Today’s question comes from Scott. He asks:
“I have been following and reading your articles for the past two years and I really believe in all of the stuff you post and relate to all of it. Especially the minimalist and deflating your lifestyle to save more.
My biggest issue is making a financial plan and actually sticking to it. My expenses are only a few hundred dollars a month and in general I make a lot more money than my expenses so it’s really easy to just kinda float along and never actually get into financial trouble.
Some months I’ll spend like crazy and cut back right as I get near my spending/income crossover point (I monitor my spending in a budget, but only the overall spending). But other months I’ll barely spend any money and have $1k to just put in savings. The months I have extra money, I’ll throw some in some form of investing (usually just my Roth) and then just call it a day. But it’s all really unplanned and spur of the moment.
So how do you develop a plan that you actually believe in and follow it? Btw, thanks for all you’ve done with your site!”
The first thing most people do when they decide to get control over their finances is download a budget spreadsheet or app.
Then they spend two hours putting random numbers on budget categories as they convince themselves they’re going to spend $50 a week on “groceries” and $100 a month on whatever goes in the “entertainment” category. And wait, does toothpaste go under “groceries” or “personal care”?
I’m going to tell you right now this never works.
To be successful with your finances you need to approach it like you’d approach losing weight. It’s really no different. Let’s say you want to lose 10 pounds because you’re going on a beach vacation and you want to look good. Of course.
So now every day you’re kind of starving yourself and going to the gym to work out until you can’t work out anymore. The result? You lose the 10 pounds.
And this is when you tell yourself you’re going to keep the 10 pounds off but it doesn’t take long before they come back. Why does this always happen? Because what you’re doing isn’t sustainable, and that’s just like some rigid budget saying you can only spend $42 a month eating out.
Instead of spending all your time creating sophisticated budgets and plans, here’s the real secret to being successful with your finances: Have a really compelling reason you’re working towards.
If your reason is, “I’m going to save more,” that’s like saying you’re going to lose 10 pounds. Most people can save more for a little while but then they’ll lose motivation because they don’t have a reason why they’re saving more. They don’t have a deeper purpose.
Instead, you need to be saying, “I’m going to save $30,000 because when I have $30,000 it means I can quit my job and travel for a year.” It might be saving a down payment for that house you really want, being able to retire early, or donating enough money to build 100 wells in Africa.
Your reason doesn’t matter, the only thing that matters is your reason really matters to you. And when you’re managing your finances this way what starts happening is you internalize your reason, and when your reason becomes internalized it’s just what you do now.
Like when you’re faced with a decision about buying a pair of $300 headphones that you don’t need you’ll be thinking, “Okay, if I buy these does it help me do what I want to do?” If your reason is compelling enough you probably won’t buy them. Make sense?
This was how I was able to retire in my 30s. I didn’t want to spend my whole life at a 9-5 job, and when I decided this at 29 I labeled my investment account “Retire early”. And I looked at these words every single day for years.
And when you’re thinking about your reason every single day for years it becomes you, and everything you do will gradually align with it, and this way you don’t have to stay motivated because it’s internalized.
This is how you have a plan you believe in and follow. I think you need to pick something to work towards that matters to you. Because when you’re working towards something that matters to you you’re more likely to follow it than just float along with no direction.