If you want to stay on top of your finances, you need to master one simple principle:
Be financially disciplined.
When you do, you’ll be able to delay gratification in the short term and maintain control of your financial life.
The question is:
How do you achieve financial discipline?
Here are seven strategies that work GREAT.
1. Go Extreme
If you want to build financial discipline, going extreme on your finances is one of the first steps to take.
To do this, create a simple spending plan.
First off, write out your most essential expenses and amounts.
Retirement investment (Roth IRA, 401k)
Then, once your next paycheck arrives, pay only those bills and move the remaining amount to a separate savings account.
For example, let’s say that you’re a single male or female, who’s a year out of college.
- You’ll need roof over your head (hence, the rent)
- You’ll need to eat at home (hence, the food)
- You’ll need to pay for internet and electric
- You might also need to move by car, depending on where you live and how you get to work
- Lastly, plan to invest in your retirement account at your company
Once you’ve paid for these expenses, move the rest of your paycheck into a new savings account.
And see if you can live to see the next month… and do the same.
As humans, we love comfort and crave familiarity.
We are really good at getting used to things.
But if you can break free and make up your mind on the change you want, then something interesting happens.
Your mind creates a new normal, and you end up getting used to it… no matter how good or bad the situation is.
Let me acknowledge here that this might not be possible for everyone.
If you have kids, or you’re married. If you have people who rely on you for pay…. or have an underlying health condition.
Or couldn’t convince your spouse to let you do this, then yes, this might be hard for you to do.
But for most of us, what’s holding us back is within us.
It is within our capacity to make new changes to our finances.
So here’s the thing:
If you truly want to stay on top of your finances, ask yourself this question: “what am I willing to let go of?”
What inconvenience will you like to endure, so you no longer have to live paycheck to paycheck?
What pleasures will you need to deny yourself, so you can save more money?
What comforts will you need to forgo, so you can afford to move to that favorite city of yours?
If your answer to these questions is “none, really,” then you can see why it’s so hard to be financially disciplined.
And why you need more than ‘lip talk’ to stay on top of your finances and get real results.
Because really, how badly do you want it?
Be willing to have an honest conversation with yourself, and ask yourself – how much it means to you to have total control over your finances.
2. Be clear on your essentials (and only splurge on those)
If you think that first step on going extreme on your finances seems too hard to execute, ask yourself – “what would I add to the list?”
Don’t discard the whole step. Ask yourself about your essentials.
Depending on your status, experiences, and background, your essentials are very likely to differ from mine.
One caveat though: for every essential item that makes it back to your new list, you should remove one/more items that overcompensate for it.
For example, if getting the latest shoes is essential to you, then you might need to do away with the latest tech gadgets, your Netflix AND Hulu subscriptions, AND your expensive apartment.
Don’t plan on buying the latest designer clothes or getting a McLaren car, and try to compensate for that by skipping your morning latte and making your own dishwasher.
To truly stay on top of your finances, you’ll need to massively be saving more than you’re spending.
Said another way: you need to get comfortable with the pains that come with the luxuries you plan to enjoy… if you truly want to achieve your goal of financial freedom and bliss.
3. Stop keeping up
As you probably know: as humans, we like to compare.
We compare as a survival instinct – to make sure we’re not lagging behind our peers… so that one day, we don’t wake up and realize the whole humanity race left us behind… cold, hungry, and naked.
Oftentimes, we go through our Instagram feed to see how others are doing, and then compare our progress with theirs.
That way, we can know what to do to get ahead of them, keep up… or even run past them.
Only that when it comes to your financial freedom, you’d need to stop keeping up with your friends. (yes, really).
How do you stop keeping up?
Here’s an effective way that I’ve found:
By being clear on your goals.
What milestones matter to you in life?
- Paying your tithe?
- Getting married right after college?
- Living in New York?
- Having multiple pets?
- Having three kids at the age of 35?
- Building a rabid fan base on Instagram?
Chances are, you might see some of those milestones, and go…
“…That’s just ridiculous – why would someone have a goal like that?”
But the interesting thing about setting milestones and achieving them is that your goals don’t have to make logical sense to someone else.
(So far, your goals are not illegal or harmful to someone else).
Instead, you only need to grasp three things in order to achieve your goals:
- Getting clear on why you want it…
- Getting clear on what you’re willing to sacrifice to achieve your goal…
- Becoming comfortable with this fact: By pursuing goal A, you’re letting go of other goals C, D, and E…
Let me stay on that last point for a second…
Becoming comfortable with this fact: By pursuing goal A, you’re letting go of other goals C, D, and E…
As humans, we always want to see that we’re not leaving any options on the table.
We want a job in investment banking, and also be head hunted by recruiters in tech, consulting, and private equity.
We want a ‘fun’ guy who sings in a rock band, but also want someone with a stable income and would always be home for dinner.
We want to actively save for retirement, but also change our exotic cars every two years and be able to take three months off work.
Each time you create a list of goals, ask yourself: which of these goals are alternating with each other?
Because if your goals are not aligned to work together, then you’d find yourself constantly conflicted on why your life seems so backward, and all of your peers have it better than you.
If a family in your neighborhood gets a new car, it might be that other goals they have align with that fancy dream car…
… which explains why you shouldn’t rush out to get a new car for your family.
So be clear on your own goals, and be comfortable in your own car (literally and figuratively).
That way, you can stop keeping up, keep doing things that help you whip your finances into shape and become financially fit.
