“Do not save what is left after spending. Spend what is left after saving.”
-Warren Buffet
Financial discipline involves controlling your spending and ensuring that you pay for the things that you actually need. The hardest parts for most of us is controlling our spending and keeping our hands out of the piggy bank. Most people like to use the excuse that they are waiting for when they have huge amounts of money, before they start tracking where it all goes. But the thing is that you cannot spend your money aimlessly, no matter how little, and still manage to create wealth.
If you cannot control your spending, then no matter how much money you make, it will never be enough. Our wants will always be able to consume whatever income we can acquire. In short, expenses always rise to match your income.
If you cannot manage $100, you will not be able to manage $100,000 when you get it. This is because the attitude you have about that small amount of money is the very same attitude you will have when you get more money. For example, how many people who win millions in lotteries do you find still wealthy a few years later? It is easy for an average person to deride the frivolous spending habits of a celebrity, but the truth of the matter is they would probably be worse if they were in a similar situation.
A budget is one of the main tools people use to manage money, but there is more to financial discipline than jotting down a spending plan on a piece of paper.
You should be able to deliberate about how you spend money, or else you will be caught up in a vicious cycle of working to earn more to spend more. The world will never run out of things to buy and the general cost of living continues to rise as long as you live.
The only thing that can take you off that trap and put you on the path to creating wealth is financial discipline. This means controlling yourself and your spending habits - changing the way you think and feel about money.
Kevin O’Leary is my role model when it comes to the attitude we must adopt towards money. I saw him for the first time on a television show called ‘Shark Tank’ and was inspired by his story. He took a ten thousand dollar loan from his mother and turned it into a business which he later sold for over three billion dollars.
That is a feat few people can replicate, but that’s not why I mentioned him. His attitude towards money is this, “Here’s how I think of my money – as soldiers – I send them out to war every day. I want them to take prisoners and come home, so there’s more of them.” What is your attitude towards money? There are no gray areas – you are either making money or losing it.
With discipline, you can be able to delay or forfeit the purchase of certain things today because they are not a part of the big picture. You should be able to say “no” to purchases you normally make on a whim. These impulse purchases are the chief contributors to people not following their budget. You can make a budgetary amount to account for impulse purchases but then make sure you do not go over that amount on a monthly basis.
Those who do not have a natural amount of discipline must acquire it the hard way. Acquiring it comes from learning to practice it in small amounts. Start by simply trying to follow your budget. Once you can do this then the next step is to be able to save money. Saving money requires you say no to yourself when you have the urge to spend it. We often think we “must” when in truth there is no urgency other than that which we have created in our mind to justify an expense.
One important thing to consider is that discipline is a skill and can be learned just like anything else. Another corollary to this is that spending is a habit too. Thus a key part of financial success is learning the skill of discipline and breaking the habit of spending.
When you are able to accomplish both of these objectives then you will be well on your way to financial solvency and a well-managed portfolio. Below are some tricks I found that can help you develop financial discipline:
Use Rewards and Punishments
Rewards and punishments are the best way to learn a new skill and acquire it as a habit. Keep a spending diary to keep track of all your expenses. Perhaps you can allow yourself a personal spending spree if you maintain your budget for two months. If you go over budget, you force yourself to forego some pleasurable activity.
Accountability
One of the most beneficial aspects of having a financial advisor is the fact that you are in some manner accountable to them. The simple human desire to appear competent to someone else is often enough to curtail your spending when you know you meet with your financial advisor to go over your portfolio.
However, a financial advisor is not the only way to be accountable. A spouse or a friend can serve the same purpose.
The bottom line is that accountability always helps to break bad habits and accumulate new ones.
In conclusion, you can become more financially disciplined if you place a monetary value to the time and effort it takes for you to get an income. Many times we spend bits and pieces of money here and there, thoughtlessly ignoring the time and effort it took to get it. Let’s say you have $3,000 in the bank on payday and you take out $300 for a night out. You made that decision knowing that you still have a chunk of money left in your account ($2700). It is not a big deal, right? Well, not if you don’t consider how long it took you to earn that $300, and that you’ve just spent it all in a matter of hours. It is a wonderful thing when you can go to bed richer than when you woke up. Think about that next time you go to sleep.