Updated: Jun 28, 2020
You can know everything there is to know about paying off debt, saving and investing or anything to do with money, but it means nothing if you don’t have the right mindset.
To be successful with money, you need a "why." An external motivation that is more powerful than any of your fears and self-doubts. Your "why" will push you to do the things you don't want to do, but you know you have to do to achieve your financial goals.
This post acts as a guide to help you find your "why."
Manging money is simple
Here is the truth. Managing money is not as complicated as you might think. It’s quite simple.
To have a successful relationship with money, you don’t need to be an “expert.” You don’t need to follow news about the stock market or what’s happening in the economy. In fact, it’s probably best if you tune all of that type of information out completely.
To be successful with money, here is all you need to do.
Have a system in place to monitor your spending.
Create a budget that locks in your goals.
Put an emergency fund in place.
Follow a proven method to pay off debt.
Put your money into proven investments for the long-term.
Find new ways to increase your income while keeping your spending under control.
Manging money is simple.
Managing money is hard
If managing money is so simple, then why do so many people struggle with their finances?
Because managing money is hard.
Managing money is simultaneously simple and hard. It’s simple because all you need to do is follow the steps I listed above. It’s hard because knowing what to do is meaningless unless you follow through on it day in and day out.
Personal finance has a lot in common with personal fitness.
Getting in shape is very simple. All you need to do is eat healthy food and exercise.
Getting in shape is also very hard. Junk food tastes better than broccoli, and exercising is exhausting.
Managing money has the same problem. Meeting a friend for lunch every day and going to the mall to buy things is more fun than picking your lunch and setting up automatic transfers to your investment account.
So, we have established that managing money is both simple and challenging. The question remains how do we bridge the gap?
You need a why
If managing money is both simple but following through on those simple tasks is hard. The apparent solution to developing a better relationship with money is to ensure we follow through on those simple tasks.
We need to follow through on those tasks every day. Even when we are faced with the easier route, we take the hard route and follow through on those simple tasks.
It is easier said than done.
Every time you leave your house or open your phone, someone is trying to sell you something.
For a lot of us, when we hang out with friends and family, there is often pressure to spend money.
If you are a parent, advertisers will make you feel like a bad parent if you don’t buy the most expensive brands for your kids.
All-day, every day, you will feel pressure to give your money away to other people. And every dollar you spend on something that brings no value to your life is a dollar that is not being used to pay down debt or invest.
If you don’t have a strong “Why” you’re going to cave under that daily pressure and start using your money in ways that move you further away from where you want to be.
The first thing you need to ask yourself is, why is it worth it for you to improve your finances?
Your why must be more powerful than your fears and doubts
Money is a scary subject for a lot of people. A little bit of fear around money is healthy, but for a lot of us, that fear has turned into daily anxiety.
Fear can lead to what I call “financial paralysis”; when your money problems scare you so badly that it immobilizes you from addressing the problem.
When I was in my 20’s, I was filled with so much financial anxiety that I could not bring myself to open up my monthly student loan statements.
I did not believe at that time that I would ever be able to pay that loan off, so I entered a depressed state where I thought to myself self “why bother?” That financial paralysis led to me missing payments, accruing penalties and interest, and damaging my credit.
Financial fear and paralysis are toxic. It was not until I found my “Why” that I found the courage to push past the fear and address my money problems head-on.
An example of a terrible “why”
If the reason you want to be successful with money is to become “rich,” you are doomed to fail.
Don’t get me wrong; being rich, and having nice things feels good. It might even be great motivation to get you started down the path of managing your finances. However, it won’t be a strong enough motivation to stay committed for the long run.
Family is my “why”
My experience has been that family is the best “why.”
In 2012 I was $50,00 in debt while completing my Master’s degree. I was also working two jobs and still had to extend my student loans to help family members pay the bills.
To say I was walking a financial tightrope would be an understatement.
If my motivation was to be “rich” and drive a fancy car and live in a big house one day, I am sure that I would not have made it through that year.
The only reason I was able to make it through 2012 was that I had people that I loved that were depending on me. In other words, I had a powerful “why.” That “why” meant that I was willing to do whatever it took for as long as it took to turn things around.
Which I did.
Eight years later, the Masters is complete. I have a strong career and a profitable side-hustle. My wife and I can invest more money every month, and we were even able to buy a house for family members to live in.
I wasn’t able to do this because I am some type of outlier or possess some special knowledge that no one else does. I was able to do it because day in and day out, I did the simple but hard things I know I needed to get done. I was able to sustain that over the long term because I started with the most powerful “why” family.
What’s your “why”?
The easiest part about managing money is the technical aspects like the most efficient way to pay off debt or how to build an emergency fund. The more difficult and more powerful part of becoming successful with money is developing the right money mindset.
Step one in building a strong money mindset is to find a powerful “Why” that will make the sacrifices required to turn your finances around worth it to you.
The right “why” must be more powerful than your fears or self-doubts. For that reason, focusing on all the nice things money can buy is a weak “why.” I have found that family is my most powerful reason to become a great money manager.
The question you have to ask yourself is, “What is your why?”
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