A philosophy of personal finance; tangible and actionable.
A concise summary of the blog can be found at the very end, I just like to write...
When I graduated a couple of months ago, I wanted to buy a car. To my surprise, I realized that there were taxes applied when buying a car (duh..), so whatever budget I had, I had to settle with a cheaper car to account for the added taxes. I also started getting familiar with the concept of “running costs” and things like fuel efficiency, and impact of gas prices on my expenses. Things we took in economics classes, but it never materialized until it was a personal experience. I started researching and learning more about how depreciation is at its highest if you buy a brand new car along with other stuff, and then it hit me…
I can’t be this oblivious about personal finances anymore..
I came across a channel on YouTube called The Dave Ramsay Show which gave advice to people about how to better manage their finances. I have since embarked on a journey to learn more about personal finances. It was the kind of things that they don’t teach you in school and you have to get completely out of your way to learn it yourself.
The concept of financial discipline was one of the first guiding principals I found, and my first thought was; yeah yeah, I need to save money, and be frugal. However, when I researched more, I found the following definition on Quicken website,
“Financial discipline refers to how well you are able to conform your spending and saving to the plans that you have set to achieve your monetary goals.”
In this blog, I don’t intend to get technical into finance, but rather break down that simple definition above into key pieces of advice that, to be quite honest, can be easily googleable, but then again, you decided to read it on blog, so here it goes;
1- How well you are ABLE
Ability is defined as “possession of the means or skill to do something”. People usually give you generic advice like “save more”, “invest more”, “don’t spend all your money”, when fundamentally the first step is to learn and acquire the skill do something. It is so easy to make an excuse whenever we hear a financial advice and say “this doesn’t apply to me” or “my situation is different”, when in reality we just lack the knowledge and skill to go about applying to advice to our unique situation.
Key 1: Start Learning about personal finance, watch YouTube channels, read books, talk to financial advisors, get online personal finance templates and then move on to the next step.
2- Conforming your spending
One of the ways “Conform” is defined is “ to comply with rules, standards, or laws”. This is tricky because in personal finance there are no rules or standards, you are free to do whatever you want with it. You have to sit down and physically define for yourself some ground rules on how you should be spending. This requires ABILITY (see previous point), and knowledge of your current spending habits and trends. You can’t establish rules for what you can’t define, and by extension it becomes exceptionally harder to comply to things you can’t define in plain words.
Key 2: Start tracking your spending behaviors and have a clear understanding of what you NEED vs what you WANT. Challenge yourself on the “needs” and see if you actually need it… You would be surprised of what you can conclude if you are honest with yourself. Then establish rules for yourself with consequences if you don’t follow your own rules.
3- Conforming your Saving
We have defined what conforming means (see previous point). However, here it is important to avoid being extreme. When people first start something, they are excited and energetic and may take things to the extreme and in this particular case, you end up being stingy. There is a big difference between frugality and stinginess (go learn about both please). After you have identified and studied your spending behaviors, you will notice opportunities to save money. This might require additional learning about ways to save money, we sometimes just lack the creativity. Also, chances are someone out there has already figured a solution to a particular spending we don’t know how to control. From there, same drill, start establishing rules for yourself and follow them.
Key 3: There is always a way to save more without being stingy. This requires putting in the effort, and that effort maybe just a google or YouTube search away.
But why? (see next point)
4- Execute on a plan to achieve your monetary goals
You won’t have a reason to control your spending and saving, if you don’t have an aim to work towards. You will always feel that you are giving up something or losing out on something, as opposed to putting in the effort reap the benefits. There are three key elements here that brings financial discipline to life; a goal, a plan, and execution.
Humans are wired to put in effort to achieve a goal. If there is no goal, there will be no effort, or there won’t be productive effort that can yield results. No one would give up their everyday starbucks-venti-whatever-chino for a month, unless they planned to deploy the saved cost of such luxury into something else. A monetary goal is almost always attached to a personal-non-monetary goal. You save money to acquire a new mode of transportation, you earn x$ in salary to afford a roof over your head and food in the fridge, and in the case of saving up the costs of a starbucks-venti-whatever-chino for month, you do it to afford a nice dinner with your family and friends to reconnect and have quality time.
A goal with no plan is merely a dream as people say (I think..). Continuing on the previous example of starbucks-venti-whatever-chino, a person needs to plan how exactly they are going to avoid incurring that cost. At the end of the day, personal desires can rule supreme over oneself if not tamed. This may require creativity, may require some googling, may require altering daily routine to prevent access to such a “want”, maybe figuring out how to do the equivalent of it at home at fraction of the cost, and the list goes on.
Lastly, execution. We all have those early year resolutions that die out within weeks if not days. While some say it is due to lack of motivation, I say it is due to lack of execution skills. This requires practice and discipline. It never comes naturally to delay instant gratification, it requires hardwork and trusting the process where a goal is solid, a plan is solid, and what is left is just executing it.
Key 4: Aim for a goal that excites you, Plan your behaviors and actions to achieve this goal, and Execute by having the discipline and trusting the process that you will reap the benefits.
Concise Summary
Money is a resource, and resources are finite (whether you like it or not). This means it is to be managed, controlled, and deployed strategically to meet needs, de-risk future uncertainty, and fulfill desires with what’s left. If you wish to manage that resource in any other way (i.e. by not managing it or doing it poorly), you are essentially accepting the risk that comes with that (again, whether you like it or not). You have to have a goal, a plan to achieve that goal, and the discipline to do it long term.
Also, this video can drive the message home;
Let me know in the comments section below, what are some somethings you do to practice financial discipline.
