“31 Days to Financial Independence” is an ongoing series that appears every Thursday on The Simple Dollar. You might want to start this series from the beginning!
Last time, we took a deep look at tactics that a person might use when handling a personal crisis. Things like a death in the family, a car breakdown, a job loss, or a personal illness can have a real impact on a person’s finances, so we looked at how a person on the road to financial independence – particularly people on the beginning stages of that path – can handle a life crisis.
Today, we’re looking at something completely different, a topic that isn’t often handled by “financial turnaround” guides, but a topic that I consider absolutely vital.
It’s the long valley.
The long valley is merely a term I use to describe that long period between the end of the “honeymoon” phase and actually approaching your final goal.
During that initial “honeymoon” phase, the changes you’re making in your life to achieve that goal seem exciting. You’re engaged with the life transformation that’s happening. You’re reveling in every small success. In short, you feel like someone newly married on their “honeymoon” – joyful and happy with this new chapter in your life.
During the final approach, you’re full of a lot of anticipation. That big goal you’ve been working for is now in reach and you can almost taste it. You’ll often start cranking up your efforts to get over that final hurdle just a bit faster. If you’ve ever seen someone start to raise their pace near the end of a marathon, you know what this is all about.
But what about that leg in the middle? You don’t have that “honeymoon” vibe, nor are you close to your goal. Instead, you’re in the “long valley,” where the freshness of the start is well behind you but the big goal is still far off on the horizon.
Most grand goals fall apart in the long valley. They start off like a house on fire, but when that newness of the change wears off, you’re left with a long and unexciting path, a path that’s often not the easiest path. There’s a lot of work ahead, a lot of tough choices to be made, and with a very long path trailing off into the future, it can feel really disheartening.
This happens all the time with financial turnarounds. People are thrilled at first with the initial impact of all of the changes they’re making. Often, they were in the midst of a real financial struggle and those initial changes gave them some much-needed breathing room. The immediate stress in their life took a nosedive.
Then, over time, the newness wears off. They start to miss some of their old “treats” and old routines. They feel disheartened by the distance between where they’re at now and where they want to be.
And so, slowly, things begin to fall apart. They go out for a treat, and then another. The drops become steady, then they become a trickle, then they become a flood. The original goals are all washed away and the old routines are back in place, and a few months later that person is left wondering what happened to all of their nice financial progress.
The biggest key to long-term financial success is to figure out how to get through the “long valley.” If you don’t have a plan for how to handle that valley, it’s extremely likely that you’re going to meet failure when the “honeymoon effect” wears off.
Exercise #28 – Handling the Long Valley
What can you do, then? How can you make the “long valley” manageable, when the newness and excitement of a goal has worn off and you’re facing a long path full of obstacles?
Here are a dozen strategies that will keep you on the path through the longest of valleys.
Automate as much of your financial life as possible. If you’ve gone through the typical “honeymoon” period with a financial turnaround, you’ve likely made a number of moves that will have reduced your bills. Maybe you’ve paid off a few debts. You may have lowered the interest rates on some debts, too. You might have made some energy improvements to your home or cancelled some of your subscriptions.
Those changes result in a significant reduction in your regular bills each month. The money that comes from those reductions in expenses forms the bedrock of your financial progress going forward.
The catch, of course, is that if you falter in the long valley of your financial journey, that money will be spent on things that aren’t in line with your big goals. The most powerful safeguard you have against that kind of faltering is to automate your goals.
If you’re saving for retirement, automate a payment to your Roth IRA or bump up your contribution to your 401(k). If you’re trying to achieve debt freedom, set up an automatic extra debt payment each month. Those payments should roughly equal the total amont that you’re saving due to your positive financial moves during the “honeymoon.”
For example, let’s say that you cancelled several subscriptions and memberships and bills that added up to an average of $120 a month and you paid off a debt that had a $100 per month bill coming in. That’s $220 a month that’s saved. You can set up an automatic contribution of $55 per week into a Roth IRA, which will slurp that $220 a month gradually out of your account. You’re never tempted to spend it because it really never has a chance to be spent.
The nice thing about automating your bills is that you remove your conscious choice from the equation when it comes to deciding whether to add money to savings or to make an extra debt payment. It just happens automatically – you don’t have to think about it. In fact, you have to make a conscious choice to turn it off, something that most people won’t want to do unless things are dire.
