Anyone familiar with this blog knows that prior to my 40th birthday, I was a financial moron. And that’s not me be self-deprecating. It’s just the cold, hard truth. Heck, I didn’t even know what an emergency fund was until I was 42.
The good news for the financially moronic, however, is this: personal finance isn’t hard. You spend less than you earn, invest the difference, and follow this simple recipe for several decades. That’s it. You don’t need a PhD in economics from MIT to become a financial rockstar. Any well-manicured ape can do it.
Ah, but there’s got to be a catch, right? After all, if personal finance were easy, wouldn’t every adult out there be a financial rockstar?
Here’s the rub. Knowledge is the easy part. Spend a week reading David Bach’s Automatic Millionaire and you’ll have all the personal finance knowledge you’ll need. No, the hard part is acting on that knowledge. In other words, the only thing that’s really separating the typical American from financial nirvana isn’t a lack of knowledge; it’s a lack of discipline.
Now before I continue, I need to throw in a disclaimer. I’m not saying all is fine on the knowledge front. I didn’t learn the fundamentals of personal finance until my early 40s. So our schools got to do a better job of transmitting financial knowledge. And so do parents. I’m just saying that making our kids financially savvy won’t amount to squat if they turn into undisciplined adults.
Financial literacy + an unquenchable lust for stuff = financial hardship.
If you’re a financial moron, your biggest problem isn’t knowledge. Like I said, you can learn all the personal finance knowledge you need in a week. Your problem is really discipline. You’re too soft. You need to start honing your discipline muscles.
Here then is my 12-step guide to honing your discipline muscles. Take one step a month. If you can accelerate that pace and do two or three steps a month, by all means do so.
The Groovy 12-Step Guide to Honing Your Discipline Muscle
Step one: Wake up 15 minutes sooner than you normally do and begin your day by making your bed. Then do a basic exercise routine that works your upper body, legs, and core. Start with a workout of 10 push ups, 20 air squats (squats with no weight), and a 20 second plank.
Step two: Remove sugary drinks from your diet. Heavy sugar consumption is the bane of this country’s collective health. It’s making us obese, riddled with type 2 diabetes, and, in the eyes of some, increasingly vulnerable to the ravishes of dementia and Alzheimer’s. So take the first step in the battle for your health by sparing your gullet from gallons of liquid sugar. It won’t be fun. Take it from a former sugarholic. But after a few weeks your cravings for high-fructose corn syrup will wane dramatically. In fact, by the time you start step three of this guide, you’re very likely to find sugary drinks quite repulsive.
Step three: Wake up an additional 15 minutes sooner and use that time to read one of the three featured articles on Rockstar Finance.
Step four: Begin tracking your spending. Save your receipts and make note on a piece of paper or your phone of any spending that doesn’t come with a receipt. Then as soon as you get home from work, log your daily expenses into a tracking spreadsheet.
Your tracking spreadsheet need not be complicated. All you really need are three columns: date, description, dollar amount. If you want a more robust tracking spreadsheet, you can try mine.
Step five: Listen to the Choose FI podcast on your commute to and from work. I have an Android phone and the app I use to download and stream Choose FI is called Podcast Addict. Start with episode one and then continue straight through every other episode in order until you’re caught up. That should keep you busy for a few months.
Step six: Analyze your spending spreadsheet and find a way to reduce your monthly spending by $100. If you have any consumer debt, use that extra $100 a month to pay down your debt faster. If you don’t have consumer debt, throw that extra $100 every month into a savings account.
Everyone’s situation is different, so I can’t tell you specifically how to save $100. But here’s some low hanging fruit that helped me reduce my expenses. It may help you.
- Get rid of cable.
- Bring your lunch to work.
- Have friends over for BYOB night once a month and remove one night of clubbing from your monthly expenses.
- Go cheap on things that don’t matter. You don’t need Air Jordans to walk around. Converse All Stars will do just fine.
- Cancel your gym membership and start doing body-weight exercises at home.
