Friday, January 08, 2010
Personal Finances and Discipline
A few months ago I met a financial planner who works with my parents. During the
nearly two-hour meeting, we discussed a number of issues. A word that the planner used several times was "discipline". Gain control over their financial affairs is not something that happens spontaneously.
Over the few years I've been married, I realized that what might have worked with my finances as a single, collapsed when I got married, and when our daughter was born, there were no debris. I expected things to work, saving large amounts of money, investing in things that give revenue above market rates, but the reality is different. A successful personal finance planning require regular maintenance and, above all, discipline.
Someone once asked if my expenses go up close would be effective, or whether "simply by adopting a comprehensive approach soberly" would result. Definitely a good idea to spend wisely, of course, and I think the reason we have survived reasonably well, is because we have been too financially careless. Currently saving part of my paycheck in a tax-advantaged account, sponsored by my employer, but it's all we have done with regard to retirement savings.
Personal Finances and Discipline
We have made no load balance on credit cards than a month, but some months we have had to juggle the money to cover our credit card accounts. Basically, we're not really bad but could be better.
How can we be more disciplined in our personal finances? Here are some key areas:
* A written estimate. We have not had a written estimate since we married. I had not had a written estimate long before.
* Constant income and expenditure accounts. This is one of my major goals for this year. Having a vague notion of where our money goes each month is not disciplined. Unless you choose to live in a very small fraction of your income, you really need to know where all the money goes. The unaccounted money evaporates and is lost. Over the years, this could be tens of thousands, if not hundreds of thousands. Doing this once a month is probably not enough, I am pointing to ten times a month.
* Regularly review investment. Probably not necessary to examine the net worth every day, but the periodic review of investment performance and make adjustments as necessary, maintain a portfolio in line with the goals and risk tolerance.
* Speaking of targets. We only had vague goals, which really are not objective truth, because there is no plan to achieve them. Set objectives and plan to achieve them want of discipline.
* Planning to be temperate. Moderation does not happen spontaneously, either, but requires planning and purpose. I know it's cheaper to take my lunch from home but not ready in time, or I do something wrong and thus will not work. I end up eating out because I have no food. That is just one example.
* Learn how to make things better. The mainstay of finance disciplined is to know the correct way of doing things. I acknowledge that I have been involved in the enthusiasm of an investment or a business without preparing things correctly. Finance is a place where it can be very expensive to do things wrong.
Nobody cares about my finances as much as me, so I have to treat them very seriously and this requires discipline.