To put it simply, automation “locks in” your good financial moves. It takes the money that you’re saving through the cancellation of bills and paying off of debts and other smart moves and automatically puts it somewhere worthwhile.
Put lots of minimal effort money saving strategies into place. One of the biggest challenges in the “long valley” is the idea of consistent effort. People often begin to falter when they see that their life going forward is going to be a constant flow of extra effort all of the time. It can feel like a big drain on your life.
That’s why financial choices that require no additional effort or minimal additional effort beyond that initial action are really good choices. If you can do something once and it continues to save you money – even at a trickle – going forward, then it’s probably a really good move.
Almost all energy saving strategies fall into this group. When you replace your light bulbs with LEDs, you’re doing it once, but the energy use falls permanently and you feel it with lower energy bills. When you install windows that insulate your home better, you feel it going forward with lower energy bills. Caulking your windows and installing weatherstrips at the edges of drafty doors fall into this category, too.
Cancelling memberships often falls into this category, too. Cancelling the auto-renewal on an unused gym membership takes only one action, but then you’ve eliminated a constant drain on your finances.
The goal here is to find things that will save money that really only require one significant one-time effort. It’s very easy to sustain those changes. It’s much harder to sustain changes that require a constant input of effort.
Don’t completely abstain from treats. During a “financial honeymoon,” people often completely deprive themselves of all treats and splurges because they’re giddy with a sense of financial success. That’s a mistake that will completely destroy you once you enter the long valley.
Sure, you can choose to skip treats during your “financial honeymoon,” but that should never become the norm. Instead, what you want to seek is a better balance. You do want to throw away some of the low-reward treats – things that really aren’t adding much value to your life – but the high-reward treats should actually stay in your life.
For example, I still love buying books sometimes. I still love buying notebooks and journals and pens. I still love buying a board game every once in a while. I still love going out to dinner with my wife. And I do those things.
The thing is, I don’t do them as often as I used to. Instead, I’ve simply spread them out so that they individually become bigger treats. It’s sweet when I get a new book or a new board game. I also find myself focusing more on the experience I get from having those things and using them rather than the burst of pleasure I get from buying it. For instance, I consciously redirect my desire to buy a new book to instead look at the unread ones on my bedside stand. I redirect my desire to buy a game to the ones on my shelf that are unplayed or have only been played a time or two.
Don’t abstain from treats. Instead, simply be more selective with them.
Actively build a fresh social network out of people who make wise financial choices. Most of the social network I have now is made up of people who have made good financial choices. My three closest friends (besides my wife, of course) are people who managed to pay off their home and all of their student loans in their thirties and are now saving for big goals like retirement or financial independence.
Surrounding myself with those people makes it much easier to make good financial choices. I can actually feel the difference if I happen to spend more time for a while hanging out with people who are less conscious of their financial decisions. I find myself desiring more stuff and considering things like new car purchases, whereas I don’t normally think about such things.
The truth is that you really are the average of your five closest friends, and thus your five closest friends should be cultivated carefully in order to represent people who have attributes that you want to have. Your friends should be the kind of people you want to be, in other words, and if you want to be someone on the path to financial independence, then you should try to build close friendships with people on that same path.
How do you find people like that? You look in places where such people would congregate. You’ll find them in community organizations. You’ll find them in book clubs. You’ll find them at volunteer events. You’ll find them at meetups. Look for social events that don’t require spending money just to get in the door. Look for social events that are also centered around doing things beyond merely socializing.
In other words, you generally won’t find people oriented toward financial independence hanging out at the coffee shop or the bar every night. You probably won’t find them at events that cost a lot of money to get into. That’s not to say there aren’t a few people at such events who are financially minded, but that financially minded folks tend to avoid such events and look for other options.
Chart your progress over time. One of the most powerful motivational tools I’ve ever found for keeping myself on a positive path is to chart my progress over time. I find a number that represents my continued success and focus on tracking that number.
For my own financial journey, that number is my net worth. I find a great deal of value in tracking my family’s net worth each month. Net worth, for those unfamiliar, is simply the total value of all of our significant assets – our house, our savings accounts, our investment accounts, our automobiles, our valuable possessions – minus the total value of all of our debts (right now, that’s zero).
