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?