On the last page we touched briefly on the fact that there are techniques you can implement to gain effective financial discipline. This page we’ll look at a few more that you can begin to use right away.
#1. The Key is to hold yourself to the 24 Hour Rule. If you ever see a deal that is just too good to be true, wait twenty-four hours before you buy. It will save you a lot of money over time. Even if it looks like you’ll lose out on the deal, in the long run, sticking to the 24 Hour Rule will be a huge blessing.
Learn to wait and deny yourself. There will always be another deal, but sticking to your budget is the best deal of all.
As you attain more wealth you can amend the 24 Hour Rule by putting a price on it. For example, Orrin uses $500, and if he wants to buy something that costs more, he waits at least twenty-four hours. Until you are out of debt and have wealth, your number should be very small. At first, just apply the 24 Hour Rule to ALL purchases. Spontaneous purchases are Not OK. Make them illegal in your household!
#2. Have an Emergency Fund. as mentioned earlier. Note that your emergency fund is not for Christmas or good deals or other savings. It is ONLY for true emergencies. Don’t touch it for any other purpose. If the axels fall off your vehicle, or it breaks down and you need it for work, that is an emergency. Decide what constitutes emergencies for your situation. Floods, Fires, Evacuation, Sickness… all those things can become emergencies and you need to be prepared to meet those challenges.
#3. Pay Yourself First and keep that money always. Do not ever spend it. This is a strange concept for most people because they have been raised without understanding the principals of financial fitness. But this is a key part of financial success. For now, get a separate savings account and put 10% of everything you earn in that account and leave it there.
#4. Create automatic transfers that build this fund monthly or every time you receive income. Making it automatic makes it seem like a “monthly bill” and is a help in cementing in your mind that this is a necessity that must be paid. You won’t notice it going every month and you won’t have to make the monthly decidion to transfer it yourself. Make Principal #1 automatic.
TECHNIQUES FOR EFFECTIVE FINANCIAL DISCIPLINE
#5. If you are really struggling to make these changes (and unless you pay off your credit card bill in full every single month), cut up your credit cards. Or freeze them in ice and leave them in the freezer so that if you come to a moment of weakness, you will have to wait for them to thaw.
Handing over cash for a purchase hurts more than just scanning a credit card.
#6. Have a financial mentor that has to give approval or be present, when you withdraw funds, especially for a spontaneous purchases. This will make you stop and think about whether or not you really need this purchase. Whatever you decide, you’ll also have to convince your mentor. Another way to think of this is how your spouse/partner would react to your spontaneous purchase if you are jointly budgeting to reach your financial goals. Would they be disappointed or angry or frustrated by your spontaneous purchase. This is why both parties need to be on the same page with household budgeting and future financial goals. By respecting your joint budgeting goals, you’re also honoring each other.
So before we continue on with any more techniques, let’s see how we can actually apply some of these. For instance, having a mentor. Is there anyone better to hold you accountable than your spouse, especially when you’ve both committed to getting out of debt and financially fit? If you don’t have a spouse, how about a parent, a sibling or make a pact with a best friend. Make this a Priority. Find someone to help hold you accountable and that you can work with for practical support and encouragement. You will need this persons help. Believe me. Been there, done that!!
Next, Pay yourself first… how in the world can you do this when you are stretched to the limit and there is NO spare cash outside paying bills.
OK. I hear you, but do you see that that in itself is a problem you probably created for yourself? It’s the mindset that you can just go borrow money until they won’t lend anymore to you, that is the problem. So let’s tackle that head on.
A) How much money in the run of the day are you spending on morning coffee, vending machines, lunch? If you know you do but don’t know how much on average, then it’s time to set up online banking that you can check every day, or, keep EVERY receipt… or both.
On average, the majority of working adults spend between $60 to $400 per month on these three things alone… and that is a very conservative average. Most people nickle and dime themselves into poverty. $2 here, $8 there, $3 more for the chocolate bar at the gas pump purchase. Then the occasional lottery ticket and Wow.. 3 bags of Tostitos for $7.
TRACK YOUR SPENDING. I can not emphasize it enough. Watch what you spend your money on. You will never be able to have an emergency fund or pay yourself first if you don’t track your spending and put a halt to foolishly spending your income on things that are totally unnecessary.
If you could cut out $300 a month on those unnecessary things, do you think you’d be able to put $150 into an emergency fund and $150 into a Savings fund?
You could have the money hiding in plain sight. You just need to be vigilant and recover it.