Self Control and Your Finances

No, this isn’t a dieting post, I’m not going to tell you that Keto is better than ANY OTHER DIET EVER or that you should become a  vegan because #animallivesmatter.  But, it’s going to sound quite similar to a post on diet and lifestyle because Self Control and Willpower, especially if you have very little or none when it comes to your finances, is going to feel like a diet.

And like all dietitian gurus, I’m going to say it’s all about moderation. And with finances, it’s all about what you value the most.

 

What is Self Control with Respect to Your Finances

Can there be a plate of cookies or a box of donuts in the break room at work and you don’t have any? Can you have $200 in your bank account that you don’t feel the need to spend? While one is about food and the other is about money, they are the exact same concept. Self control and willpower over your finances is just like maintaining a healthy diet. You need to plan and use information to live your best financial life.  Many of these skills are taught on this blog and in my Femillionaire  series on my Youtube Channel.

 

The Science of Willpower

Let’s chat about willpower for a second. Willpower is like a muscle, it can become fatigued, but it can also be super buff and hawt. As you use your Willpower, you’re exerting that muscle and making it tired.  When you have to exert your financial willpower often whether it’s feeling too restricted, having financial issues, or other reasons, you’re more likely to make purchases you wouldn’t otherwise make.

The best way to overcome fatigue in Willpower is having a set game plan. When a situation comes up, or thoughts or feelings occur that make you want to spend, a game plan can assist in taking steps to not spend. Having rules set in stone make is so you don’t have to use any Willpower when debating an unplanned purchase. You simply won’t.

 

Building Financial Self Control: A Tips and Tricks

Track Your Spending: Track every single penny that comes into or out of all of your accounts and where it goes. Are you spending ungodly amounts on eating out? On Makeup? On that car? Tracking your spending is the first step in any financial journey. This also helps create Awareness on your way to becoming a Femillionaire.

There are great tools to help you track your spending, like Mint and YNAB (You Need a Budget). A simple Excel sheet also works great.

Make One Financial Decision at a Time: Science backs that decisions are exhausting. This is why people like Mark Zuckerberg wear the exact same thing every day. (And your blogger might follow a similar principle!). Decision fatigue is a thing, and so is Willpower fatigue, especially if you’re making too many financial decisions at a time. Make one decision, let it sink in and blend in with your finances, and then make you’re next decision. Decision 1 could cost a lot more, or a lot less, than you initially intended.

A prime example of this is having your first baby. While you’re preparing (and spending!) for baby incoming AND you need a new car, it’s really easy to go from affordable sedan to expensive SUV because you’re already spending so much on baby, you should get the more expensive car (plus you deserve it!). But that’s wrong, wrong, wrong. If your old car is fine, keep it, but if you need a new car, focus on that purchase first, remove baby from the equation.

Save Automatically: Your bank can do automatic transactions, did you know that? Set up automatic transactions so that every pay period your money is sent to savings, debts, and investments. Many times when money is out of sight, it’s out of mind. Also, having money specifically assigned to a labeled account can do wonders for one’s psychology.

Personally, every pay check I have money that goes my investments, a savings account at a different bank, savings accounts for travel, a treat yo self fund, my kitty, and my car. Whatever is left in my checking account is for bills, then fun.

Avoid Temptation: Remember those donuts in the break room? Guess where I’m not eating my lunch today. This rule applies for savings. Avoid places where you spend money or make you want to spend money. This includes shopping malls, certain Youtubers, and social media. You can also manage your spending by only carrying cash.

Find Support: Surround yourself who have your best financial welfare in mind, or with friends who understand if you cannot attend an event because you’re trying to save money. You know your friend who is always broke? Have them read this post, they need some Financial Willpower in their life.

If you struggle with managing your finances, seek help. Many psychologists have tools to help people better manage their money.

The Bottom Line

Just like with eating healthy, in today’s consumerist world, Willpower takes energy. But, it can take less energy if you build strong habits in decision making, and by resetting your primary reaction to not buying anything that hasn’t been well researched, much needed, and long awaited.

 

 

Female Fridays

Savings vs. Investments – Aren’t they the Same Thing?

Happy Femillionaire Fri-yay! Well… Not so Fri-yay as this post goes up late…. You know what my plans are for the week? Get. Shit. Done. Same as any other week. But I still love Fridays, mainly because it means new Finance tips on my Youtube Channel and here! Yay!

