A few months ago I went to meet with a financial planner that works with my parents. The meeting was nearly two hours and we discussed a number of topics. One word that the financial planner used a number of times was discipline. Getting control over personal financial matters doesn't happen by itself. As I've found out over the few years that I've been married, what might have worked with my finances as a bachelor fell apart when I got married, and the rubble was pulverized a bit when our daughter was born. I was expecting things to work out, to save gobs of money, invest in things that returned above-market rates, all by itself, and that was really silly. Successful personal finance requires planning and regular, purposeful maintenance, and that takes discipline.
Money Blue Book (a frequent commenter and a recent addition to my blogroll) asked whether tracking my expenses so closely would pay off, or whether “simply adopting a broad frugal approach” would cut it. It's definitely a good idea to spend wisely, of course, and I think the reason we had gotten by reasonably well was because we weren't overly reckless financially. I put away part of my paycheck regularly in a tax-advantaged employer-sponsored account, but over a couple of years that's about all that we did with regard to retirement savings. We've managed to not carry a balance on a credit card for even a single month, but some months we've needed to shuffle money around to cover our Chase PerfectCardâ„¢ bill. Basically, we aren't really doing badly, but we could be doing way better.
Where could we be more disciplined in our personal finances? Here are a few key areas:
- A written budget. We haven't had a written budget regularly since we've been married. I hadn't had a written budget much at all before that. After I had won Jesse Mecham's You Need A Budget
program from a Free Money Finance contest, Jesse e-mailed me to say that he was amused that I had won because I appeared like I had my act together. It certainly was a nice thing to say, and I hope to prove him right when I use his software to get my budget together.
- Regular income and expense accounting. This is one of my major goals for this year. Having only a vague notion of where our money goes each month is not disciplined. Unless you choose to live on a very small fraction of your paychecks like Alan Corey did
for a while, it's really necessary to see where the money is going — all of it. Money not accounted for gets lost and evaporates, and over years this could be tens of thousands of dollars, if not hundreds of thousands. Doing this accounting once a month probably isn't enough. I'm aiming for ten times a month.
- Regularly reviewing investments. It's probably not necessary to look at net worth every day, but periodically reviewing investment performance and adjusting as necessary will keep a portfolio in line with goals and tolerance for risk.
- Speaking of goals, we only had vague goals, which are not goals at all, really, because there's no plan to achieve them. Setting goals and planning to achieve them takes discipline. Some of the questions in the first few chapters of Brett Wilder's The Quiet Millionaire: A Guide for Accumulating and Keeping Your Wealth
(which is on my pile to review) center around developing goals and plans. It was embarrassing to answer “I don't know” to many of the question. I should know what my goals and plans are. Again, these don't pop out of the atmosphere by themselves.
- Planning to be frugal. This gets back to Money Blue Book Raymond's comment, and I wasn't dismissing it. Frugality doesn't happen by itself either; it takes planning and purpose. I know it's cheaper to brown bag my lunch, but if I don't put it together in time, or do a bad, non-nutritious job of it, it won't work. I'll need to eat out either because I don't have food, or don't have “real” food that will get me through the day. That's just one example.
- Learning how to do things better. Underpinning disciplined finances is knowledge of the right way to do things. I admit that I've gotten caught up in the enthusiasm of an investment or a business without setting things up correctly. Finances are one place where it can be very costly to do things incorrectly, or to miss a change in regulations that affects your finances. Keeping up to date on important changes and learning what isn't understood is a habit that requires discipline.
No one cares for my finances as much as I do, so I have to treat them seriously, and treating them seriously requires discipline.
Great article. Sometimes I feel I'm doing better than I really am because it seems like I'm not spending that much money. But I've been tracking everything more closely the last few months with actual goals in mind and it has made a world of difference.
I track daily, down to the dollar. It builds accountability and discipline (same for dieting). But, it's also rather time-consuming!
I lack discipline with setting and keeping concrete goals, though.
