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When Financial Improvement Is Just a Phase
Sarah and I hit our financial bottom almost a decade ago. We made some hard choices, started turning things around, and those changes are still going strong in our lives.
We’re still saving a large portion of our income – around half of it each year since 2012. We’re still debt free. We have no interest in changing our direction, either. We’re happy with our day-to-day lives (at least in terms of our spending… sometimes simultaneously being a parent, a working professional, and an active person in the community adds up to some stresses).
At the same time, I’m not unaware that many life changes are just phases for people. Sometimes, people try on a life change for a while only to find that it’s not right for them, like a period when they exercise vigorously and then slowly stop doing it. Other people use it to achieve a much shorter-term goal, like someone who diets like crazy for two months to hit a certain weight.
Financial improvement can be much like that. Maybe your financial goal is a short term one. Maybe you’re wired to dive deep into something for a while and then move on to something else that excites you.
Do these things sound familiar? Perhaps you turned to financial improvement when you nearly lost your car or your apartment and you’re trying to push through some changes so that repossession is far away. Perhaps you’re trying to figure out a plan to make it possible to buy a house. Perhaps you’re just really excited about financial changes right now, but you’re self-aware enough to recognize that it could just be a phase.
Whatever the case, there’s a good chance that the financial improvement you believe in so strongly right now is just a phase, one that you will grow bored with in a year or two and move on to something else.
And that’s okay.
The fear that many people have of that change, however, is a sensible one. They’re afraid of just losing all of the progress they’ve made. It’s a fear not too different than someone who has seen great progress on a diet. They’re afraid that when the time comes and they stop being so strict, they’re going to lose their progress and revert back to their previous state, one that they were unhappy with.
The same thing is likely true for many people who hit financial bottom and work hard for a turnaround. Once you stop being so strict on yourself, there is undoubtedly the potential to find yourself right back in that situation again, and that’s a miserable place to be. Not only are you in that financial hole again, but now you’re older, with fewer years between then and retirement with which to dig out again.
What kinds of things can a person do now to ensure that at least some of the positive benefits of the path to financial independence remain when the fire goes away and the focus in your life moves onto something else? Here are six key things you can start implementing now that are going to be incredibly easy to maintain (or very hard to get rid of) once your passions move in a different direction.
Automation, Automation, Automation
Many of the best financial moves you can make are ones that are handled automatically. Once you set them up, money just transfers from account to account without you having to lift a finger. It just happens and the money is safely saved.
Having those kinds of automatic contributions in place is a great way to protect yourself against changing life interests. It requires effort to undo an automatic plan, and when you’re thinking about doing so, you’ll likely retain enough knowledge about smart financial choices and the positive life impact that they can have that you won’t bother undoing that automatic transfer.
Here are several potential ways you can do this.
Set up an automatic contribution to your 401(k) plan at work. Sign up for your 401(k) plan, then set up a healthy contribution right out of your paycheck. Make sure you’re contributing enough to grab your full employer match, then just forget about the whole thing for a long while.
Set up an automatic contribution to your own Roth IRA. If you’d rather control the plan yourself, set up a Roth IRA with an investment house (I use Vanguard). It’s really easy – quite similar to opening a savings account – and once the automatic contribution is in place, it just grows quietly and steadily, pushing you toward a secure retirement.
Set up an automatic savings plan to constantly refill your emergency fund. Ask your bank to transfer a small amount from your checking account to your savings account each week so that you have an emergency fund in place for unexpected events.
Set up automatic contributions to 529 plans for your children. If you have children, it’s not a bad idea to set up a college savings plan for them. Just automatically contribute a small amount each month to that plan and they’ll have some cash in hand when it comes time for college.
Set up automatic savings for any life goals that you may have. Are you saving for a down payment? A replacement car? A move across the country? Whatever your relatively short term goal is, you can automate the savings for that, too. You may find it easier to open an online savings account for this at a bank like Ally, but once you’ve done that, you can easily automate the savings.
Set up automatic investments into a taxable account for early retirement or career switching. Maybe you just want to invest using a taxable account for a goal ten or fifteen years down the road, like switching careers or opening a small business. In that case, open up a taxable investing account (I use Vanguard, again, and it’s not much harder than opening a savings account) and contribute automatically to it.
