Most of us want to be better with our personal finances, and if we only had the right budget, had more time, or got a raise, we would.
"Next month, I'll start taking my finances seriously," we promise to the universe. "Or maybe the month after."
It's an endless cycle of unfilled promises and empty wallets.
It's not that we have no system for controlling personal finances. Finding a budgeting program online takes about ten seconds. And once we find a plan, it's as simple as changing our habits accordingly.
But that's the issue: Changing our habits is extremely difficult.
Taking positive actions toward managing our money usually lasts about a week, then our willpower breaks and we toss the whole program out the window.
Usually, the same 3 points of failure kill our personal finance plans:
- It's too time-consuming.
- It's overwhelming.
- It's unrewarding.
Then we panic and wish we could just stick to a budget, so we start the cycle again. In this post, we'll look at how to remove the points of failure from our plans so they're more user-friendly and more likely to stick.
Point of Failure: It's too time-consuming
If you've never exercised, then starting a fitness program requiring 2 hours in the gym every day will leave you aching. In the same way, if you're spending hours budgeting and tracking every purchase you make, you'll exhaust yourself in a week.
What if you spent only 1 hour monthly, though? Most of us could stick with a system that easy.
That's personal finance expert Ramit Sethi's idea. His secret to spending only 1 hour each month on his accounts is automation.
Ramit tells readers to have their paychecks direct deposited into their checking accounts, and and have their bank automatically send a percentage to a 401k, Roth IRA, and savings account. Automating credit card payments and using BillPay for payments not on a card covers the rest of most people's expenses. It makes saving and paying bills easy.
And when it's easy, it actually happens.
Point of Failure: It's overwhelming.
Your life is complex. It's rent and groceries and insurance and those special insoles for your flat feet. Throw debt into the mix, and you've got something more challenging to understand than Taco Bell's new Captain Crunch Balls.
The roadmap through this haze is budgeting. You're probably thinking, "Tried this before, and I can't stick to budgets."
What you don't understand is self-control only has to last as long as it takes to identify the essentials of your lifestyle. Write down your monthly income, and then subtract the expenses you can't live without: rent, insurance, groceries, etc. Pay for those, and anything left over is yours to spend - guilt-free.
Point of Failure: It's all sacrifice and no reward.
To get started with budgeting and making smart decisions, it's important to identify what it takes to live your current lifestyle.
If you had your ideal lifestyle, though, how much would it cost you? Author Tim Ferriss asks readers this question in the 4-Hour Work Week. While you might not buy into 4 hours generating thousands monthly, you probably wish you drove a better car or could take trips to Cambodia.
Tim recommends writing down what you want, giving yourself a timeline, and then figuring out the cost of getting it.
Let's say three months from now, you want to go to Germany for a week, and that trip costs $2,000. That's $666 monthly for each month preceding the trip, or $7.50 each day. Send a portion of your extra income to this, and you'll be in Munich before you know it.
Often what makes the difference between succeeding and failing is perception. If you perceive something to be hard, it will likely be harder than it should be. Use these simple tips to follow, and move forward. With a positive attitude, you will succeed.
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