Happiness is being satisfied with what you have. Unhappiness is always wanting more. To take responsibility for your money management is to manage your wants. Every decision can be placed in one of three categories: "have-to" decisions, "want-to" decisions, or "need-to" decisions. The first step is to separate your wants and your needs.
Understand "have-to" decisions
"Have-to" decisions" are decisions about what someone else wants us to do, or which you think you need to do because someone else expects you to do it. Do you worry too much about what other people think about you? For example, would you say to yourself, "I 'have to' buy that new car or house—or I will feel embarrassed around my friends." Sadly, it's human nature to judge others by their possessions, rather than by their character.
Whenever you hear yourself think, "But I have to!" stop and ask yourself, "Do I really have to?"
News flash: other people are not thinking about you as much as you think they are. They are too busy thinking about their own problems and themselves.
You may have heard the phrase, "He who dies with the most toys wins." Unfortunately, there is no way to win that game. Why? There will always be someone who has more toys than you. The game that you can win is this one: save, invest, and get rich. Here is the irony: If you're so busy competing and trying to appear wealthy, you're actually ruining your chance to become truly wealthy.
Understand "want-to" decisions
The next level of money motivations is "want-to" decisions. “Want-to” decisions are choices we make to buy things personal pleasure or comfort, temporary satisfaction or to relieve some stress or disappointment. Have you ever said to yourself, "I bought it because I wanted to. I know I couldn't afford it, but I wanted it so I bought it anyway." Look at "want-to" decisions carefully. They are seldom rational.
To spend needlessly on "wants" puts you behind on your investment program and derails your track to wealth.
Don't catch "the wants" virus
Don't have endless wants. Learn to want only those things that you truly need. Constant longing for something you can't have or shouldn't have can make you miserable. This misery can be called "the wants" virus. You have "the wants" virus when you say frequently, "If only I had [fill in the blank]."
Even if you finally get what you think you want, you may be surprised that it isn't what you really wanted after all. You may have heard the warning, "Be careful what you wish for—you might get it."
Understand "need-to" decisions
The last and most important level of motivation is "need-to" decisions. What is necessary to meet your life goals and care for your loved ones? You need to pay for your basic need of food and shelter (appropriate in relation to your income) and to save for investment, retirement, your children's education, and unexpected emergencies. You probably have life goals that require investment in yourself for future reward.
Everyone has had the unpleasant surprise of broken major appliances, unplanned car repairs, costly dental work, or medical tests. Someone close to you may need long-term medical care someday. Medical expenses can crack your retirement nest egg, if your health deteriorates. Health care costs are rising all the time and people are living longer than ever. Put all these possibilities together, and you can see that saving your money wisely is a "need to" decision.
To categorize a purchase as a real "need," you must have a clear understanding of your own definition of "have-to"s, "want-to"s and "need-to"s. A good test is to ask yourself The, "Is this the best use of my money? Can I live without this? Do I really need it to improve my life?" Keep your real needs uppermost in your mind. This will help you resist the "have-to"s and "want-to"s, and help you focus on the "need-to"s. If you learn to tell the difference between something that you need to survive from something that you simply desire, your purchasing decisions become easier to make and they will make more sense.
How to Develop Financial Discipline
As W. Somerset Maugham so sadly pointed out, "The unfortunate thing about this world is that the good habits are much easier to give up than the bad ones." Someone else observed, "Bad habits are like a comfortable bed, easy to get into, but hard to get out of."
We all know that it takes discipline to handle money wisely. Nevertheless, if you treat your money well, your money will be good to you. Here are some ways to treat your money well:
Get a good return on your money
Everyone wants to get a good return on their money. How would you like to make 10% to 20% on your money? Here's an easy way: pay off your credit cards! If you don't have to pay your credit card interest rates of 10% to 20%, it's the same thing as saving or earning that money. Don't be one of the vast numbers of credit card holders who are paying interest on their balances. Be smarter than they are.
Verify your expenses
Open up each bill when it arrives and analyze each bank and credit card statement to check if it's accurate. Put each bill in its own file or envelope.
For your checking account, use check stubs that make a copy of the checks you write. This helps you keep your checkbook balanced because it provides a copy of all the checks you wrote, in case you forget to note it in your records.
Avoid ATMs
Avoid automated teller machines. Sure, ATMs are convenient, but convenience costs. If you use an ATM at a bank branch that isn't your own branch, many banks charge a fee for using that ATM. Some banks have been raising these fees. The fees can add up fast. The cure for ATM dependency is to plan ahead, go to your bank during bank hours, and withdraw the cash you need.
Don't hide your spending behind "saving" with coupons or sales
When you buy something, if it is a "want" rather then a "need," it is not a savings, even if you used a coupon or got it on sale. You didn't really "save" money, you spent money. This reminds us of the story of the spouse who proudly returns home from a shopping trip and tells his or her mate how much money all the sales at the store "saved" them. The response from the mate is, "If we saved so much, why do I feel so broke?"
