This time of year, you are likely to see many headlines offering advice to the recent college graduates, including many in the financial media. There are several “top 10” lists of really good financial wisdom, but we’ve never seen a list with these two foundational pieces of advice – which apply to anyone looking to improve their finances, regardless of age!
Track Your Progress
If you want to improve your finances, know that it is a marathon and not a sprint. It is many small decisions over time that will get you to where you want to be. The hard part about that is that it can be very discouraging to not see results, to not feel any closer to your goals.
Think about it like you are training for that marathon. You decide to go from someone who could maybe run a mile to training for a marathon a year from now. You are most likely going to start eating better as well as getting on a training schedule where you consistently run further and further (this is analogous to a spending plan, which is certainly part of the good financial wisdom mentioned early that you can read more about here. You’ll track your progress too. Tracking your progress helps you stay on track to actually run the whole marathon but is just as important for keeping you motivated. The first 5 mile or 10 mile runs are accomplishments that will keep pushing you forward.
There is a need for that motivation in your personal finances too and tracking your progress is a great way to stay motivated. For some, tracking the monthly spending and seeing how much actual cash flow they are putting towards their goals each month might be enough, but tracking your balance sheet each month might be more effective (especially when you are starting out on your journey and maybe have a negative number on your balance sheet).
The simplest way to start the balance sheet is to create a spreadsheet where you list any accounts with a positive balance first, then list any accounts in which you owe money. The total of all these accounts is the number you would be watching each month to track your progress.
Here’s a real-life example of the first two years of a married couple who used this balance sheet tracking method. We took the monthly balance sheet totals and converted it into a graph to show how they were able to improve their balance sheet over time.
They started out with a negative balance due to student loans, but month by month they could see their improvement and were motivated by the progress.
Know the Purpose
Tracking the progress towards your goals is great, but ultimately it is not likely to be enough to keep you going unless you have something else – a purpose behind it all. Sticking to that spending plan will get old, you’ll see that shiny new “toy” that you have to have, or maybe you’ll start to think there has to be a faster way and you’ll begin day trading penny stocks on Robin Hood.
To go back to the marathon analogy, if your goal is to run a marathon in a year, that time frame is probably short enough that you can stay motivated. But if your goal was to remain in good enough shape to be able to run a marathon on any given day over for the next 30 years, you’re going to need a really good purpose if you plan on keeping yourself in that good of shape for that long. The same is true of finances.
Knowing why you are sticking to financially wise decisions for DECADES can give you a better chance at accomplishing your goals. So, before you start out on your journey, take some time to make sure you understand why your goals matter to you. There is not one right answer and your purpose can certainly change over time as your life changes. One final piece of advice: “to be rich” is a common foundation for making financial decisions, but it will never be fulfilling. There will always be someone richer and an extra dollar to be made. We cannot recommend strongly enough to find a purpose that has an achievable end which you can find contentment in.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.