Disciple is the way to go. One thing that I have been doing for over 20 years is have seperate bank accounts. This is part of what I read years ago about paying yourself. My wife and I have a vacation account, and a car account. We also are on the same page aver most financial matters. I have done the research for mutual funds to invest in and we both have money automatically but into our 403b accounts. The one thing that we don't do is tracking all of our expenses. I would probably be a good thing to do just to see where it all goes to.
We have a joint account and also have seperate persoanl accounts so we don't have to ask about stuff we want. We never (ever) carry anything on our charge cards. Pay it off or do without is great advice for anyone. It is too expensive a short term loan and too easy to get cut in a financial trap.
Hi Mighty BH,
I think I know where you are coming from. Newbies to the world of savvy financial planning can afford to basically wing it for a while on broad assumptions and generalities, but ultimately to take it to the more complex, integrated level requires more planning and aforethought. Like a well written and laid out business plan, it helps to codify expectations and goals, to better improve on ways to achieve them.
Perhaps my single status still makes things easy on me in terms of financial planning. When I get married one day, I expect and presume life will get more complex, necessitating greater planning!
Thanks enjoy your tips,
Wish you all the best
Tracy Ho
wisdomgettingloaded
Do I know you? Because this exact conversation is what my husband and I had over the Christmas break. We want financial freedom, but when we ask each other – what do you want to do? We don't have the answer. I also explained to my husband we talk the talk – we want to purchase a home with land so he can build a home studio, but we are not doing anything to achieve it.
Yes, I cut our expenses, we save for retirement, and we are working towards 6 months emergency fund. We do this because in our fields layoffs are imminent. Time has proven our savings brought us through those difficult times. But the real reason for financial freedom – to do what WE want to do is hard to for us to answer.
Really good advice all round – and it is so important to write down your goals. Only 5% of the population does this – which is why only 5% of the population succeed.
It is a very powerful process to be able to see your goals in writing on paper. It gives you a road map to follow. The power behind writing then down is they stay on your mind and in front of you at all times. If you do not write them down, you may easily forget about them.
Also remember that old but true saying "If you look after the pennies – the pounds will look after themselves".
I have just started to follow some of the rules that you have listed. Especialy tracking the money outflows. I withdraw money from the bank and next thing, it is gone. And I don't remember where and why.
Now I carry a small note book with me and note the expenses down. I hope I can maintain this discipline.
Very helpful post for the anti-frugal amongst us!
Nice post. Discipline is hard for me to do day after day. Tend to be a bit lazy at times when it comes to finances. But by reading blogs like this is has definetely narrowed my focus on the important things. (in terms of finance and staying out of debt)
It is always important to understand what a personal financial plan is, why it is important to have one and when you should develop it. Most people sit down to deliberately consider the implications of various courses of action and select the one they will follow only when faced with changed circumstances such as a new job, a big promotion, a new baby, a death in the family, imminent retirement, child ready for college and so on and so forth. Even when they do so, their decisions are usually limited to the specific issue that has prompted them to act. This is because most people do not have a comprehensive financial plan, do not know why they need one and often begin planning too late.
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Regular reviewing of everything from your budget vs. actual spending, to investment accounts, to credit cards is definitely a step in the right direction.
Came here via FMF's March Madness. 🙂
Hmmm, discipline is optional. As long as you have a good safety net in place, then automate your savings and investment program, you can live on the rest without having to count every penny necessarily or agonize or feel guilty or be radically frugal to the point of eating recycled grass clippings.
To insist that hairshirt discipline is required will repel the freer spirits among us unnecessarily. They can be prosperous too.
That being said, intentional cash flow planning and/or the tracking of spending means really making quality decisions about the use of one's finite resources. There's benefits to it besides the hairshirt. Doing cash flow planning and tracking makes me make better decisions and have a better life as a result of improved money decisions.
nice article. i'll visit this page more often 🙂
Nice post. Discipline is hard for me to do day after day. Tend to be a bit lazy at times when it comes to finances. But by reading blogs like this is has definetely narrowed my focus on the important things. (in terms of finance and staying out of debt)
One more for the list don’t procrastinate! don’t replacing important tasks, with tasks that aren’t that important. If you take the easy option you normally pay for it in the end.