Just as the transition from civilian life to military life isn't easy, neither will the transition to become financially literate. During boot camp, a soldier goes through a process of mental, emotional, and physical retraining so that they can operate in an environment very different from the civilian world. Using the same process of mental, emotional, and physical retraining you can also transform the way you think about finances. The ultimate goal is to not just think differently about money, but also do different things with your money, which will enable you to grow your money in ways that most people never do.
Mental Retraining
Most people live paycheck to paycheck, worry about debt, have little to no savings and haven't even begun to think about retirement. Your first step to becoming financially literate is to retrain the way you think about money. The following key principles are needed in order to retrain your brain!
1. It is not how much you make but how much you are spending that determines what is left over at the end of the month. If you want more money, you have to learn how to spend less of it!
2. There is NO SUCH THING as GOOD debt. Do not try to justify why you have debt. Debt is bad and you will never earn interest on your money while you are paying interest to someone else.
3. Savings is your only safety net. Bad things will happen in your lifetime: your car's transmission going out, the possibility of your hours being cut at work or even worse, losing your job. Most people are one step away from financial disaster and savings needs to be the foundation to get you through life's emergencies.
4. Retirement isn't an if' question, it is only a question of when'. You can't be like most people and wait until you are in your 50's to start planning for retirement. If you are younger and are counting on social security, in the military they call that PPP (Piss Poor Planning).
Emotional Retraining
One thing separating man from every other living being is emotions. During boot camp, you weren't trained to be devoid of all emotions, but you were retrained to control your emotions and use them to give you the competitive advantage on the battlefield. The following key principles will give you the competitive on the financial battlefield.
1. Everybody wants your money and you are more than happy to give it to them because it feels good to waste money. To become financially literate you must be able to control those emotions by first acknowledging those feelings are real and understanding that the people who are good with their finances don't allow emotions to control their spending decisions.
2. Don't allow your current situation to make you feel hopeless. Bad things happen to good people and life is not fair so instead of feeling sorry for yourself, use your emotions to motivate you into action. Just because you might be in debt up to your eyeballs feeling like there is no way out, keep in mind that there have been many others in worse situations than yours that were able to turn their finances around by channeling their emotions into more financially productive endeavors.
3. People feel like they must spend everything they make so they don't have anything left over for their savings. Nobody cares more about your financial situation than you so show yourself some love by paying yourself first (savings) before you pay anybody else.
4. You should never let the direction of the stock market influence your long-term investment decisions. When people lose money, they actually feel pain. Your probability of success will increase exponentially by not allowing your emotions to control your buying or selling decisions. Most people want to buy when the market is doing well and sell when it is doing poorly. Haven't you heard the saying buy low and sell high? People who base their decisions on their emotions usually do the opposite of what they should do!
Physical Retraining
In boot camp we can think of a soldier doing push-ups, pull-ups, sit-ups or running. Other physical training might be going on a march, weapons training, or working on equipment. The key to physical training is the act of doing something! While doing push-ups won't help, following these key action steps will put you on track to becoming financially literate.
1. You need to develop a spending plan. I mentioned earlier that it is not how much you make but what you are spending that determines how much you have left at the end of the month. To know what you are spending, you need to write down exactly where your money is going, and then use this information to identify wasteful spending and create a budget!
2. In the case of debt, the first step to get out of it will require you to NOT do something. In other words, to get out of debt you have to quit using credit. But just as you have to develop a spending plan to find out where your money is going and plan where it should be going, you will need to put together a get out of debt plan. There are many free sites on the internet to help you do that, but the most important point is that you will need to take ACTION.
3. The quicker you learn that nobody will manage your money better than you the quicker you will be able to build your savings. You will need to open up a separate account from your checking account and deposit money into it! Your first goal is to have at least $1,000 in your savings. Figure this into your spending plan and try to get this accomplished in 4 6 months.
4. The same concept for putting money into savings has to be done with your retirement money. For those with a 401k or another company retirement plan, that should be your first option. If you don't have a company plan, consider putting money into a Roth or Traditional Individual Retirement Account (IRA). It is never too early to start saving for retirement!
In boot camp, a soldier goes through mental, emotional and physical training so that they can achieve success on the battlefield. You can apply the same process in order to become finically literate and to be successful on the financial battlefield!
Steve Repak, CFP and Professional Speaker is the Author of Dollars & Uncommon Sense: Basic Training For Your Money. For more information, please visit, www.dollarsanduncommonsense.com.
Current Issue - April 2024