Financial discipline is the most underrated, ignored and, at the same time, extremely useful trait that one can develop. Because, you see, there is a big tension on both these words: “financial” and “discipline”.
One one side, when it comes to “financial”, or money, or, to be more precise, spending money, the outside pressure is almost unbearable. You are exposed to a continuum of advertising, openly expressed or concealed in mischievous ways, each and every second of your awake time. And, because of the nature of the brain, which makes sense of the world during sleep, you are exposed even when you dream.
And on the other side, when it comes to “discipline”, or accountability, the pressure from our hedonistic lifestyle is equal, if not bigger. Being disciplined about something (being it your finances or just your fitness routine) is often perceived as “renouncing” something, giving up pleasures or stuff that you would otherwise indulge in.
And yet, by resolving this very tensioned binomial equation, one can enjoy tremendous benefits. I’m not talking theories here. I’ve been a very reckless person with my finances, and it was only by experiencing heavy financial problems that I came to understand the joys of having and implementing a sound financial discipline.
What follows is a list of simple actions, or habits, that can help you start your financial discipline – or strengthening it, if you’re already into it (which I really hope you already are).
1. Keep A Monthly Budget
I cannot stress enough the benefits of keeping a monthly budget. Just the insights that you get, if you follow this habit, into your spending patterns and revenue sources, are enough to justify it.
I keep a monthly budget into a spreadsheet that I carry over from month to month. The key element is to put in there ALL the income sources and ALL the expenses, so that what you have in the sheet will closely mirror your real life. Also, updating it as often as you receive / spend money will help you keep a clear picture of what you have available.
2. Don’t Borrow Money. Please. Just Don’t
Credit is probably the most deceiving way to make use of your money. Speaking from personal experience, it’s also the fastest way of going from stable to slave. And I mean it: slave.
So, if you can, please stay away from credit, no matter how confident you are that you can pay it back. The only situation in which credit would be useful is in business, when it could add some liquidity or speed up some processes, and even in this case, I don’t think it should extend beyond 10-20% of the total capital invested in the said business.
3. Pay Debt First
But if you do have some credit going on, do yourself a service and pay the debt first. Don’t even calculate your money with it, just pay it as soon as you get some liquidity.
I’ve been through excruciating pain because of paying late (or stopping the payments) on one of the credits I had (incidentally, the last one I would ever take) and I still feel that pain. Not only the debt will increase if you pay late (because of penalties), but the remaining of the credit would be extended on all the other valuables that you have. Without your consent, obviously.
4. Save Something Every Month
Even if you are in debt, even if you have a lot of pressure on your budget, do save something every month. Doesn’t matter how small or insignificant it seems compared with the rest of the budget, just do save it.
There will be times in your life when that little you saved will mean so, so much. Not to mention the power of that habit, that will create, in time, a cushion of safety in a world where safety is, actually, an illusion. 10% is usually a good start, but if you can’t afford that, you can start even with 1%. Just keep at it. Every. Month.
5. Buy Good Stuff. Not Cheap, Not Expensive, But Good
The best acquisitions I made were those when I was experiencing financial shortages. Why? Because that forced me to do my homework and carefully evaluate all my acquisitions.
No matter if it’s groceries or a car, when you focus on buying good stuff, you’re steering away from both the “luxury trap” and the “scarcity limitation”. The “luxury trap” means “everything expensive must be good” (which, most of the time, isn’t), while the “scarcity limitation” means “I can’t afford that” (which, most of the time, it’s a lie: you’d better spend a little more, but get something more durable, that will keep its value for longer).
6. Isolate Financial Liabilities And Solve Them ASAP
By “financial liabilities” I mean all the stuff that you control, in some way, being it a credit or an investment, and which creates more pressure than it solves. The most obvious example is a credit.
But there are other liabilities too: like an investment that you made, in some company shares, or by putting your time to work for somebody else. Even your job may be considered a financial liability, if the “side effects” of it are health degradation, stress and depression. Try to understand which of the things in your life are financial liabilities and solve them ruthlessly.
7. Spread The Storage, Minimize Risk
If you do have some money – which, at some point, will happen, if only you stay away from credit – then you will need to minimize the storage risk. By storage risk I mean “where do you keep your liquid money”.
This is not investment, will cover that in a bit, it’s just a way to minimize the risk of your liquid holdings, which usually means having your money spread over multiple banks, and, if possible, even jurisdictions. There are limits to which your money are “insured” in a bank account, so spreading the holdings to multiple storage spaces (banks / jurisdictions) will minimize that risk.
8. Make And Then Hold Some Alternative Money
By alternative money I mean cryptocurrencies. In a previous life, I think this could have been read as “keep your money in different currencies, like USD, GBP or EUR”.
Well, the world changed and cryptocurrencies are a real thing. They’re decentralized, they’re unbreakable (most of them) and they are cross-border. But that doesn’t mean they’re risk free. On the contrary, the technology is still young (only 10 years old, compared with internet, which is 40 years old) so a lot may still happen. But, with the right risk assessment and with patience, this “alternative money” will prove very useful in a not-so-distant future.
This is probably the best thing you can do after saving monthly. I put it here, though, because I wanted it to be close to the one above.
One very interesting thing changed by the cryptocurrencies revolution was the lowering of the entry barrier in investing. Before that, investing in a promising startup was reserved to a few and it involved heavy legal and financial processes. Now this process is almost without friction. If you know a good startup and you want to invest in it, there is almost always a way to do it with crypto. As usual, please, please, please, with sugar on top, do your own research before investing, especially in crypto / fintech startups.
10. Build Alternative Skills. Be Prepared.
Taking all the care in the world about your finances will only take you to a certain point. Beyond that certain point, it’s only what you know to do that will save you, not what you have.
By that, I mean that, in the present world, political crisis and financial disasters are way more common than we would like to admit. Anything can happen any time. And even if you took all the care in the world about your money, you can lose it in a matter of seconds. Political instability, financial chaos, bankruptcies or just negligence, any of these can wipe out your lifetime earnings. Instead of hoping this will never happen, do yourself a service and learn something every day. Something that will grant you a job any time you’ll need one.
Better safe than sorry.