I have been calculating our net worth every month since 2006. Almost every month, it has gone up; the only months where it hasn’t have involved huge unexpected expenses or big dips in the stock market. Knowing that our net worth is going up each and every month is a really powerful motivator for us to stay on our current path. I know that when I look at those long term numbers, especially when I see our negative net worth in 2006 and 2007 as compared to our obviously positive net worth today, I feel a ton of pride in our progress. I also feel a lot of pride during any month when our net worth goes up, especially when it’s going up significantly more than what I can attribute to the stock market.
Depending on your goal, you may want to track a different number. Maybe you just want to track your total debt. Perhaps you want to simply track your savings for a down payment. Maybe it’s something else entirely.
Whatever it is, start tracking it somewhere. On the first of each month, write it down. Keep it in a Google document so you can access it wherever you are. You’ll find that looking at the positive progress of those numbers fills you with a surprising amount of pride and joy, and you’ll also find that you don’t want to let down your streak of positive months. It’s a great mental motivator.
Don’t focus on the distance from your goal, but on your distance from your origin point. Often, goals that revolve around financial independence have huge numbers associated with it. You might want to have a million dollars in savings before you retire, and when you compare that number to your current savings and the amount you can put away each year… yeah, it feels overwhelming.
A much better approach, especially early on in your trip through the long valley, is to not focus on the goal, but on the growing distance between where you’re at now and your starting point.
Let’s say you start with a net worth of $0 and your goal is $1,000,000 in total net worth. After the first month, your net worth is $1,000. If you’re looking at the end goal, wow, that looks like a long way to go. It’s easy for it to be disheartening.
Look back instead. You went from nothing to something. You now have a positive net worth. That’s something that probably hasn’t been true for you for many years.
Now, look at the next month. Maybe you managed to increase your net worth to $2,200. Looking ahead to $1,000,000 is painful. But look back instead. Two months ago, you had nothing. Now you have enough to live on for a month – yeah, it might be tight, but you could do it. Not only that, it’s speeding up! It’s accelerating! Your net worth grew more this month than last month! You’re improving, you’re making good moves, and here’s the proof of it, right here!
In general, it’s much better to compare yourself to whichever end of your journey that you’re closest to. As you approach your goal, it might even be useful to simply track the distance between where you’re at and the goal and watch that distance shrink each month.
Maybe in several years, you have a net worth of $700,000 and your goal is still $1,000,000. That means your distance left to go is $300,000. The next month, your net worth grows by $4,000. You now have a net worth of $704,000 … but your distance dropped to $296,000. You’re closing in on that goal! By percentage, the distance to your goal is going to shrink at a faster rate than your net worth is going to grow.
Directly wrestle with your negative thoughts. You’re going to think negative thoughts during that journey. There are times where you’re going to feel that the progress is just too slow, that it’s just not going to happen. You’ll have a bad month – often for reasons outside of your control – and you’ll feel like it’s time to just throw up your hands and give up. You’ll be tempted by some silly unnecessary thing and it’ll happen during a moment where you’re not feeling quite so positive about your goal. You’ll make mistakes. It will happen.
Rather than letting those negative thoughts fester and become destructive, tackle them head on. Give them some real, deep thought. I find that journaling helps a lot with this. I write down my negative thoughts and then slowly and intentionally look for holes in that negative thinking.
Journaling may not be the best way for you to do it, but this kind of deep reflective thought is one of the best ways to destroy negative thinking. If you just keep putting off those thoughts instead of taking them on and cutting them down, those thoughts will just build and build until they become overwhelming and you convince yourself to abandon your goals.
Don’t let that happen. When doubt and sadness and temptation creep in, address them directly as soon as you can. Give real thought as to the reasons behind your goal and whether your tactics make sense. Give real thought as to whether that self-criticism makes sense, too. Dig into your temptations and figure out if they’re real or if they’re just short-term whims calling out to you.
Quite often, time spent in reflection cuts through those negative feelings and thoughts like a hot knife through butter. Reflection makes it so much easier to stay on the path when you’re in the long valley. Consider incorporating some kind of daily deep reflection in your own life, whether it’s journaling or focusing on those questions while commuting or exercising.
Next time, we’ll take a look at what you can do when your goals start changing.