Kicking bad financial habits is not easy but it is doable.
Here is a common misconception.
If I had more money, I would manage it better.
Here is another one.
I don’t have enough money to save and invest.
It’s easy to believe that we spend money based on what we have but honestly we spend based on what we value.
Think about it…if financial reward was only tied to how much money we have, millionaires would never go broke.
Would you believe
- 78% of NFL players go bankrupt or are under financial stress in 2 years and
- 60% of NBA players are broke in 5 years?
Sports Illustrated: How (any Why) Athletes Go Broke, March 23, 2009
This is surprising but should it be?
How many years have I (and you if you’re honest) have earned decent salaries and had little to show for it at the end of the year??
There is a lesson here–and it is simple whether you are a thousandaire or a millionaire–spend wisely and have a plan for financial success.
In full disclosure, many NFL and NBA players are disproportionately exposed to bad business deals or dishonest financial advisers but more often, overspending and underpreparation play key roles in their financial losses.
So how can we do better, turn our finances around and accomplish financial success?
Here are 3 ways you can get started today and kick bad financial habits.
- You must have clearly defined and written goals.
Doing great things rarely happen by chance. Doing great things with money definitely does not happen by chance.
Everyone needs financial goals. Goals usually start with your values. If you value paying off your student loans once and for all, you will start setting goals. Those goals evolve into your action plan.
Based on your motivation and ability to take action, writing your goal on a stickie note might be all it takes to get going.
But if you need more direction, use the SMART approach. SMART is an acronym for
S – Specific
M – Measureable
A – Attaniable
R – Realistic
T – Timely
Here is an example of a SMART goal for a person wanting to payoff their student loans.
For the next 12 months, I will pay an extra $100 a month on my student loans. In order to come up with the extra $100, I will bring my own coffee, lunch and snacks to work.
Once you have your SMART goal, make it visible!
For the example above, post it in the kitchen so you are reminded to take a few minutes to pack food before work each day. Then, perhaps encourage a co-worker or friend to join you, or to at least hold you accountable.
Don’t worry if you fall off track. Just start!
Here is the next way to get rid of those bad habits.
2. You must understand your power to produce.
What if 5 years ago you had saved $200/month? Just the principal alone (the money you contributed) would be $12,000.
Now, imagine that you had placed that $200 in a mutual fund which grew just 6% each year.
Instead of $12,000, you would now have $13,954!
That is the power to produce versus the power to consume.
We are hyper-consumers!
We have a natural ability to shop and spend money which is constantly reinforced in our culture.
But you have to realize the opportunity cost of always spending.
So before your next shoe, clothing or jewelry purchase, stop and ask what is the opportunity cost! Decide if that next purchase is worth not having anything in your savings account, or if it’s worth keeping you in debt a little longer.
It’s hard for money to simultaneously consume and produce.
Here is the 3rd way to kick bad financial habits once and for all.
3. Realize everything has a deadline.
No mater how great life might be right now, things change. Jobs end, markets crash, relationships go south, companies fail or downsize, or worse, sickness or injury can enter the picture.
These life events happen to everyone and since we can’t opt-out of the unexpected, it’s best to be prepared.
The best example of preparation is learned from ants. Yep, the smallest and most vulnerable of all animals can teach us about preparing for tomorrow.
Take a lesson from the ants, you lazybones. Learn from their ways and become wise! Though they have no prince or governor or ruler to make them work, they labor hard all summer, gathering food for the winter.
New Living Translation
Key words: work, labor hard, summer, gathering, winter
Ants do not waste time or energy. They work and labor hard. They use today’s resources wisely. They gather food while it is in abundance (the summer) and store it because they know a down shift (winter) is coming.
In other words, they realize the deadline on their ability to gather and to prepare for tomorrow.
We must have the same mentality. We must develop a sense of survival that causes today’s income to take care of tomorrow’s needs.
Don’t assume you will always be able to earn an income. One of my favorite sayings is You can’t save and invest in the future for the future.
Now is the acceptable time!
So there are my 3 ways to finally kick bad financial habits so you can live and enjoy the financial freedom you deserve. Of course this list could be much longer but getting a perspective on practical thoughts that hold us back is a great start.
How else have you been able to improve your financial habits? Please leave a comment!