How to take control. Financial Goals – part III

In the last couple of articles, we focused on personal finances through the prism of our system “GoalBuddy”. What we started with was exploring the model clarity – control – habits. The first step was to find out when, where and how much we spend. Then we looked at the ways to fully handle our finances. And today it will be all about how to make sure that the whole undertaking goes well and with minimal effort on our part.

Or to put it in other words – how to gain the skills for effective management of our finances.

Goals vs Habits

Some of the gurus in the world of personal development don’t recognize the goals as such and instead focus exclusively on building habits. For them, success is conditioned only on creating specific procedures to follow.

However, we believe this can’t be an end in itself. Our habits must be applied in conscious pursuit of a given positive objective. In our system, we employ them as a means to make progress automatically. Let’s see how this is done.

Habits as part of a system

A vision gives you the horizon of what you want and how to get there. You start moving forward with the help of your 90-day goals. The fully developed habits are the best way to achieve any objective without wasting much time and energy.

A routine doesn’t come out of nothing though. It’s always related to the work you do towards your bigger dreams. Sometimes you have to set up a habit as your objective. It will take a while before it becomes an essential part of you.

Habits and money

It’s a must for any personal finances system to be based on a set of good habits.

One illustration is Niki’s rule for waiting a couple of days before making an impulsive buy. He would give himself enough time to reconsider and if he still feels like it then he makes the purchase. When it comes to money behaving rationally pays off in more than one way.

Let’s turn our attention now on how he has developed those practices that serve him well to this day.

Habits oriented towards clarity

These apply to any case when your ideas haven’t crystallized yet. First, you pin down exactly what you want. You do that by taking some time so that you specifically assess all the available information.

# 1 The habit for research

Niki had gone through quite a few 90-day goals to educate himself on the topic of personal finance. These did fit perfectly with the objective of creating a habit. Dedicating one hour in the evening for reading will undoubtedly serve you well in any other topic you might be interested in the future.

# 2 Awareness Habits

But it took him almost a full year to figure out all the details of his spending. He accomplished that by including the following two into his daily routine:

  1. Keeping all the receipts;
  2. Entering each one into the computer according to their category.

Why is this not hard?

When you do something every single day it inevitably becomes an indispensable part of you.

Placing the receipt in your wallet is a simple act but if you are doing it several times during the day by the end of the month it will be happening on its own. The same is true for the 5 minutes in the evening when you enter them in the excel file.

The pitfalls

While seemingly uncomplicated, it’s still a chore. If one evening you forget to update the file and then you skip it the next day you may very well end up with a pile of receipts waiting for you on the weekend.  Well, in that case, it might be a full hour out of your personal time to finish the task.

Niki’s advice is to set up a reminder at exactly the same time. In that manner, it will become faster a natural part of your evening.

What’s so great about this?

It gives you a great view of your spending patterns in a way that’s smooth and effortless. You might suspect that there are months with higher expenditures but the precise picture will emerge only out of the Excel file. The data needs to be analyzed carefully. Only then you can come up with the best ideas on how to improve the overall situation.

The tail wagging the dog

Although collecting the receipts is meant to be for 12 months it lasted a bit longer for Niki. He realized he was still requesting cashier’s receipts even at the farmer’s market.

# 3 Money Management Habits

At this point, you already have a pretty good understanding of what the issues are. Now it’s time to take matters into your own hands. This means to find and employ a sound systematic approach.

Niki started with the usual type of budgeting. However, he quickly realized it wasn’t for him. Eventually, he discovered the best way to tackle the issue – the JARS Money Management System[1]. Here it is in a nutshell.

First, setting the jars on the shelf

It was a cakewalk for Niki – he created 6 different online banking accounts corresponding to the six jars:

  1. Daily expenses and other necessities
  2. Long-term savings for large purchases
  3. Investments
  4. Training and personal development
  5. Charity

It took him less than an hour. However, he had to first get used to placing all the funds in one account and then distributing them to the rest.

What are the potential difficulties and how to overcome them

As it is well known, practice makes perfect. Plus this perfection is transferable to anything else you wish to do. For example, Ivan keeps a diary which he updates every night, right after brushing his teeth. Something repetitive but beneficial gets easily integrated into your life. And only after 20-30 days, it becomes “second nature”.

A task performed only once a month requires more time though. That was the case with Niki. He had to set up on his cell phone a reminder for the last day of the month. He does it always at the same time and place – he just sits down and does it in about half-hour.

Let’s look now at the other major thing he does so successfully.

Second, the habit of strictly following the “6 Jars” model

Basically, it means that you don’t draw from the wrong jar when specific spending is needed.

It took him several months before he got better at not exceeding his daily expenses. Today, he regularly uses it to borrow from it when it’s needed for any of the other jars.

Why is this so challenging?

The problem is that it’s much quicker to make all the payments from only one account. However, this brings up a couple of issues:

  • It’s harder to keep track of all the transactions which means we won’t have a good understanding of our overall spending patterns;
  • Besides, the very idea of ​​several different accounts becomes pointless.

You will be able to affirm the new habit if you promptly return to the everyday expenses jar the amount borrowed to cover other expenses.

Why do we emphasize this!

Thanks to this approach Niki is now closer than ever to being financially independent. With the help of such a straightforward method, he stays fully aware of the structure of his budget without wasting too much time.

This is one of the best personal money management systems which works extremely well.

We full-heartedly recommend it. Give it a try so that you can see its advantages for yourself.

The universal value of the “clarity – control – habits”

It can help you in all those cases when you are not quite sure how to start.

We see that all the time at our workshops. People are surprised and excited by the fact that it’s so simple. First, you form the vision. Then you set one or two 90-day goals to choose a direction. Last is to start acting. The habit-building goals will make the whole process become a much easier endeavor. Pretty soon you will find yourself quickly advancing towards your dream.

Pretty soon, but not soon enough?

One problem of today’s fast-paced life is that of our perception of time. We want everything to happen right away and on the spot.

The truly important things such as family, health and wealth don’t undergo drastic changes overnight.

We all know that it takes a while to get in shape and yet we tend to underestimate the amount of time needed. The key, turns out, is to advance at a steady rate taking one small weekly step after another.

Action, action, action!

Not just concerning money but in many other things, we should find the balance between acting cautiously but decisively. It’s wasteful to stay at the first level, i.e. clarity, for too long. Just keep in mind that not everything has to be perfectly planned in the smallest possible detail.

It is much more productive to cover the following bases. First, you gain clarity, then you test different approaches, and finally, you form the habits. The trial and error experience can teach us a lot. We will learn how to draw important conclusions, to better understand ourselves and ultimately to move forward.

This will allow us to fill in the white spots on the map of life and when the fog is lifted we will be able to see how much closer we got to the summit of the mountain.

 

[1] The JARS Money Management System is a popular personal finance system designed and developed by T. Harv Eker. Generally, it allows you to distribute your earnings into separate accounts, aka “jars”, based on several categories. The aim is to run personal finances efficiently and in a balanced way so that costs, savings, and investments result in extra income.

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