Financial Tip Friday: Discipline, the Hardest Part of Personal Finance

Financial Tip Friday: Discipline, the Hardest Part of Personal Finance

One of the things that I struggle with a few aspects of my life is discipline. In fact, I struggle with that probably the most in two areas: food and personal finance. Probably my biggest problem with food is that I don’t discipline myself to a certain diet or types of food. I have never been good at it. I figured that if I weightlift and go to the gym enough that I will just automatically lose the weight. Well that isn’t the case. Last week I went for my annual physical and even though I hit the gym at least four times a week (believe it or not for those of you who know me) I struggle consistently with losing weight or at least keeping it off. Part of my problem is good ‘ol fashioned discipline. I eat too much for my age, metabolism, and the like. I keep saying I will change, do well for a couple of days, and then I will have some really bad food from a restaurant or whatever. Over the last month I have tried to be really conscious of what I put into my body (not that it has helped much). I am still about the same weight I was at the beginning of the month, but I am beginning to at least have a mindset that I really try to watch what and how much I am eating. I don’t have a choice. I am at risk for a heart-attack, etc. Most people tell me that I am not that overweight, etc or that you look healthy, but the reality is that I need to do something.

Sorry for the long-winded confessional, but I thought about that as I was listening to the radio today. At 5pm there is, if I am in the car, a local financial radio show I will always listen too. This week’s subject was the idea of discipline. Now I have written about how people need to save 15% of their income, consider their risk tolerance, their asset allocation, dollar cost averaging, and other subjects. However, none of those items makes a difference if you don’t have some financial discipline.

My lack of financial discipline lies in two areas. First, I am always playing mental monetary gymnastics   with myself and trying to figure out how I can pay debt off faster. For whatever reason I don’t trust my plan. Even though I think it is a solid one (e.g. saving at least 15%, paying down debt, paying ahead on the mortgage, etc). Additionally, I am always try to tinker with my investments. Not every month or even every six months, but at least once a year for the past five years I have changed things up. I will sell a fund that goes down or I will constantly change the allocation. I need to just stick to the plan. This time come January 1st I vow not to change my investments, but stick with the plan. I might rebalance things a bit (which is a good thing) but I am not going to change my investing choices. I am just going to add to them.

The biggest problem that most people have when it comes to discipline is actually saving in the first place. Making a conscious choice to save every month a specific amount can be difficult for some people, especially if they don’t have an ethic, a habit of saving. I mean let’s say you are used to $2000 per paycheck and you now take $200 every paycheck for your IRA. Losing that $200, for some, can be difficult. Or what happens even more often is that you get your paycheck, you tell yourself you will save x amount of dollars or you will try to put it away and by the time you are done with bills, going out to eat, etc you have nothing left. I mean this happens all the time. And I have family members that complain to me about it all the time. Discipline can be the hardest part of personal finance. It might be the hardest thing.

How To Create Discipline

Well, let’s be honest it can be hard to create discipline toward finances, dieting, etc. I am still working on the formula for dieting, but for finances I think the key is to fool yourself. The host of that radio show I mentioned, even though he is a highly successful CFP, mentioned that he doesn’t trust himself when it comes to his money. He has a propensity to buy things he doesn’t need or would at least like too. So how do you create financial discipline.

First, make savings and bills automatic. Every two weeks I get paid and I make sure that those investments are automatically deducted. I know how much I am making, but psychologically I am setting that money into a retirement account that I know I can’t get too for a long time. By putting it somewhere that is forbidden and will actually cost me in the long-run I know I won’t touch it.

Additionally, make your bills automatic every single month. I have most of my debts, mortgage, electricity, etc set on a specific schedule and I post that schedule on my computer. I know exactly what is coming out when and how much I will have left over. That is one of the reasons I have never missed payments I make them automatic so I don’t miss the money. I mean I do miss it and I think what I could do with that money. However, because I feel like I need to make my money do something I make it automatic so it is out of my hands.

Furthermore, if you are trying to save, outside of your retirement accounts from work, make those savings automatic. For a time, I was making sure that at least $100 every paycheck was going toward my Roth IRA. I haven’t done that lately because I hit my contribution limit earlier this year. So, instead, I make sure that money automatically goes to a savings account. That allows me to build savings and I don’t see the money.

A final way that I create discipline is with the use of an online savings account. Specifically, I use Ally Bank. By the way, online banks are just as save, in my opinion, as your regular credit union or major bank. What I do is I have all of my extra money transferred to this bank and then I only transfer what I need back into my checking account to cover bills at certain times of the month. Because I don’t have a debit card with my savings account or anything then I can’t access that money right away. I have to be super conscious of what I am spending it on. It also takes at least two business days for a transfer to occur. In other words, if I really want to purchase something I have to think about it for two days.

Considering that most shopping is impulse in nature this gives me the advantage of being able to rethink any major purchases and most of the time I realize I don’t need it.