4. Know what you’re getting out of your student loans
If you’re still in college or planning to attend school in the near future, then this is for you.
This advice also applies to you, if you want to make a big purchase (buying a house, getting a vacation home, starting a business franchise, buying a boat, or paying for a wedding).
But for the sake of simplicity, let me use the example most of us are familiar with: going to college.
You hear folks, and even billionaires, tell you: “don’t go to college.”
“Student loans debt is bad.”
“It’s the worst thing wrong with America.”
“You’re better off paying for an online class on Udemy or Coursera.”
If you have a practical and methodical approach to getting student loans, I believe it can be a GREAT INVESTMENT for you.
Which brings us back to the concept of being financially disciplined.
Before you get student loans, I’m asking you to run the numbers.
Go for a major that speaks to your strengths, but also (and this is important):
A major that pays you well, once you start working.
Specifically, you need to ask yourself these questions:
- What do I want to major in, and what’s its average income?
- If I end up not being able to cope with my first choice of major, what’ll be my second choice and its average income?
- Which college will I attend?
- How long does it typically take students to graduate?
- How long do graduates from my potential school and program job search, before they land a full-time role?
- What do I want to do with my college degree?
Here’s the real problem with a lot of student loans:
A lot of young folks start out as a pre-med major, hoping to get into medicine and enjoy a stable career.
BUT they end up transferring to psychology sophomore year… taking out student loans all the same, and then wonder why college was not a good investment for them.
A student loan can turn bad, if you have a student loan (or multiples) with say, 6% interest rate, that you can’t pay off because your take-home pay won’t make a dent in the loan payments.
Even worse, it might hold you back from investing or building multiple streams of income.
Because any business with a 6% rate of return already looks decent, so that you’re better off paying off your loans, than trying to start a business or build a side hustle with those bad student loans hanging over your head.
Please understand that part of making college worthwhile for you is this:
Taking the time to choose a major that uses your strengths to provide you with a massive return on investment…
… so that when you feel like quitting or not studying, and just want to ‘chill out’, you know you’re eating your tiny cake now, so you don’t have a massive one later on.
5. Be very clear on what you can afford
Knowing what you truly can afford is SUPER helpful.
For the 7 or 8 big purchases we mentioned earlier, you need to sit down long and hard to determine if you can truly afford to buy a house, or get a new boat.
Do your research… be very clear about how much you’ll be putting in (over a short, medium, or long term), and what your monthly/yearly returns will be.
For those big expenses, it’s often possible to be able to afford them long-term.
For every other purchase though, you only need to worry about RIGHT NOW.
Specifically, you want to ask yourself: can I pay for this, right now, with cash?
If your answer is ‘no’, then don’t make the purchase.
If you can’t pay for the item with cash, then you can’t afford it.
Yes, this rule is priceless for doing away with stuff you don’t need, or buying things with money you don’t have.
But it also helps you master financial discipline, and save a lot more than you’d have thought possible.
For example, you might think you can afford to get a new laptop for $1,700. But, can you really afford it?
Can you pay cash for the laptop, right now?
The biggest trap holding people back from financial discipline is thinking: paying $56 extra in interest on that new laptop is BETTER than paying thousands more in interest on student loans.
That’s a lie.
Financial discipline applies in the ‘little’ things… all the way to the big purchases.
6. Stop using credit
Credit cards seem to get in the way of what you can or can’t afford.
That’s because using a credit card makes you think you’re spending your money.
Problem is: it’s not your money.
Use your credit card the same way you use your debit card.
You swipe your card for a purchase today, you pay it off today or tomorrow.
Financial discipline doesn’t get any simpler than that.
If you won’t be able to pay off your card balance tomorrow, then don’t swipe your card today. It really is that simple.
If you find yourself constantly buying new things, just because you can pull out your credit cards to pay for them, then it’s time to ditch your credit…
… do away with your credit cards and start using cash.
While there’s a right way to close a credit card, keep things simple by calling your issuer about the total statement balance (don’t assume).
Then, pay off the balance and make sure that you or any authorized user is not using the card.
Don’t keep piling bills on the credit card, just because it’s hard to close a credit card. If you truly cannot pay the current statement balance, it’ll be beneficial to keep the card away anyway.
That way, you can rein in your spending; rather than getting sucked in into the pit of month-to-month credit card debt.
Paying with cash, and not using a card, will give you a vivid picture of how your money leaves in the form of impulse purchases, never to come back.
7. Stop worrying about what others think of you
Here’s how this works:
First, look for an area in your finances where you think you need to do better.
For example, you might be thinking of upgrading your car, moving to a new city, getting the new Apple Watch, or moving to a bigger apartment.
Then, see if your reason for wanting to make this change is because of what someone else thinks – a friend, a partner, a co-worker.
If what others will think of you is the reason you have for spending, then don’t do it.
Stop worrying about what others think of you.
Here’s my “people’s opinion” rule: I will only worry about what you think of me, if you can pay my rent for 3 months back-to-back, no questions asked.
Let me explain:
Before you worry about what you co-worker will think of you, if you don’t get the latest Chanel handbag, ask yourself this question:
Will this co-worker pay my rent for 3 months back-to-back, if for some reason, I can’t afford to come up with my rent?
If the answer is “no”, then it doesn’t really matter what the person thinks.
Be yourself, and maintain your focus on staying on top of your finances.