And if your looking for more frugal ideas, here’s a great post from Gary over at Super Saving Tips.
Step seven: Wake up an additional 15 minutes sooner and use that time to clean a different part of your house each day. A messy house leads to guilt and guilt leads to frustration and laziness.
Step eight: Give TV a break for one hour every night. Use that freed up hour to learn a skill that will make you more valuable in the labor market.
Again, everyone’s different. I don’t know what field you’re working in or what interests you. So I can’t tell you what skill you should hone. But with a little thought, you should be able to come up with a skill that will either advance your current career or allow you to pursue a more lucrative career.
Before I retired, for example, I was a data analyst. So many of the skills that piqued my interest had a data/programming angle. But not all. Here are some of the skills I tried to develop in my spare time over the past several years.
- Learning Spanish (still trying)
- Learning how to blog (still trying)
- Honing my SQL skills
- Honing my VBA and C# skills
- Learning about No-SQL databases
Step nine: Find a way to increase your monthly income by $100. This is perhaps the easiest step in my 12-step guide. Heck, all you have to do is deliver pizzas one or two nights out of the month. If you can’t pull this one off, there’s no hope. You might as well pack it in and buy a cheap van so you can live down by the river.
Haha! Only kidding. My point is that with just a little effort, earning an extra $100 month is a breeze. Here are three links with great money-making tips.
Step ten: Now that you have a $200 gap every month, continue using $100 to eliminate consumer debt or add to your savings. With the other $100, you need to start investing. One way of doing this is to open a Roth IRA with Charles Schwab. You can do it online in 15 minutes and Schwab has many low-cost fund options. I particularly find its S&P 500 Index Fund (SWPPX) intriguing because Schwab waives the minimum investment amount for this fund ($1,000) if you set up an automatic monthly investment of at least $100.*
I don’t have any affiliation with Charles Schwab. The discount brokers I deal with are Vanguard and Fidelity. I chose Charles Schwab for illustrative purposes, however, because it allows you to begin investing in an S&P 500 index fund immediately. For Vanguard and Fidelity, you need $3,000 and $2,500 respectively before you can begin investing in their S&P 500 index funds.
Step eleven: Wake up an additional 15 minutes sooner and use that time to watch a Brian Johnson YouTube video. Brian is all about the science of becoming a better human. Think Marcus Aurelius meets Richard Thaler. Here are three of my favorite Brian Johnson videos.
Step twelve: Start tracking your net worth. This is the ultimate feedback tool in the world of personal finance. If your net worth is growing every year, you’re doing something right. If it isn’t, it’s time to reassess your spending and investing habits.
Again, you don’t need anything complicated to track your net worth. A spreadsheet with liabilities (what you owe) on one tab and assets (what you own) on another is all you need. If you want something that’s a little more robust, you can try my net worth tracker.
Many people equate discipline with discomfort. And in some instances, it is. Working is harder than sleeping. Exercise is harder than quaffing beer. But in many instances, the discipline required to turn financial savvy into financial wealth is trivial. Buying a three-year-old Camry instead of a brand new Lexus isn’t exactly a testament to man’s indomitable spirit. Nor is celebrating Valentine’s Day by going to Sonic rather than a fancy French restaurant.
The simple truth is that most Americans can dramatically improve their financial situations without sacrificing anything of substance. All they need do is live a modest lifestyle by American standards. After all, any American living in a 1,300 sq ft home with all the standard amenities has better housing than 90% of the people on this planet.
Okay, groovy freedomist, that’s all I got. What say you? Is discipline the key? Or I am making too little of the dearth of financial savvy in this country? Let me know what you think when you get a chance. Peace.
* Disclaimer: Remember, I’m just some dude online. I’m not an investment professional in any sense of the word. Any investing information found on this site is for general informational and entertainment purposes only. It should not be construed as advice. If you’re looking for advice, you need discuss your specific needs with a qualified professional. Please see our full Terms and Conditions here.