We encourage you to use coupons and shop at sales. Just don't let yourself get carried away by all the spending opportunities.
Earn extra money
To reach your goal of having extra money, you may need to explore beyond your "comfort zone" and look for new ways to make more money.
Weekend or evening jobs can supplement your earnings. You can share your home or apartment with a friend, relative, or tenant and split expenses with them. For extra spending money, you can tell friends and family that you are willing to house sit, pet sit, walk dogs, run errands, or provide other occasional services.
Sleep better at night
There is an old saying, "Make good habits and they will make you. Pretty soon, your new savings habits will become easier and you will start to see how they make good things happen in your life. Plus, the peace of mind you will gain will help you sleep better at night.
How to Fight Money Procrastination
A law of physics states, "A body in motion tends to stay in motion; a body at rest tends to stay at rest." When it comes to money, procrastination—doing nothing—can hurt you. You may feel indecisive, not knowing how to start saving. But choosing to do nothing is still a choice with consequences. This choice can cause you to lose out on opportunities that could change the course of your life.
The following suggestions can help you overcome procrastination in your savings program.
Identify your favorite excuses
We all have our favorite excuses for why we can't or won't do the things that we should. For example, we all know we should "eat less and exercise more." It's a simple concept. Why is it so easy to find good excuses not to do it? We tell ourselves, "I'm too stressed out," "I'm too tired," "I'm too busy," "I'm too upset." We claim, "I don't have enough confidence or energy," "That's just the way I am," or "I can't do this on my own."
Here's the deal: You can pick any excuse. Each excuse works as well as any other. No matter what your reason is, you are using it to stop you from doing what you know you should be doing. You are allowing excuses to paralyze you.
Your excuses may be true and worthy, but it doesn't really matter. The fact is, if you want to increase your savings and improve your life, you need to figure out how to overcome these destructive self-messages.
Think of your "Top Three" favorite excuses for not saving. Write them down and take a look at them. To help you overcome the paralysis that excuses create, here are some ways to get started.
Use automatic savings
Automatic savings is an automatic deduction from your payroll check or your bank account to go into a savings account. You can set aside money weekly or monthly. Once established, the program will work in your favor. Studies show that workers who are on an automatic savings plan are more likely to stick with that plan.
Automatic savings takes only a few simple steps to set up. They work because you never see the money. Some plans can be put into an investment automatically to start earning a return. Study the 401(k) plans and savings plans offered at your place of employment.
Use automatic deposit
You can have your paycheck automatically deposited. This way you can't misplace your paycheck, and your money is available to you faster than if you deposited it in the bank yourself. If you track your bank accounts online, you can see exactly what checks have been deducted and what haven't yet been cleared from your account. Don't forget to check your statement each month for any bank errors.
Use automatic bill paying
Another technique is to pay bills automatically. This is when your bill payments are deducted from your bank account or payroll check and sent directly to the vendor to pay your bills. This prevents you from misplacing your bills, forgetting to pay them, or paying them late. If you've ever paid a bill late, you know about late fees and penalties. With automatic bill paying, your bills are paid on time, every time.
To make automatic bill paying work, be sure you have enough money in your bank account on the day that each bill payment transfer is put through. Otherwise, you will have overdraft charges or checks bouncing. You can protect yourself from overdraft fees by acquiring a line of credit linked to your savings account. Nevertheless, there is no reason to overdraw your account. If you are concerned about exceeding your balance limit, put as much "padding" as you can into your account. But don't spend the padding!
Avoid overdraft fees and late fees
When you have several payments pending, many banks have adopted the procedure of processing the largest check you wrote before they process the smaller checks you wrote. Banks make lots of money charging overdraft fees. They are more likely to collect those fees and more of them if they deduct the larger check before the smaller amount.
Banks and financial institutions stay in business by making money. To do this, they use your money. To achieve that goal, they need to do several things. They need to acquire as much of your money as possible, keep your money as long as possible, charge you the highest interest rate possible, and pay you the lowest interest rate possible.
On the other hand, the banker at your local bank branch can be very helpful. Go in and create an alliance with him or her. Ask for suggestions about how you can do a better job budgeting, saving and eliminating fees.
You may be able to spread out the payments that are deducted from your account. Ask your creditors to try to change the "due dates" on your bills so that they are not all due at the same time of the month. This will help you manage your finances and prevent overdraft fees and late fees.
Heidi Clingen is a long-time resident of Stevenson Ranch. She and Samuel K. Freshman are authors of The Smartest Way™ to Save, Why You Can’t Hang on to Money and What to Do About It. They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of The Principles of Financial Independence or submit questions, email them at Heidi@TheSmartestWay.com
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