A few months ago I went to meet with a financial planner that works with my parents. The meeting was nearly two hours and we discussed a number of topics. One word that the financial planner used a number of times was discipline. Getting control over personal financial matters doesn't happen by itself. As I've found out over the few years that I've been married, what might have worked with my finances as a bachelor fell apart when I got married, and the rubble was pulverized a bit when our daughter was born. I was expecting things to work out, to save gobs of money, invest in things that returned above-market rates, all by itself, and that was really silly. Successful personal finance requires planning and regular, purposeful maintenance, and that takes discipline.
Money Blue Book (a frequent commenter and a recent addition to my blogroll) asked whether tracking my expenses so closely would pay off, or whether “simply adopting a broad frugal approach” would cut it. It's definitely a good idea to spend wisely, of course, and I think the reason we had gotten by reasonably well was because we weren't overly reckless financially. I put away part of my paycheck regularly in a tax-advantaged employer-sponsored account, but over a couple of years that's about all that we did with regard to retirement savings. We've managed to not carry a balance on a credit card for even a single month, but some months we've needed to shuffle money around to cover our Chase PerfectCard™ bill. Basically, we aren't really doing badly, but we could be doing way better.
Where could we be more disciplined in our personal finances? Here are a few key areas:
- A written budget. We haven't had a written budget regularly since we've been married. I hadn't had a written budget much at all before that. After I had won Jesse Mecham's You Need A Budget program from a Free Money Finance contest, Jesse e-mailed me to say that he was amused that I had won because I appeared like I had my act together. It certainly was a nice thing to say, and I hope to prove him right when I use his software to get my budget together.
- Regular income and expense accounting. This is one of my major goals for this year. Having only a vague notion of where our money goes each month is not disciplined. Unless you choose to live on a very small fraction of your paychecks like Alan Corey did for a while, it's really necessary to see where the money is going — all of it. Money not accounted for gets lost and evaporates, and over years this could be tens of thousands of dollars, if not hundreds of thousands. Doing this accounting once a month probably isn't enough. I'm aiming for ten times a month.
- Regularly reviewing investments. It's probably not necessary to look at net worth every day, but periodically reviewing investment performance and adjusting as necessary will keep a portfolio in line with goals and tolerance for risk.
- Speaking of goals, we only had vague goals, which are not goals at all, really, because there's no plan to achieve them. Setting goals and planning to achieve them takes discipline. Some of the questions in the first few chapters of Brett Wilder's The Quiet Millionaire: A Guide for Accumulating and Keeping Your Wealth (which is on my pile to review) center around developing goals and plans. It was embarrassing to answer “I don't know” to many of the question. I should know what my goals and plans are. Again, these don't pop out of the atmosphere by themselves.
- Planning to be frugal. This gets back to Money Blue Book Raymond's comment, and I wasn't dismissing it. Frugality doesn't happen by itself either; it takes planning and purpose. I know it's cheaper to brown bag my lunch, but if I don't put it together in time, or do a bad, non-nutritious job of it, it won't work. I'll need to eat out either because I don't have food, or don't have “real” food that will get me through the day. That's just one example.
- Learning how to do things better. Underpinning disciplined finances is knowledge of the right way to do things. I admit that I've gotten caught up in the enthusiasm of an investment or a business without setting things up correctly. Finances are one place where it can be very costly to do things incorrectly, or to miss a change in regulations that affects your finances. Keeping up to date on important changes and learning what isn't understood is a habit that requires discipline.
No one cares for my finances as much as I do, so I have to treat them seriously, and treating them seriously requires discipline.