If you want more financial discipline, you probably want to curb impulse spending, save money, or maybe just achieve financial stability.
Building self-discipline in your financial decisions is an important part of building wealth in the long run.
Why self-discipline is the key to being a good saver
Saving well requires self-discipline as there are so many fun things to make and buy. You are exposed to more advertising than anyone in the history of the world, and marketing companies know a lot about psychology and how to get you to part with your money.
Therefore, it takes a lot of self-discipline to fight these tactics and stay on track to achieve your goals. You must have a clear goal, and you must know that reaching that goal is more important than anything you can buy.
It takes a lot of self-discipline to overcome the temptation to put off the pleasure of spending money and save it instead.
Steps to develop self-discipline
Step 1. Set a goal and then break it down into regularly recurring activities.
What exactly do you want to achieve? It could be creating a fully funded emergency fund, starting an investment, paying off debt, or even achieving financial independence—or anything in between.
Write down exactly what your goal is and the date you want to achieve it by. For example, you may want to pay off your credit card debt within one year.
Then break down exactly what actions you need to take on a regular basis. Make these activities as small and regular as possible. A small daily action is better than a large monthly action.
For example, if you owe $10,000 on your credit card, you need to pay $833.33 each month. Is it doable? If your budget allows it, great. If not, you need to figure out exactly what you need to do to make up the difference.
If your recurring payment is $150 and you can get an extra $200 per month from your monthly budget, that means you need an extra $484 per month. If you have time to walk your dogs after work, you can choose a dog walking client for several walks a week. At $25 a walk, you would have to walk your dog 20 times a month to make up for the required $484. If you were to take on a client who needed to walk his dog every day after work, you would have the full amount.
You now have a goal and an action plan to reach that goal.
Here are some examples of short, medium, and long term goals, but feel free to fill in the gaps with your own personal financial goals.
Short term goals
- Putting money aside each month into your reserve fund
- Go out to dinner with friends twice a month
- Small household projects (planting a small indoor garden, painting a room, etc.)
Medium term goals
- Weekend Savings
- Cash payment for your next car
- Pay off credit card debt
Long term goals
- Down payment for a house
- Paying off student loans
- Saving money for retirement
Read more: How to prioritize and save on multiple goals at the same time
Step 2. Track your progress
You will need some way to visualize and track your progress. This is very motivating for many.
Using your car repayment example above, you could make a thermostat and a color in the section each time you make a payment representing the amount of money you paid (or left in a loan). Or cover a piece of paper with asterisks (or whatever) and color the asterisk each time you send a payment, each asterisk represents one payment or a certain amount of money.
Hang your tracker on your fridge so you can see it every day and remind yourself of what you’re working on. Make it a little celebration every time you fill up more of your tracker.
You can also go digital with goal tracking. Apps like Empower offer several different services for investing and checking your finances. But in this case, I’m referring to the free tools they offer for tracking your net worth.
You can create an account with them without opening an investment account. The money management and planning tools are the ones you are likely to be most interested in to help determine where you currently are.
You can connect all your financial accounts in the tool. It will be things like:
- Account verification
- savings accounts)
- Investment account(s)
- Student loan account(s)
- car loan account
- Mortgage account
- Credit cards)
- Medical debt account(s)
Sometimes it can be quite scary to see what your real net worth is compared to where you want to be.
But I use it as a driving force to work harder every month to increase my overall net worth. Because the faster I can increase my net worth, the faster I can reach my long-term goals.
Step 3: Find your tribe
Find people in your life who are working towards similar goals. This will help build self-discipline because you will have a community that embodies the new behaviors you want to create.
If you meet regularly with debt collectors, you will have more discipline to follow the same path. You will have someone to share your progress with and a friend to help you when you are struggling.
Compare this to when your friends regularly encourage overspending. Just going out to eat or drink with friends can cost $100 or more in some cases. Something that sounded so harmless has now completely derailed your target.
This does not mean that you need to replace the entire group of friends – not at all. But it will be up to you, set a budget for entertainment and then stick to it.
For example, instead of having two or three drinks, drink only one. Go for lunch instead of dinner, or go to a matinee instead of a movie night.
All of these options still give you the freedom to spend time with friends and enjoy life, but it won’t cost you nearly as much. And when you stick to your budget, your future self will thank you for your discipline.
Read more: The price of friendship – how your friends influence the path
Tips for Reaching Your Financial Goals
Define your needs and your desires
Setting financial goals and how to track them are the first steps. But staying on the right track can be tricky when life happens. This is where needs and desires come into play. There are things that we all want to have. But these are the things that can lead us astray so quickly that you get dizzy.
So remembering whether the product/service is a need or a want can help you become more financially disciplined. Just remember to think long and hard about any purchase before pulling the trigger. If there is a need, then go and do it. But if the thing is actually something you want instead, it’s usually best to wait at least a little to make sure you still really want it as much as you think.
Reduce Recycling Reuse
When it comes to buying wishes, you have several other options that can save you tons of money. If there is an item you want to buy but it just isn’t in the budget, what other ways could there be to achieve the same goal?
Reducing, reusing or recycling may be the best option here. If there are things in your house that you can get rid of (and maybe even make money selling them), then this is one way to get a potential need. Sell your old items and then use the proceeds to buy a new item of interest.
Or, if you can reuse an item you already have at home, combined with something else to create a similar item, then why not do it? Sometimes all a table or chair needs is a fresh coat of paint to make it look like a brand new piece. So get creative and think outside the box about the things you already have.
And if all else fails, dispose of old things. You may not make money off of them, but you could potentially get a tax write-off. Plus, it keeps your space free of clutter, which can make it feel like a whole new room. Sometimes that’s really all you need.
Do it automatically
No matter what goal you set, you can probably automate at least some of them.
If you want to save more, schedule automatic check-to-savings transfers. If you want to repay a certain amount of debt every month, set up automatic payments to your accounts.
Executing these transactions automatically will eliminate the friction that can arise when you have to manually make that extra payment or save that extra money. You can always go in and stop or change the automatic payment if you can’t change it within one month, but making it the default will cause it to happen more often than not.
Of course, don’t set yourself up for failure. Setting up an automatic payment without a plan to make sure the money is available will do more harm than good. Create an actionable plan and a realistic goal, then set it up to execute without any extra effort on your part.
Read more: Put your money on autopilot
Place your emergency fund in a high yield savings account
Whether you’re working on building your emergency fund or already have a solid savings account, you need to make sure you’re getting the highest possible interest. This will help increase your savings rate as you will earn a little more interest every month.
Interest rates on high-yield savings accounts are higher than ever, and the difference between online and local bank accounts is huge. So while these high-yielding savings rates may not come close to the average return you’ll get from investing your money, it’s still nice to get interest on your savings.
In my opinion, the best high yield savings account is CIT Savings Builder.
Read more: How much should you put aside each month?
CIT Bank Savings Builder
CIT Bank Savings Builder has a very competitive APY compared to the pennies you get from a credit union account.
You only need $100 to open an account and they don’t charge any service fees. To earn the highest APY, you need to increase your account to $25,000 or you need to deposit at least $100 per month. See here for more details.
CIT Savings Builder has a completely online platform, so everything can be done right from your smartphone, just to make life easier. They are also insured by the FDIC for up to $250,000 per account type.
CIT Bank. Member of the FDIC.
Summary
In general, it is very easy for our money to slip through our fingers like water. That’s why you have to be aware of what you have and where you want to be with your finances.
Whether you want to avoid debt, save more money, or invest in your future, it’s important to develop self-discipline in your finances.
