From Retirement Now Newsletter May 6th 2021
|I came across a good article on the power of habits as it pertains to your financial future. And why relying on sheer willpower alone is not sufficient to reach your goals. |
The article states that people have a hard time thinking about being prepared for the next 30 years because we are human and immediate gratification is tempting. Also, willpower is not enough to help us make good decisions.
The remedy is to develop healthy habits that allow us to prepare for the future.
Example: We wake up and brush our teeth out of habit. We don’t think about whether or not we should, we let the power of habit take over, giving us one less decision we have to make, with a long-term benefit of better dental hygiene.
Create an environment that encourages good habits. For example, when trying to stick to a budget as soon as you get a paycheck, transfer the “above-budget” excess to a savings account. Then you can’t spend what’s not in your checking account, thus creating an environment that encourages you to stick to the budget.
The article goes on: “we found positive correlations between a person’s habitual use of a financial rule of thumb and their financial well-being” [Emphasis mine on the word “use.”]
Making a habit of using good financial rules of thumb is what it’s all about.
One thing that I’ve noticed about many wealthy people I’ve personally come across is their habit for reducing expenses. Or to be politically incorrect… being cheap.
This seems counterintuitive, since we’d think if you have the money spend it. But this habit is probably one of the reasons they have the money in the first place. And habits die hard, even the good ones.
I remember hearing stories about the late Sam Walton (founder of Wal-Mart) who still drove around his old pick-up truck with no air conditioning and stained seats, even after he was very wealthy. He apparently purchased many of his clothes from Wal-Mart too.
Or of Warren Buffet who still lives in the same home he bought back in the 1950’s.
I don’t think either of these guys are (were in Walton’s case) living this way through sheer willpower to save a few extra bucks. I think it became a habit over time, they enjoy the lifestyle, don’t feel like they are missing out on the good life, and they focused on non-consumerism goals. Walton focused on serving customers of Wal-Mart. Buffet on finding well-run profitable companies to add to his Berkshire portfolio.
Conclusion: Anyway, to me the takeaways from all this would be to develop habits that positively contribute to your financial future. And when it comes to your retirement, try to find something you can do that gives you meaning and enjoyment after you leave the workforce.
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