Well, the New Year’s is rapidly approaching which means it’s time to make resolutions. Aside from fitness, money resolutions always typically a popular choice for a resolution. Back in 2013, I made a money resolution that I actually kept. I resolved to find my money. How did I do this? With a budget. Budgets, love them or hate them, are necessary. I hated budgets for a long time. They seemed so limiting. There was a time in my life when I wouldn’t hesitate to buy a new TV, go out to eat everyday, or charge a trip to California on my credit card. After several years, I began wonder where all my money was going. It seems obvious now, but at the time, I was oblivious. Even a bit outraged. I would wonder:
- “Why don’t I have any money?”
- “I make a decent salary, why don’t I have anything saved?”
- “Why am I living paycheck-to-paycheck?”
Why, why, why? Well, I’ll tell you why. I was financially sleep walking. I had no financial destination. Without a destination, I was blindly headed toward a financial black hole.
Reason #1. It’s Time to Wake Up!
Financially speaking, most of us are sleep walking and have no idea where we’re going. Where will we wind up? Will we get hurt? Will we wake up before we get there? It’s all left up to chance. You could wake up in a mansion on a beach someday. Conversely, you might wake up on a bench down by the river. Unfortunately, the numbers indicate that most of us are headed for a bench on a riverfront. According to one study conducted by CareerBuilder earlier this year, 78% of U.S. workers are living paycheck to paycheck. 25% of workers do not set aside any savings during the month. 75% report being in debt and think they will always be in debt. In another survey conducted by GOBankingRates, 69% of Americans have less than $1,000 saved. Clearly, we have no idea where our money is. As a result, most of us are one crisis away from a financial catastrophe.
Okay, that’s depressing. But we’ll ultimately wake up in a mansion on a beach, right? Unfortunately, no. A study conducted by the U.S. Census Bureau in 2011 found that the median net worth for all Americans was about $68,828. For those of us at retirement age (65-69), the median net worth was $194,226. This figure includes home equity. Without home equity, the net worth was ONLY $43,921! Do you want to retire with $43,921 in the bank? I don’t think so.
While these numbers are 6 years old (the last census), I doubt they’ve improved to a level that can sustain retirement. The hard truth is that most of us won’t be able to retire. We’ll be stuck working until we die. And that is only if we’re healthy enough. This is a bad dream we all need to wake up from.
Why We Continue to Sleepwalk Financially
I would argue that there are two reasons people fail to “wake up” financially. One is fear. Fear of change, fear of confronting reality, fear of finding the truth.
This is normal. I know I was fearful of what I would find. I was fearful of the changes I knew I had to make. Ultimately, what I found was that the issue was me. I knew I was not doing the right thing. There were things I needed to do better. I knew there were better choices I should be making for my family. There were sacrifices I had to make. Before this point in my life, I was just not ready to make those changes. I was happy to be sleepwalking.
Another reason people continue to sleepwalk is that most of us suck at personal finance. Think about it. Growing up, when were you taught anything about personal finance? I know I wasn’t taught much. Being financially “illiterate” leads us to be financially oblivious. I know I was. Before my “awakening”, I was financially unaware of what I was doing and did not understand the full impact of my decisions. I just assumed everything would work out in the end and I’d wake up in a beach house someday. Heck, it wasn’t until I did decide to confront my fears and change my financial direction that I realized that I had a lot of studying to do. That was in 2013 and I’m still learning. Sheesh! Today, I am a big fan of teaching personal finance in public schools.
Reason #2: Discover Your Motivation
Stephen Covey, the author of the book “The Seven Habits of Highly Effective People”, states that you should begin any task with “the end in mind”. Covey advocates that you should envision what the future CAN BE. With time and effort, your vision will become your reality. This is your motivator. In terms of personal finance, I look at this as being your financial destination. Where do you want to be financially in 5, 10, 15 years? Having a financial destination will allow you to answer the question, “Why am I budgeting?” This is especially useful when you are tempted to break your budget. I highlighted my battles with temptations in a previous blog. Having a financial destination will help you stay focused and give you the reasons you need to stay the course.
What’s my financial destination? Well, ultimately, my destination is freedom. Freedom from the machine, freedom from the rat race, freedom to do things on my terms and on my own time, freedom for my family. Perhaps my destination is a bit dramatic, but it motivates me to stay the course. Everyone’s destination will be unique. Undoubtedly, you have financial goals that you want to achieve. Money is a great tool to help you meet those goals. Having a financial destination will keep you motivated, hold yourself accountable, and give you the ammunition you will need to kill temptation.
Reason #3: Budget = Less Stress, More Discipline
One of the biggest benefits to budgeting is less stress. According to the study conducted by the American Psychological Association (APA), money is the leading cause of stress for most Americans. Constantly worrying about money and living paycheck-to-paycheck is a stressful way to live. For me, a lot my financial stress came from feeling like I had no control. This led to fear. Fear of not having enough money to pay the bills and meet my family obligations. Building a budget was a tool that helped me feel in control. It allowed me to understand my problems and take corrective actions. This alleviated a ton of stress.
Another benefit of budgeting is that it will help you build financial discipline. Without discipline we are self-defeating. If you look up discipline in the Webster’s dictionary, one of the definitions simply states “self-control”. Self-control is the “restraint exercised over one’s impulses, emotions, or desires.”
For me, having the discipline to live within your budget was not easy initially. Let’s face it, I had built a habit of being financially undisciplined for years. I had to learn to hold myself accountable and keep my impulses, emotions, and desires in check. Budgeting is the tool that allowed me to build my financial discipline, which has led to good financial habits. With time, you’ll conditioned yourself to make good financial choices without thinking about it.
Once you have financial discipline, you can accomplish anything. Discipline will set you free.
Happy New Year!