Write it down: Doing what it takes to become a millionaire

Scenario Gregory and Juliet are befuddled by this budgeting business. (See last week’s issue)  They’ve categorized their expenses, tallied up their income, while getting a healthy dose of reality in the process: their spending habits, needs, and wants bear no relationship to their actual income. They need housing, cars, clothes, and food, which make up the bulk of their monthly expenses. Now, they wonder how they’ll ever “squeeze” enough from their budget to save for a home and build some savings and net worth. Their “fixed” expenses are so high, and ever-constant, they don’t see a way to cut them back dramatically.

It doesn’t take that much to succeed; a few positive habits can carry you a long way toward your goal. Most people can think of a lot of things they would do to become a millionaire, and most of these things are difficult or undesirable.  Habitually controlling your expenses could make you a millionaire? Would you do it?  The  truth is most people won’t even make the simple effort. With one minor adjustment (saving and investing), becoming a millionaire, over time, is as simple as getting control of your expenses and managing the excess wisely. Let us look at an example; what if every day you took a red note (the dollar bill, not the quarter) and set it aside for savings, to build your net worth? I’m serious! Let’s say you took a solitary dollar, or the change in your pocket, and put it in a jar. At the end of one month you’ve got a whopping thirty big ones, right? (Or thirty-one. Twenty nine days hath February 2004

You’re asking. “What could a dollar possibly do for me?” I’ll show you. Let’s say that at the end of each month you invested that money  and didn’t touch it; you’ve set it aside for investment. The results of this little habit are truly astounding: an eighteen-year-old who saves just one red note a day is worth well over one million, two hundred thousand dollars at age sixty-five. ($1,264,615 to be exact, assuming a 15% rate of return, which can be done.)  To be wealthy, all you have to do is learn to wisely manage the money that already flows through your hands. Beginning to do this requires that you take a look at how you’re presently allocating your resources, discovering where you’re trading your multimillion-dollar future. SET “CONTROL” SPENDING AMOUNTS  by revisiting the list of your expense categories. (See last week’s issue for list) .  Simply estimate your monthly expenditures by category and (again, your chequebook will provide valuable date) write your monthly expense figures in your notebook. You should be starting to see where your money is going on a monthly basis, which’ll give you a good idea of where to begin with your savings, investment, and wealth-building programs.

IMPORTANT: Finally, you’ll want to “tinker” with the numbers a bit - take a few bucks from, say, CLOTHING and sneak it over into SAVINGS, formulating a visual idea of your priorities. Again, these aren’t set-in-stone spending limits, just “control” amounts. The idea is to simply “have a mental idea” of your spending matrix. Once you have a barometer of your spending disciplines, you’ll find yourself looking for ways to “stick” to them.

Let us discuss how you can use this “mental barometer” effectively, without depriving yourself and while having fun in the process. Again, don’t make your “budget” too strict at this point. We don’t want budgeting to become a “castor oil” academic exercise. Be cool. You know what to do. You’ll make the necessary adjustments without cramming your head and wallet into a vice.

Write It Down

Scenario
Gregory and Juliet, although very committed, are starting to feel maintaining a financial budget is going to be an all-consuming job. They feel as if they’re going to have to “sweat the details” for years to come, noodling over every penny. Worse, they’re concerned that a miserly lifestyle is what’s required, which doesn’t sound appealing in the least. Are they really going to have to pinch pennies and scrap over even the smallest expenses in order to make it? One of the concepts about success that really, really works, and that needs to be foremost in your mind, is explained in one word: HABIT.

Our health and diet habits shape our bodies and the length and quality of our lives, our time-management habits determine how we actually “spend” our lives; and our habits regarding people determine the depth of our relationships with family, friends, and associates. Similarly, our money habits are at the core of our ability to build and maintain wealth, or not, throughout our lives. What we want to do is create a positive habit that will help us stick to our budget without driving us crazy. Remember, one of the ways we develop habits, good or bad, is to do the thing. And one of the ways we make sure we continually do the thing is through conditioning (repetition and reinforcement) and immersion — adopting new skills and habits more effectively by throwing ourselves fully into the new endeavor, at least initially. Then, once the new skill has exhausted the need for our complete focus, we are free to relax a bit, while a more moderate, effective habit will stick with us. Let me explain with an example: You are a runner now, but in the beginning it was tough to get yourself outside consistently.

At first, however, you immersed yourself in the sport by reading books and magazines, spending time walking with other runners, and — YES — “doing the thing.” You actually began by training for a 10k (6.2 miles), which is not the simplest goal, and running every day. For nearly three months, you maintained this habit of running every day, stretching your distance almost weekly. Anyway, after a few months you cut back to running two to three miles, three times a week, a habit you maintain to this day. Now what’s key here is that your running habits now are almost effortless. You immersed yourself in the sport to such a level that three miles, which is an awesome health habit, seems like a cinch today. You don’t have to even think about it anymore. You just do it.

You can do the same thing with money. Immerse yourself in its study, jump-starting the good habits. The trick is to habitually write down every dollar you spend in your notebook. In order to acquire this extremely positive discipline, you’re going to have to go over the top and become absolutely nutty about doing it. EVERY DAY. ALWAYS. Eventually, the habit will take root and it will seem almost effortless as you go through your day; this awareness of where your money goes can give you tremendous control over your spending. If you’re not yet convinced of the WRITE IT DOWN habit, consider this scenario: You walk away from the cash machine with a stack of twenty-dollar bills, only to have it disappear without a trace. Where did it go? What do you have to show for it? Sound familiar?
(Continued next week)