Focus on Better Daily Routines
Human beings are creatures of habit. I’ve found that time and time again, when I firmly establish a routine that doesn’t require a lot of extra time in my life and is just a better replacement for an older routine, I tend to stick with that new routine for good. If I start shopping at a new store and reach a point where I know where the items I regularly buy are at, for instance, I’ll just stick with that store unless there’s a good reason to switch again.
Use this period when your passion for financial improvement is high to find these kinds of patterns in your life and substitute more financially responsible ones. Do these new things over and over and over until they feel normal to you, in which case they are your new normal and it will take effort to change.
Here are a few such routines that you can implement.
Make the discount grocery store your default grocery store. Start shopping at the low-cost grocery store in your area where you can be sure the prices are pretty low. Shop there every time until you’re familiar with the store and where to find all of your usual items. Once you’ve done that, the store will be your default place to shop and you’ll save money each time you shop there.
Have a cheap morning routine. If you stop every morning for coffee, figure out how to make an approximation of that yourself and save $3 or $4. Once you have a good routine, it’ll actually be quicker just to make it yourself at home before you leave and you’ll save a few bucks a day.
Make taking a container of leftovers completely normal. Make it your goal to take a leftover container to work each and every day. Do it for a month or two. Most days, it’ll contain leftovers; some days, it might be a sandwich or something you made yourself. Soon, the routine of just eating at your desk or in the break room will be normal to you and going out to eat will feel like a big waste of time and money.
Invest in Things That Keep Costs Low
There are many, many things you can invest time and money in right now that will consistently save you money down the road without any additional investment of time. These things are one-shot improvements that reduce your ongoing energy costs, fuel costs, and other expenses.
The best time to take on these kinds of improvements is now, when you’re really excited about financial change. Later on, these moves might not seem as compelling, but if you do them now, you’ll simply be able to enjoy the savings both now and then.
Here are four of my favorite changes along those lines.
Install LED light bulbs everywhere. LED light bulbs are more expensive up front, but they last twenty times as long as normal incandescent bulbs (and about ten times as long as CFLs) and use about 20% as much energy. Over their lifespan, LEDs will save you at least $100 over incandescents in the form of reduced energy costs and the lack of a need for replacements. At our house, we have replaced almost every bulb with an LED, keeping the incandescents around only as emergency backups.
Caulk your windows. Applying caulk around the edges of your windows reduces the amount of air flow that can occur, keeping warm air inside in the winter and keeping it out in the summer. Both of those things can reduce the cost of your energy bill.
Install door sweeps. Similarly, door sweeps reduce the air flow along the bottom of doorways, keeping the warm air in during the winter and the warm air out during the summer which, again, will save on your energy bill.
Get a lower-cost cell phone. Look into low-cost providers like Ting and see if you can find a great plan that works for your needs at a lower cost than the cell provider that you currently use. There may be some costs involved in switching, but you’ll recoup those costs pretty quickly with the lower monthly bills.
Explore Low Cost and Zero Cost Interests
All of us have hobbies and interests, but many of those things come with real expenses. If you engage in an expensive hobby like shopping for clothes or golfing, you’re essentially signing up for a constant drain on your finances.
Instead, use this time to explore some new interests in your life, ones that don’t require a constant influx of money.
When I went through this period, I rediscovered my passion for reading rather than collecting books. I started hitting the library on a weekly basis, checking out books of all kinds and just devouring them in my spare time. That time came mostly from hobbies like video games and trading card games, both of which were quite expensive.
If you’d like to dabble in some low cost activities, here are some good places to start.
Your local library Not only is the library a treasure trove of books, movies, CDs, and audiobooks, it’s often the meeting point of a lot of special interest groups. Check out the bulletin boards and the pamphlet section of your local library for more information.
Meetup Meetup is a great place to find out about groups in your area that meet up to discuss, share ideas, and participate in all kinds of different things. Go there, browse everything within a 25 or 50 mile radius of your home, and check out some of the more interesting events.