In this first post of 2019, and the first video in my Youtube playlist, Femillionaire, I want to start with a two basic definitions that can alter you from being comfortable, to being wealthy and financially independent.

Savings vs. Investing

I want to touch on the topics of savings and investing today and the key differences between the two.

Definition

Savings

Generally savings are in cash accounts held at your local or online bank.

Investments

Investments are investing in something with the intent to see your money grow.

Savings are held, investments are for growth.

Examples

Savings are cash in a savings account at your bank. You might keep savings in a checking account (which isn’t a great idea!). Savings can also be stored in Money Market Funds.

Investments are stocks, mutual funds, property, gold, or even in yourself. Anything that invest X gets you Y, where Y > X.

Purpose

Savings

Saving money in a bank account has one soul purpose. It is short term money that you need in order to fulfill a want or necessity. There are a few things that need defined in that sentence.

First, short term. What is short term in terms of your money? Short term is anything less than five years. So, any savings should only be done for something that is 5 or less years away. This includes a house, a car, a new purse, a baby, etc. Short term also mean urgency, if an emergency happens, you need cash now. 

Let’s break down the second part of that sentence, fulfill a want or necessity. Yes! Savings isn’t just for a rainy day fund (or to the more financially aware student, Emergency Fund), but is also for fun things like vacations, big projects, etc.

The final intent of savings is that it will be spent. You just may not know when.

Investments

Pay attention! This is where  we go from cash rich to actually wealthy. The purpose of investments is to increase one’s wealth by converting one amount of money into a larger amount of money. The purpose of investments are that they take time, mature, and when they mature your money has doubled, tripled, or even quadrupled- something you certainly wouldn’t see in a savings account. Investments also aren’t actively spent until they’re used to help fund your retirement or your next big project.

 

Returns

Savings

Savings is going to have very little returns. I highly recommend parking any large amount of cash you do have (>$3,000 saved) into a High Yield Savings Account. These accounts will at least earn you 2% as of me writing this article. My current Synchrony account is at 2.2%.

Investments

Investments, historically, have a much higher rate of return than savings, primarily because they increase in value over time. While investments may decrease for a short amount of time, history proves investments increase wealth and net worth.

Risks

Savings

I know what you’re thinking. You’re thinking “gotcha bitch” TRY to tell me that savings is risky and a bad idea.

… Okay, I will. Savings is incredibly risky when it comes to your money.  Are you going to suddenly have pennies, like you could with an investment? No. you’re just losing critical compounding time in the market when your money could be working for you.  Also, you technically are losing money…. if inflation is greater than your savings account rate, which, it most likely is. So the $100 you have in savings today, is still going to be $100 in 10 years, but worth only about $80 of today’s dollars.

Investments

I think it’s quite obvious why investments are risky- it’s why many people, especially women, don’t invest to begin with. Investments could be $5,000 one day, and $0 the next. If you invest in a company and it goes Bankrupt, you’re out of luck. If you buy a house and it burns down before you can buy insurance, you’re out of luck.

What we need to realize that yes, stocks, real estate, etc are all risky. However, with due diligence and staying the course, especially when things are going south, Investments out perform cash. Every. Single. Time.

Liquidity

The availability of liquid assets, i.e. cash.

Savings

Savings are quite liquid. You’re able to pull out all the cash you need, generally on a single day, from a single bank. Liquidity is one of the key reasons for keeping cash.

Investments

Investments are not as liquid as savings, however different Investments have varying levels of liquidity. Stocks in a normal, health year of investment are pretty liquid. It easy to sell stock and have the money in your bank account less than a week to two weeks later. Real estate as an investment is a different breed. One can flip a house, or sit on it for month – even years – until someone wants to buy or rent it from you.

 

In Conclusion

I hope the difference between savings and investments is clear to you now. In a way, investments, especially buying into mutual funds, are basically like saving with a slightly better interest rate. That is, until you have enough money where compound interest really takes root and you see your numbers start to soar.

After this article, I hope you are able to correctly discuss savings and investments and continue to invest and grow your wealth!

 

For the more audio readers, below is my Youtube video covering the same topics as above. Thanks!

 

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