Practice and Discipline

September by Eric Joyner
September by Eric Joyner
Personal finance is hard and there's really no shortcuts to it. If you want to get good at anything; an instrument, a sport, writing, math or anything else, it takes practice and discipline. The same thing applies to personal finance, the more you work at it, the better you will be at it. And just like anything else in life, some people are naturally better than others at it but this shouldn't discourage you because you can get better at finances.

It's like weight loss, changing your fixed expenses is like having surgery. The changes to your finances are immediate and permanent if you move to a smaller house or closer to work, or even if you sell a car. But changing your discretionary spending is like losing a pound a week, it takes time and hard work, but with practice and discipline you will get there.

Practice

Depending on your personality the practice part can be easy or hard, but the overall goal of practice is to spend less and save more. This doesn't mean spending less on coffee by making it at home and redirecting the money you saved towards other purchases that month, it means actually saving it or paying down debt. The more you practice by making appropriate budgetary decisions the better you will get at it. For example if you make $40,000 per year and you decide to contribute just 3% more to your 401(k) that will translate to about $18 less take home money per week. For some people I know that could be difficult, but I think that most people would be able to find simple ways to save that much discretionary spending every week. Going out to dinner less, saving on coffee, bringing lunch to work, finding sales at the grocery store, or many other things. That 3% savings would equal $1,200 each year and compounded over 30 years at an 7.5% rate, that would equal about $128k all because you decided to cut back $18 per week. Just think what would happen if you saved 10 or 15% more than you are now.

Discipline

I think that this is the harder part for me personally. Practice to me is just spending less than I make, and the overflow goes into my savings/investments. But discipline means continuing to live that lifestyle month after month, or year after year. It also means not touching that money month after month, or year after year. If your car breaks down and you have $30k saved up, don't spend it all on a new car, use discipline to determine how much car you really need and purchase appropriately. Most people can get by on used cars. Many times people save up large amounts of money but then decide that they should upgrade their house since they have enough money to put a large down payment on a larger, more expensive house. Then there goes most or all of their savings because they wanted lifestyle inflation. Decades of work can be wiped out by a lack of discipline when someone takes out a loan against their 401(k), have discipline and don't let that be you.


I think that the older you get the more you realize that $10,000 is a lot of debt but not a lot of money. I know that during college I would have thought that having $25k saved was a lot of money, but now I know that's not even half of a down payment on a house where I live. Small amounts of money over time will start to add up so start practicing as soon as you can and learn to let it grow.

14 comments:

  1. Great article! I agree that discipline is a big issue for some people. It's hard to save because you are putting off spending for some future need. As you noted, when you do have cash and want something it's a burning desire for instant gratification. I believe you have to get as much enjoyment out of watching your investments grow as driving that new car. The goal of retiring early from a job you don't love can be a great motivitator. Thanks for the article.

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    1. EAW,

      You brought up a point that is one of the reasons I love saving money and investing - "watching your investments grow". I love seeing my money make more money without me having to do anything besides stop by and check my balance from time to time. I think at first it's not every exciting when you don't have much saved, seeing your balance change by $100 either direction doesn't seem like a big dent. But once your savings get larger the passive changes become larger too and seeing your savings increase by $7k in a day is rewarding, though seeing it drop by $7k in a day is not as much fun. But if you ignore the daily swings and check in over longer periods of time it's nice to see a steady increase by doing nothing but checking in on something you did months or years ago.

      -Zee

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  2. Interesting article. I agree fully with the points you make about 'practice' - this is incredibly important. Not so convinced about discipline. And it isn't because I disagree with the outcome (not touching what you've put on the side except for sound investments) but because discipline, by targeting action, makes it easy to fall off the wagon if the beliefs and motivation stay unchanged. For example, not buying what you want feels restrictive and some rebel; not wanting is guaranteed success for not buying.

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    1. Maria,

      I agree with where you are coming from, keeping your goals unchanged is very restrictive, and over the span of years or decades I tend to think that's probably impossible. But from my own personal experiences I tend to think that when I had large chunks of money squirreled away and I got tired or frustrated with how things were going in life sometimes I would tell myself it was okay to splurge because I was doing well.

