Most of us have found ourselves at one time or another sitting in front of a computer with 20 open tabs. The computer is running slow. We can’t remember what half of the tabs are about, much less why we opened them in the first place.
“How did this happen?”
“Didn’t I just clean this up recently?”
And then the warning hits, “Startup disk almost full.”
So you decide to delete a few large videos as the quickest way to undergo some damage control.
But the computer is still running slow. Maybe Dropbox is syncing. Slack notifications are piling up. Inevitably, Adobe thinks now is the right time to announce that it needs your permission to install a “critical” update.
Meanwhile, you have applications and windows open all over the place, fracturing your ability to focus on any one particular task.
After a couple of hours, you’ve accomplished whatever you set out to accomplish (or at least it feels like it). The keyboard was tapped. Emails were sent. Tabs were closed. You spent a bunch of energy. But you couldn’t tell anyone what you’ve achieved.
Feeling a little frustrated – and a little more tired – it’s time for another cup of coffee so you can get back to the grind. Life can feel this way. Finances can feel this way. Bank accounts, savings accounts, investments, roboadvisors, taxes, some guy telling you about a Stealth IRA … “Startup disk almost full.”
With all the noise, it’s a wonder that we get anything done, much less keep up with our actual careers and relationships.
Yet, as this is going on, the only certain thing we have is that time will keep marching. Today turns into tomorrow. Tomorrow becomes yesterday.
The days may be long, but the years are short.
In order to make any real financial progress, you need to adopt a longterm mindset. It’s not about saving $1,000 today. It’s about saving any amount consistently. Time will do its dance.
Yet all the time I see people that aren’t willing to invest a couple of hours today to make a few changes that will have epic benefits later.
If you want to be debt free, financially independent, or just plain rich, the best day to start was 10 years ago. The second best day? Today.
And that’s the big secret. It’s about spending the two hours to figure out why and how to do a Backdoor Roth IRA. Pretty simple when it comes down to it, yet most people don’t bother. They figure they’ll do it tomorrow.
If you’re looking to set yourself up this year to achieve financial success, here’s a few things you can do right now:
- Simplify, simplify, simplify. Start closing the financial tabs in your life. If you’re like most people, you’ve accumulated extra financial baggage over the years that is no longer serving you. Perhaps it’s an extra checking account that barely gets used. For others it might be a credit card that’s inactive. Start closing those accounts! And yes, I know. If you close some credit cards it might cause you to lose a few points on your FICO score. So maybe don’t close your oldest account. But do you need three inactive credit cards just because you opened them 10 years ago? You don’t. And around here we don’t give a damn about our FICO score anyway. Why? Because where you’re going they don’t care about FICO scores. If you’re reading this blog, you are well on your way to financial success. You’re not a poor consumer who wants to get the best rate on his car loan. You’re buying that car in cash. You’re certainly not carrying a credit card balance (and if you are – figure out how to pay that off immediately!).
- Simplify Some More. In addition to closing unused accounts, really make sure you have your finances automated. Automated doesn’t mean that each month you transfer a fixed amount over to your savings account. Automated means you’ve accepted our computer overlords and completely taken yourself out of the equation. Automated means it’d be a pain in the ass to get the money back because you’d have to pay a 10% penalty or figure out which investment lots to sell to minimize your capital gains taxes. Think this difference isn’t important? Au contraire. It’s the most important part. Like the difference between an amateur athlete and a professional, your money should work like a finely-tuned machine. Free your mind from worrying about these problems. Decide how much you want to save and have Vanguard (or whatever) move the money automatically.
- Work Backwards. Thanks to pop culture and weird commercials, consumers often get focused on achieving their “number”. I have no idea where this started but I find it amusing that financial firms have advertisements where they complicate matters and then oh-so-helpfully suggest that you visit your website where they can sort things out for you. It’s a concept designed to trick you into paying for their services. After all, financial management must be difficult right? It has to be complicated. “I have no idea what my number is, so I better call T. Rowe Price and pay them some money to figure it out.” Instead of focusing on your number, focus on your expenses. How much money do you need to live? Or, if you can’t answer that, how much money do you spend right now? In other words, if you wanted to make no changes in your lifestyle today, how much money are you spending? Once you know your total annual expenses, give yourself exactly that amount to spend. Cut yourself off from the rest of it. This shouldn’t be too hard as you’re not even decreasing your lifestyle. You’re just saying that you’re happy with your current level of expenses and you don’t need to increase your standard of living. This simple step will pay incredible dividends over the long run. It will also put you in control. If at any point in the future you decide to increase your lifestyle, you can do so consciously by raising your salary.
- Set Yourself Up To Succeed. Many times we are our own worst enemies. It’s not really our fault either. Humans aren’t set up to think about the long term. Study after study has shown that we have no appreciation for what life will be like for us in 5 or 10 years. On the spending side, nowhere has this been more obvious than in the rise of subscription services. Marketers have long known that selling something for $99.99 baffles us (it’s $100), but they’ve taken it to the next level by convincing us to pay $9.99/mo for the same thing (it’s $120, every year). Use their tricks for your own good. It may feel like saving $10 a month is chump change, but that adds up to thousands of dollars every decade. If you’re trying to build up a million dollars, you only need a thousand $1000s. Saving $10 a month is equal to one of those thousands. Saving $100 a month is 12 of those thousands. Small amounts saved repeatedly over time add up to big amounts. Just get started today, whether it’s opening up the 401(k), refinancing the student loans, reducing your cable bill, or saving more money in your taxable account. I challenge you to walk away from this article without being about to save an additional $10 a month.
- Reset to the 30,000-Foot View. Part of what can make financial independence or financial success so imposing is that we get caught up thinking about the details. Especially if this is new to you, it’s easy to obsess over things like asset location or achieving the best rate of return. If you find yourself down in the weeds, the best thing to do is to take a couple of hours to imagine yourself floating at the 30,000-foot view of your finances. What do you want to accomplish? What needs to happen for you to accomplish that goal? How do you implement what needs to be done? I think with those three basic questions you can tackle anything. You want to be debt free? How much do you owe and how much would you need to pay each month to be debt free in 2 years? How do you set up automatic payments to pay that amount each month? If you can solve those three questions, accomplishing your goal should be a piece of cake. You don’t even have to get caught up in things like interest rates and repayment plans. You just have to identify the goal, figure out how to get there and then implement the plan.
For me, all of these tactics are helpful in connecting the dots to get me where I want to go. I recently heard someone describe something they hoped to achieve and the person listening said, “Is it a goal or a dream?”
Because if it’s a dream, you’re probably not doing anything about it.
Dreams are on the back burner. We hope to accomplish them someday. They’re important to have but in the back of our mind we know they might not happen.
Whereas goals are things you know you will achieve.
It’s only a matter of when.
Let’s talk about it. What are you doing this year to achieve your goals?
Joshua Holt A practicing private equity M&A lawyer and the creator of Biglaw Investor, Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He spends 10 minutes a month on Personal Capital keeping track of his money and is always negotiating better student loan refinancing bonuses for readers of the site.