Why Financial Systems Are Better than Motivation
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Please enjoy this contribution from Syed at Broke Professional as I’m on the road back from San Diego. If you would like to contribute to Frugal Rules, please contact us.
I vividly remember the first time I saw Rocky as a kid. Just a lowly local fighter, Rocky Balboa had to go through so much to get ready for his big fight with the champ Apollo. After watching the iconic training scenes of him running up the steps of the Philadelphia Museum of Art, punching giant slabs of meat until his hands bled and doing those grueling one handed pushups, I was so pumped to try to be like him.
So the obvious next step for me was to start running up stairs and punch things day and night. I would be the best boxer this world ever has ever seen. After 2-3 days of this, I slowly fell back into my normal routine and completely forgot about becoming the best boxer in the world.
Reflecting on this I realize I didn’t forget. I just lost my initial burst of motivation. That little spark that got me off of my couch was great for those first few days. But there was no structure or foundation behind it so it quickly fizzled out.
If I seriously wanted to become a real boxer, I would have done things like find a coach and schedule boxing sessions at a gym regularly throughout the week. Since a strong training foundation was never built, my initial burst of motivation was destined to fail.
Motivation is Finite
This same exact phenomena can be found in the world of personal finance. We’ll watch an intense movie about stock picking or read an inspiring post about someone who paid off massive amounts of debt. This will get our juices flowing and we’ll just go out there and do some things for a short while. But it will usually fizzle out in the end.
Relying solely on motivation is not the way to get ahead financially. In fact, I would say that getting motivated and failing over and over will get you so depressed about your financial situation that you might just give up on improving.
But it can get better. And the way it can is by having a framework or system in place that will keep you financially stable without having to constantly draw from your well of motivation.
It’s important to realize that this is THE ONLY way to get ahead financially. Whether you’re looking to build the next billion dollar company, want to increase your investment contributions or just track your finances, you need a system that will make it easy to reach your goal.
And there are so many financial goals out there. Making a budget, saving for retirement or college, starting a successful freelance business, getting a world class education to increase your income. These are all worthy financial goals that require a systematic approach in order to find success.
Just Get Started
As mentioned before, setting up a systematic method of attack is the best way to achieve your financial goals. And it’s not even that hard. It just takes a few upfront steps and some experimenting to get your system right.
In fact, setting up systems is much easier than relying on brute force motivation to achieve your financial goals. It gives you a path to follow and you just plug along day after day.
Here are some basic systems everyone should have for various aspects of their financial life. These are easy for almost everyone to implement so give them a try if you haven’t already:
Automatic Bill Pay
We all have the same bills to pay. Electricity, water, rent/mortgage, tuition, daycare etc. Keeping all of these bills in order and remembering to pay them off month after month can be a chore. Having a stack of papers and writing checks and mailing letters is not a difficult task, but it takes up precious time. You increase your chance of missing a payment this way which can incur fees and possibly ruin your credit.
Instead, take some time out to set up automatic bill pay. Most companies allow this by entering your checking account info on their website. If they don’t have that capability, almost all checking accounts have an online bill pay feature which allows you to send a check to any address at no cost.
Set these up to occur at regular intervals and you will never have to worry about keeping your routine monthly bills in order. Better yet, use Personal Capital, a free online tool, to track your expenses so you can have a snapshot view of your spending activity at any time of the month, whenever you want or need to know.
Saving and Investing
Whether it’s investing for retirement or starting a rainy day fund, most people’s strategy is to just throw whatever they have leftover at the end of the month. Considering that many Americans are living paycheck-to-paycheck, this is not going to amount to much.
A much more effective way to save is to have a certain amount of money deducted from your checking account into your investment or savings accounts at regular intervals. This allows you to grow money at a constant rate and will create a sort of “scarcity mentality” that will not allow you to spend money you don’t have.
This can be done a number of ways. Almost all employers will automatically deduct 401(k) contributions before your check even hits your account, so that one’s pretty easy. But if you have your own personal investment or savings account you are in charge of, you can easily set up a direct deposit from your checking account at any interval you choose.
Many online brokers, like Betterment even allow you to automate deposits and then turn around and invest the funds for you.
Personally, this systematic approach to saving and investing has had a major impact in my life. I know myself, and I would never consistently put money into my investment accounts if I had to do it manually. Automatic investing is so easy to set up and is such a game changer I would recommend it to every single person.
Even if you can only start with $20 per month to contribute to your savings account on a regular basis, I would still recommend it. If you can’t do that, use an app like Digit that saves small amounts for you each month. It’s better to start somewhere than not begin at all. You can always increase your contributions later.
Tracking your Spending
Gone are the days of balancing your checkbook to make sure you have the right amount of money in your checking account. You can do almost everything personal finance related online nowadays, and tracking what you spend is certainly no exception.
Instead, I recommend leveraging the power of technology to set up a system to track your spending. There are so many websites and apps out there that allow you to track what’s coming in and what’s going out. All you have to basically do is connect your accounts (checking, savings, credit card etc.) to the website and they will usually display your transactions on a nice little dashboard. You can then see exactly where your money is going.
I personally prefer Personal Capital. You can not only track your spending, income and debt accounts, but it gives you a nice detailed look at your investment accounts as well. You can see in which sectors you may need to invest more in and if you’re paying too much in fees. It’s pretty much a one stop shop for your finances and they are always trying to make it better.
Investing in Yourself
While no one is going to pay you directly to do some yoga, investing in yourself is essential to being financially successful. Self investment can come in many forms such as exercise, taking classes, reading and meditation. You have to find the areas that are important to you and your finances and work on them consistently.
Again, you can use technology to set up systems towards your self-improvement; it doesn’t take much. You can simply set reminders on your calendar when you want to do some reading or exercise. Or you can block out a certain time of the day to perform your self improvement tasks.
It’s especially important to set up systems for this. Self-improvement tasks fall under the “Non-Urgent but Important” group of tasks. This makes it easy to justify taking care of the latest “emergency” before you get to your self investment time. Don’t fall into this trap that and make investing in yourself a priority by setting up a solid and executable plan of action.
The Root of Financial Failure
I would argue that not setting up systems for your finances is the true reason people don’t reach their goals. Most people rely solely on willpower and motivation to try to make their situation better, but that really is a limited resource.
Setting up systems of action is how giants like Oprah, Steve Jobs and Kobe Bryant became wildly successful. They found a system that worked for them and kept at it until they got what they wanted.
The vast majority of Americans are living paycheck to paycheck because they don’t know where their money is going and they are not saving or investing enough. These two huge problems can be solved by setting up systems that make it as easy as a late round Rocky comeback.
What methods do you use to manage your finances effectively? Why do you think so many believe willpower alone will take them where they want?
Syed is an optometrist who runs a personal finance blog over at TheBrokeProfessional.com. He enjoys writing about many financial topics such as student loans, credit cards and planning for retirement. He focuses on helping new grads navigate the world of personal finance. He has a beautiful wife and a son who he hopes won’t end up with 7 figures of student loan debt. He is also a die-hard New York Giants and Knicks fan.
John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.
Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.
Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.