Ryan Dagg, founder and President of Asset You Free is one of our coaching partners and a darn good financial coach. This week Ryan shares a five step process to take ownership of your finances. Having financial balance is key to obtaining your overall goals. To learn more about taking control of the money in your life, visit www.assetyoufree.com.
Taking Ownership Of Your Finances: How To Get Out Of Your Own Way
Written by Ryan Dagg, CFP
We live in a world that provides more free financial education than we could ever read. Almost all of it boils down to “Make more, spend less, save more.” If it were this easy we would all be debt free and on our way to retiring in 10 years. If it were this easy we wouldn’t be stuck in the same behavioral patterns.
Why is “Make more, spend less, save more” so hard?
Think about the last time you did something that went against a decision you had already made. What happened? For me, it was last week when I used my credit card to pay for a client lunch. My wife and I agreed to a cash envelope budgeting system and without a thought I broke the agreement when the card came out. I knew better, but my client had my full attention.
When you are tired, in a bad mood, or focused on something challenging your brain gets really lazy. There is a growing body of research that shows that the mind will make increasingly bad decisions and default to what requires the least amount of effort or to the most short-term pleasure when in these states. Impulse purchases, ignoring our budget, avoiding research before big purchases, etc.
A recent study had participants attempt to remember a number while walking down a hallway from one room to another. During this walk the participants were given a surprise choice between a piece of fruit or a donut as a snack. The longer the number that the participants had to remember the more likely they were to choose the donut!
This is what you and your goals are up against, and this is what you must take ownership of. You must build a bullet-proof system into your day-to-day life that takes your future distracted self and allows the easy choice to further your goals.
Here is a 5 step process that has worked wonders for my clients.
- Sit down with pen and paper and write out when you acted in a way that was against your goals.
- Find the cause of the issue by going through the Five Ws. Ask yourself what happened, when it happened, where it happened, who it happened with, and finally why it happened.
- Propose the simplest solution possible to fix the problem in the future.
- Put in the work necessary to fully carry out your solution.
- Repeat this process weekly until you are effortlessly acting on your financial goals.
I will use my credit card situation above as an example.
- I sat down with my wife on Sunday and we listed the mistakes we made over the past week. There were a few, but using the credit card instead of cash on hand was the most frustrating. This isn’t the first time we have talked about it.
- 5 Ws:
What happened? I used my credit card instead of cash.
When? Noon on Tuesday.
Where? At a restaurant.
Who? With a client.
Why? I was engaged in discussion with my client, distracted and I acted on a 10 year habit of using a card.
- Solution: I have tried several other techniques and am still having this problem. The simplest solution now is to take my credit card out of my wallet and leave it in my car.
- Put into action: My credit card is in my car now. I only have cash on me and now there is no way to use my card without intentionally getting it from my car.
- Repeat: My wife and I have a weekly calendar reminder to set an appointment to go through this process. Your highest priority is to figure out how to make certain that you do this weekly. Otherwise, you are back to your behavioral rut. I will happily discuss how to carry out this in the comments.
Owning your financial decisions is not about will power. It is about identifying why you do not stick to your goals, coming up with solutions that do not rely on will power and then executing.