Studying Psychology for seven straight years in college and then working as HR professional for another seven years does give you some insight into human behaviour. One of the greatest epiphany I had in last 14 years of observing and studying human behaviour is this which I typed, printed and have stuck in my planner……
“Motivation is fleeting. Discipline is permanent. Having Goals may or may not work. Habits always work. Any venture – personal or professional does not survive on Passion. But every venture will work if you have a System build to make it work. And Ethics are always more important than Intelligence“
This pretty much has been my mantra of how I work. That does not mean I discard motivating myself or others or do not have any goals. I do all that too, but I now know for sure that setting goals is far less important than setting systems. That motivation is like fuel – needing frequent refill but discipline is who you really are. That spending time on developing a system or a habit increases your shot at succeeding than does anything else. And intelligence coupled with ethics and morals and good values will make a far better world than without it.
We all have a broad idea or a general long-standing dream of how we want different areas of our life to look like – work, family, health, personal growth. We all at some stage in our life have a goal that we believe will take us closer to that dream but most of us fail at it. More often than not, we fail because we do not have realistic plan, system and habits to achieve it. The goal or the plan to achieve that goal is not in tune with who we are at the present. That plan is not in sync with your current state of mind, skills and your immediate circumstances. So at some point it all comes crumbling down. We then feel demotivated and go back to living each day without direction.
CHANGE. Now that is a loaded word with enough literature written about it. But I will keep it short. There are two type of changes – 1) Evolutionary Change: slow, gradual, incremental and non-dramatic change that is all-encompassing, perpetual and ever-lasting 2) Revolutionary Change: an abrupt, kick-in-your-gut, disruptive change that is dramatic, shocking, speedy and short-lived. Both types of changes are equally important. A shock-to-the-system change is just as good as a slow-but-steady change. I am not going to say which change is better. But I will say this – not all of us have the energy, the focus and the drive for Revolution – be it in our personal life or on a larger scale. So when people make three months plan to reduce weight or quit smoking, what they are doing is planning a revolution in their lives – a disruptive, abrupt change. And they do this without thinking if they are the kind of person who can lead and sustain the drama that ensues in bringing an abrupt change. So the plan does not work and they feel like a failure.
All of us however can bring a slow change – a sort of change that is broader but focuses on one thing at a time and steadily evolves. The 1% progress each day kind of thing. That sort of change does not expect you to fully engage but rather only demands a small fraction your time, attention and energy each day. We can all survive that type of change. It comes from tweaking of habits and creating systems that forces a certain behaviour out of us. That change is not a leap but a step.
So back to goals and system now in the purview of personal finance. Someone who is relatively new to the whole personal finance and has a bigger dream of financial independence, here is my roadmap of achieving it through steady, incremental change:
The Big Dream: To be financially independent by the age of 45 or earlier. This means that after the age of 45, I would not like to work for money or be financially dependent on anyone.
The Cornerstone Habit: Earn more, spend less and save more and invest.
The Main system: Track every penny. And automate saving so that I do not have to stretch my willpower and decision-making energy to do it myself.
The Smaller Steps:
- Emergency Fund: First and foremost is to build and maintain a 3-6 months of emergency fund. This to help me focus on my other goals without having to worry about my current situation. This is building myself a primary safety net.
- Get rid of every possible debt: I don’t have any debt right now, but it is always a part of a plan. If I had any debt, after building myself an Emergency Fund (while making a minimum required contribution towards debt) I would attack the debt in big chunks. The way I see things, except for a home loan, most debts can be cleared over a period of 12-18 months top.
- Never get into debt again: Like seriously. Life is not about running in circles of getting into debt and getting out of it. We are talking incremental change here. I do not intend to get into debt again. And I will think a thousand times before planning to loan money for anything – even home.
- Reduce spending: No point in anything if you cannot sustain a life with what you have. I do not remember where exactly I read it, but this is smack-in-your-head truth that every permanent decrease in spending has a two advantages, it increases the amount of money you have each month to put into savings, and it lowers the amount you need every month for the rest of your life. Mic drop!
- Earn more: To upgrade my skills. Have a side hustle. Be good at my job. Take calculated risks. Learn about money and taxes and insurance and investments.
- Milestones: Depending on how I envision my life, I save for major milestones – Wedding, a House, Travel, Babies, Health. I have a fund for each of my future milestones – I have a Wedding Fund, a Career Fund (to invest back in upgrading my skills required for my career), A Baby Fund, A Travel Fund and so on. I have prioritized each of the fund and contribute to each fund accordingly, meaning my bigger chunk of money is going for Wedding Fund than Baby Fund right now. This sounds cumbersome, but it is not. It keeps me on toes and prepares me emotionally and financially for major life events.
- Have fun: I still spend a pretty penny in buying books. I take big vacations with my boyfriend. I buy hot chocolate regularly at Starbucks. I spend money buying new cameras. I have a gym budget. I have not sacrificed on stuff I really enjoy. But I do not spend on things that I don’t care about (clothes, shoes, bags for example). I know my happy place and I have understood what is important to me in present. I spend accordingly.
With the above framework, I do not think there is anything else I need to do to achieve my goal in next fifteen years. All the above things are about slowly changing my behaviour and turning the new behaviour in habits. It is an evolutionary change and it requires observation, patience and a lot of trial and error. And because my plan is spread over a long period of time, quitting is not an option because I know I am not forcing myself for a temporary change. I am building myself into a person that fits perfectly with my idea of future.