able to think of savings as being of high importance. Even if I'm able to work for many years, who wants to work when very old? There's a reason why people don't want to work then – because often, they can't! That's motivating to me too.
It's not the drive for fantastic wealth, it's the drive for taking care of needs and enjoying life every step of the way that keeps me on track.
Andrew,
Yes, that's exactly how I see it. The literature regarding goal-setting is clear: it is no joy, if enjoyment is always deferred to the future. That said, somethings necessitate years to materialize. Finding joy in the process with some achievement milestones is often what is necessary to persevere.
My recent post What Keeps You On Track Financially
I love how you can find enjoyment in the journey as your primary motivator. I think it is so healthy and beneficial to view the process this way, and I believe you will achieve far more than if your sole motivator was fantastic wealth in the first place.
My recent post What Keeps You On Track Financially
How do I stay on track? Good question.
We take international vacation once a year. Eat out about once a week. Go see a show/game every few months or so.
These things kept us entertained and satisfied with life so far. I don't think we are depriving ourselves that much. We figured out what is important to us and spend there. Less important things like cable TV, luxury cars, and others aren't in the budget. Pretty simple.
We are earning pretty good money so of course that help tremendously. If we work minimum wage jobs, it would be a different story.
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Pretty simple indeed… but also pretty effective. Sometimes the plan doesn't have to be very complicated but does need to take into account the variables that impact your life and your family's priorities. It sounds like your family has addressed your concerns. For example, some undoubtedly would need to eat out more whereas others would think eating out more than 1-2x a month is excessive. I'm happy you have found a happy medium.
My recent post What Keeps You On Track Financially
Fantastic post. Personal finance is all about moderation, I think that's why it's so appealing. It's individual for everyone. Some may scoff at the idea of eating out once a week, but if it keeps ones relationship alive, then why not? I eat out about once a week to two weeks, but we usually eat for less than $10 a person.
Our plan is getting a bit complicated right now as boyfriend and I are somewhat merging our finances. He seems to have slightly different goal setting than me (I am all for paying down the mortgage asap, and he wants to build up our cash reserves first). I'm sure we'll come to a happy medium.
Thanks so much. The personalization aspect is key. trying to build the perfect budget is fundamentally flawed. It's about building the right budget for your household.
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I'm currently suffering from being too frugal. I'm on the verge of a wild spending spree soon, I can feel it. It's like what happens after you've been on a strict diet for far too long.
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