The point is I psychologically put up barriers to accessing certain amounts of money. In doing so, I train myself to have some discipline. Most of us have to do that. We need to train ourselves to have discipline. Studies demonstrate it takes 90 days for a new habit to set in. So if you want to establish some financial discipline I would do something that might be counterintuitive: set up barriers to your money. Have it automatically taken out of your paycheck for retirement contributions, or automatically deducted into another account for saving for something larger or your emergency fund. Make your bills automatic and set out a chart to know that you need x amount of dollars in your account at a certain time. Finally, you might create a larger barrier by moving that money to places that can be difficult to get too. If I had a normal savings account at my bank I could move money at will. With an online savings account connected to my other checking account I create psychological barriers and logistical ones to use that money. That often tempers any needs I have for whatever kind of stuff I want (e.g. going out to eat or whatever).

Do you struggle with financial discipline? How do you go about changing your behavior?

4 thoughts on “Financial Tip Friday: Discipline, the Hardest Part of Personal Finance

  1. Hi Jason,

    I think you’re onto the key for losing weight and saving money–with the discipline tips and it isn’t easy so kudos to you! I find exercise may help maintain my weight-it doesn’t help me lose weight. Eating healthier, eating smaller portions at meals, and eating more slowly were all crucial. Keeping a list of what you eat daily, forcing yourself to eat outside the kitchen, sitting down in another room, making trade-offs and counting the “treats/desserts/splurges,” etc. are all helpful. I find the details, however, to be pretty personal and only you (and maybe a nutritionist if you have one–opt for one) can fine-tune and tailor a plan to your lifestyle.

    I found (unscientifically) that I lost 25 lbs in 8 weeks by doing a jump-start (not a long-term lifestyle change) diet that consisted of very low calories, low fat and low carb daily intake. There were a lot of harsh restrictions on this diet and I only did it for 8 weeks to get jump started. After that point, I doubled the calories and fat–but didn’t double the carbs. I also began running 30 minutes 3-4 times a week. After 12 months total from the jump-start onwards I had lost 50 lbs (so the other 25 lbs took 10 months). AND I increased running to 15-20 miles up to 5 times a week for the last four months!

    Anyway, the weight loss was far more about lower daily calories and far lower grain carbs on a daily basis — for me.

    The exercise, however, seemed to help my metabolism move (not increasingly faster–but not as slow as before I started the diet), and it gave me energy, fresh air, better mood, GOALS to work towards, and social benefits, etc. I joined a run training group that met once a week and the coach provided me with weekly run plans – it has kept me honest! I have no idea why grain carbs (bread, pasta, rice) and refined sugar carbs seem to be far worse for me in terms of weight gain than fat (meat, dairy, eggs, nuts). I also find that salt from processed meats can make me retain a lot of water. Literally the first 9lbs I lost the first week and I’m certain it was all water I’d retained and I think that bread and pasta, etc. make me retain water horribly.

    It is a constant struggle for me as well–however, to maintain my weight. Because I’m still tempted to eat more and eat less healthy items. And when I’m in a rush or stressed, I eat beyond feeling full. I regret eating beyond feeling full and I try to remember that crappy feeling and remind myself the next time I’m tempted.

    Usually, I’m good during the work week and I splurge one day on the weekend–I try to splurge on one thing (either one dessert, one decadent pastry, one thing breaded and fried, or wine). For me it gets a little dicey when I double or triple up on the splurges over the course of a single weekend. I have work to do after a weekend of a pastry breakfast, fried seafood dinner, 1-2 desserts and 2 glasses of wine, and my scale reflects it. I was pretty grumpy and light-headed for the first two weeks when I significantly reduced carbs. Those first two weeks were hard. If you’re not someone to do a jump-start diet try reducing portions or calories by say 15-20% (instead of 50%!). I eat roughly 30% less calories/30% smaller portions on my lifestyle change diet. I find that carb and sugary calories are worse than other ones, too, which was surprising to me. I had only stuck to a diet for a brief amount of time before–I was lazy and resistant even though I knew my metabolism simply wasn’t what it was in my early 20s–and never would be again.

    I’m happier not because I weigh less though. I’m happier because losing weight enabled me to enjoy exercise and engage in aerobic activities more comfortably/more easily. I’m also happier and enjoy the taste of food more when I eat more slowly, eat less, and save treats for once a week.

    Anyway–this was all just what has worked for me so far–not meant as advice for anyone else–just here in case anyone finds it remotely useful.

    1. Thanks Heather. I will definitely look into the weight loss stuff….or at least find something that jumps starts something. I need to shake it up a bit.

  2. Wonderful post, Jason. Thankfully, my wife and I don’t struggle too much with financial discipline – but it’s not because we are “strong” people. Rather, it’s because we value retirement MORE than anything that we could possibly buy right now. Even if retirement were five years off instead of one, it wouldn’t matter. We want retirement more than stuff, and when that happens, your discipline is almost automatic.

    1. I do think that is right, meaning it is what you truly value. I am just at a point where I don’t value stuff anymore. I don’t care. I mean I enjoy a good set of golf clubs or even the cut of a good suit, but it matters less than travel and my career.

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