This year, I started with a long overdue physical at the doctors. No surprise, the doctor said to me it's time to get serious about losing some weight. As I reflect back on some of the things my doctor said I needed to do to lose weight, it seemed to draw a lot of parallels to the advice I often give to people who want to get serious about getting their financial affairs in order.
1. Know what you are worth. The starting point of any financial plan is to understand your net worth. Your net worth is simply what you own less what you owe. Understanding your net worth is no different than me stepping on the scale at the doctor's office. Knowing my weight establishes a measurable benchmark so I can understand how I am doing in the future (gaining weight means I am doing the wrong things). For most people, the goal is to increase your net worth year after year. Although I may stand on the scale to check my weight weekly, checking your net worth probably only needs to happen once a year.
2. Know how much money you spend. Most people I meet don't know how much money they spend on a monthly or yearly basis. The ones that think they know how much they spend sort of know but typically underestimate. Very few people know what they are spending and the ones that do, typically are in pretty good financial shape. Tracking expenses is kind of like tracking your calories. My doctor talked about starting with the basics of knowing how many calories I should be eating in a day. In order to know how many calories I take in a day, I also need to understand and monitor the caloric values of everything I eat. Now this was a learning curve. After learning about caloric values and portion sizes, it's been much easier to monitor my calorie intake in a day. No different than tracking expenses, it takes effort, conscious awareness and ongoing work. Maybe that's why most people don't track expenses or calories.
3. Make yourself accountable. Self-discipline is such a tough thing. It's especially tough in a world that promotes indulgence, choice and convenience. We live in a world where it's so easy to spend money you don't have. You may want to save money but it is so much easier (and more fun) to spend now and plan to save later. If you think about it, it's no different than trying to lose weight. Sometimes it's just a lot easier to run through the drive thru and pick up a burger than making a healthy meal at home. My doctor has scheduled a 3-month follow up to see how my progress is doing. What he is really doing is creating accountability. If you want to get serious about finances, it starts with yourself. You have to create the motivation to change but sometimes it helps to get some help along the way. Get someone to help you be accountable. This might be your spouse or a sibling or a friend.
At the end of the day, my doctor says losing weight is one thing but keeping the weight off long term is about a change in lifestyle. Losing too much weight too fast is dieting and most people that diet, gain back their weight and more. Losing a little weight over a long period of time is much better. Getting serious about finances is no different. Those that get lured into hot tips or get rich quick schemes rarely get there as fast as they want. Most people get rich the slow and steady way one dollar at a time.