State and national parks Not only do nearby state and national parks offer an infinite array of things to visit, they also usually offer a number of programs that can channel one’s interest in the outdoors. You can also check out your city’s local parks and recreation programs.
Build New Friendships
One of the best parts about getting involved in new interests is that you tend to meet new people and, inevitably, if you keep doing those things, some of those new people will develop into new friends. Involving yourself in an activity makes this process easy because you’re already committing together to something that you both have an interest in, so you already have something in common and something to talk about as a starting point.
For some people – and I’ll include myself in this – this kind of social interaction is easier said than done. Introverts like myself tend to build a handful of strong friendships and just stick with those relationships.
However, it’s often the friendships that you have that are causing you to spend more than you should. If you have friends that are into expensive hobbies or have expensive tastes, they’re often taking you along for the ride and causing you to spend, too.
As Jim Rohn puts it, “You are the average of the five people you spend the most time with.”
If you can build some strong new friendships, you’ll find that their frugal perspectives will help keep you in a more frugal mindset as well, even after the newness of your financial journey wears off.
Here are some strategies for building new friendships that have a more frugal bent to them.
Engage in something related to your shared interest outside the group. I’m involved in a couple of board game clubs in the area, but I’ve started playing games with some of the members that I’ve clicked with in other contexts. We’ve met for lunch for quick card games and had events at people’s houses where we play games that would have less interest to a large group.
Host dinner parties. Invite a few people to your house and make a low-cost dinner for them. Sit around together, enjoy the meal, have some great conversation, and maybe do something simple like play a card or a board game. Not only does this make for a fun evening, it’s a great opportunity to get to know someone better and to really start building a friendship with them.
Suggest outdoor activities that don’t involve a fee. Anything that’s appropriate will do, whether it’s simply going on a hike in a park, getting your children together at a playground, playing a game of soccer or ultimate frisbee, or simply having a picnic. As long as there is no up-front fee for participation, it’s going to be a fun social way to spend time.
Keep One Question in Mind, Always
Train yourself to keep one question in mind whenever you’re even considering spending money. Whenever you’re about to open your wallet, ask yourself this:
What do I value out of this thing I’m about to buy/do, and is there a cheaper way of getting the same or a very similar value?
Quite often, the first part of that question will stump you. What exactly are you getting out of this purchase? Why are you even considering spending your money in this way?
There are many reasons why we buy and when we allow ourselves to stop and look at those reasons, many of those reasons seem utterly nonsensical and foolish. Are we really attracted by the packaging? Are we really buying this item because our friends are buying something? Are we doing this out of some sort of weird guilt that makes no sense?
The worst one is when you’re buying an item because you think it will trigger some change in who you are. There is no purchase on earth that will do that. Only you can change who you are.
The second part of the question often catches you in situations where you’re overspending on something. Is there a way to get what you want out of this item without spending as much? If so, why aren’t you tackling that avenue?
This second part often comes as an encouragement to shop around on all of your purchases. The truth is that very few purchases are both important enough and urgent enough that you must buy them right now. Almost all purchases can wait for a while, and when you wait for a while, you give yourself a chance to shop around for a better price.
Another advantage to waiting around for a while is that you get an opportunity to figure out if this is a purchase you really need to make. Is this an item that will actually provide a real benefit in your life? Or is it just something you wanted in the whim of that moment?
Ask that question constantly. Keep going at it until that question naturally pops into your heart every time you make a purchase, even every time you pick up an item in the grocery store. When it’s natural and you actually listen to that question naturally, you have a tool that will serve you no matter where your path goes.
The full path to financial independence isn’t a path that everyone will follow. For some people, those initial steps – the ones that fix the immediate problem – are going to be enough to fulfill their needs. For others, financial independence will seem like an exciting path at first, but the excitement will wane over time.
Regardless of where you are on your path, the tools described above will help you out. They’ll set you up for continued success even when the excitement of financial progress starts to wane and your life focus moves elsewhere.
After all, just because your passions move in a different direction doesn’t mean you can’t continue down a positive financial path. Just because other things are now in your heart and mind doesn’t mean you can’t spend less than you earn and save for the future.