      I also believe there is nothing wrong with spending on yourself if you are spending that money on the correct things. The latest thing I've splurged on is deciding to go to Japan for almost a month. To me this is a good decision because I love travel and I think the experiences will always be something I will remember, but in the past I didn't always do that. Sometimes I would spend a few thousand dollars on a new painting for my collection or buying a new home theater sound system for my house that honestly doesn't need something that big or expensive.

      Had I shown a little more discipline I probably would have bought more budget friendly paintings which I'm sure I would have still loved and I probably wouldn't have bought the surround sound system for my house at all.

      Another thing that I recently debated (I'm not sure why I was debating it so much now that I think about it) was buying a train pass for my vacation to Japan. There's the regular class ticket or the first class ticket which would cost a few hundred dollars more for the span of 21 days. No matter what I need to buy the train pass, but because I have exceeded my savings goals for the year already I was considering buying the first class pass which was completely unnecessary. So as you can see I'm still training myself to not give in to these temptations, it sometimes takes considerable thought on my behalf to get it right. Just a handful of decisions like this in the wrong direction means I'm spending thousands more dollars than I really need to each year. And I don't really think spending more money on them will improve my memories of things or my quality of life.

      I guess I wasn't saying not to spend on things that don't fall under your original goals, I'm trying to say evaluate your decisions and don't purchase more than you need simply because you can afford to.

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  3. I love practicing my frugal muscle. There's areas where I know I can improve and some where I think I rock. It's fun for me finding waste in our budget and coming up with solutions that cost less or are free. To get motivated, I like setting goals, like paying off our mortgage, then paying towards the goal first. To make things more challenging, I like to try to fast track the goal, then I have to make the rest of the budget work. Super Fun!

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    1. CheapMom,

      You sound like one of the types of people that is naturally "good" at personal finance. Not a lot of people find it fun to budget and be frugal. A lot of people like money and getting deals on things, but not a whole lot of people spend time trying to be frugal, they pay for convenience because it's easier. I agree about setting goals and then trying to fast track them. I usually have an annual savings goal that I'm trying to hit and then I apply a "stretch goal" to it for if I'm doing really well. I think the biggest thing for me is publicizing my goals through my blog. Since I've written about what my goal is, I feel more accountable to sticking to it. If I want to change a goal then I better have a justifiable reason since I want my readers to understand why I decided to temporarily give up or change directions. Thanks for stopping by!

      -Zee

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  4. I failed at budgeting a bunch of times before I got it right. I knew that if others were budgeting successfully, I could too. So I kept reading books and blogs about ways to budget until I found one that worked for me. The key is to just keep learning and trying things out. Eventually you will get it.

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    1. Exactly, the more you work at something the better you will be at it. For me it wasn't a matter of finding what worked for me, it was more a matter of finding what was important. For a long time I was just spending money on useless crap that I though "hey this is cool, I can afford another $5 or $10 there" but it added up. Once I realized I could retire decades earlier by just showing some restraint that was what did it for me.

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  5. It took me years to get into the practice of saving money on a regular basis. I think I'm pretty good at the discipline part, but my other half is NOT! We have to work really hard on that one.

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    1. Having to have a partner that's on the same page could be a difficult task. I would just say to keep working at it and eventually you're other half will get better!

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  6. That's an interesting observation about practice. I like it, and agree that we can get better at personal finance. If we can practice in other aspects of life (school, sports, etc) and get better, we should be able to do so with money management.

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    1. I'm trying to get better with investing. Some of my investments have done well, but others have not. Right now I'm trying to teach myself when to walk away from bad stocks and even when to walk away when I'm ahead.

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  7. Great article Zee. I agree with the discipline aspect totally, although in my own case, I view it as will power. The will power not to spend your savings, the will power not to succumb to unnecessary lifestyle inflation, the will power not try to keep up with the Joneses.

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    1. Will power works for me! There's a lot of people that get into the mindset of, "What am I saving for if I can't spend it?" and then they go splurge on themselves for completely unnecessary things. Not giving into those things can be just as difficult as initially saving.

      I was always pretty good at saving, but once I had a significant amount saved up I used to also have problems "splurging" on myself for things that I didn't need....

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