Automate Your Finances

A good part of financial success is setting up systems that will ensure success.

Something simple you can do is automate a few key things. Automating your finances is one of those systems that will help you be successful. Here are some examples:

  • Have your paycheck direct depositedDirect Deposit

    Many employers default to direct deposit – you have to put in a special request to get a paper check. Direct deposit is generally available in your account the same day the deposit is made and it costs less in time for both you and your employer. If your employer doesn’t offer this service, encourage them to set it up. With many accounting software packages, such as QuickBooks, direct deposit is included as a free add-on.

  • Set up as many of your bills as possible on automatic bill paybill pay

    There are two ways to do this – either set up the bill to get paid directly out of your account each month (generally charged to a credit or debit card) or you can pay through your bank’s online bill pay.We pay all of our regular monthly bills, such as the electric and gas bill, Netflix, our mortgage and others by having the payment charged to our debit card. It pulls out the same amount each month, and I can set it up once and forget it. It also ensures that we will never be late on these payments and get hit with a late fee.

    For other payments that don’t have this feature I pay them through our bank’s bill-pay system. Our children attend a local children’s choir, for example, and they don’t offer direct bill pay, so I log in to my bank when I get the bill and send the payment off. You don’t even have to pay for postage if you use this method!

  • Have a set amount (ideally 10%) transfer from checking to savings when your paycheck is deposited.Pay Yourself First

    You can either have your bank do this automatically or if your bank doesn’t offer this service, you can often have your paycheck split into several accounts. My employer, for example, will allow me to put different percentages of my paycheck into different accounts. By doing this you are “paying yourself first.” Jim Rohn once said that poor people spend their money and save what’s left, while rich people save their money then spend what’s left. Make the savings portion automatic, then spend what you have left.[1]

These three simple tips can help ensure your success with your finances. Choose one you aren’t currently doing and get it set up today.


 

[1] This does not count, of course, for cases of extreme poverty, but the vast majority of people reading my blog could adopt the idea of paying yourself first. If 10% is too much, start with just 1%, or even just ½ of 1%! Are you going to build up much money saving just 1%? No, but that’s not the point. The point is starting the habit, then building it up over time. See https://ryanhlaw.com/one-small-step/ for more ideas about starting small.

One Small Step

by Ryan H. Law

When we decide we want to achieve a goal we usually get excited and want to jump in the deep end. For some people, this might work, but the majority of people are going to sink. Research has shown that taking really small steps can be the best way to achieve a goal.

Robert Maurer, author of “One Small Step Can Change Your Life” tells a story about a girl named Julie who needed to lose weight and get her blood pressure down. He was tempted to tell her to exercise aerobically for 30 minutes every day, but he knew from experience that while the advice was good, she was unlikely to do it and would just feel misunderstood and guilty.

Maurer decided to try something different. “How about if you just march in place in front of the television, each day, for one minute?” Julie responded that of course she could do that. After all, there was no way she couldn’t succeed.

Was she going to get healthier exercising for a minute a day? Probably not. What happened the next week, though, was that Julie came back excited that she had achieved her goal. Together they built up the exercise habit, minute by minute, for a few months, until she started exercising for 30 minutes each day.

If you set really small steps towards your goal you will achieve success over time. The steps should be so small that you are guaranteed success.

You should be setting goals in seven areas of your life:

  • Work/career
  • Mind/intellect
  • Spiritual
  • Physical/health
  • Personal/social
  • Family
  • Financial

What is one small step (so small that you can’t fail) that will begin to move you forward? Here are a few ideas:

  • I will march in place during one commercial
  • At noon I will go on a five-minute walk
  • At 8:00 in the morning I will read one verse in the Bible
  • When I get home from work I will spend five minutes connecting with my spouse
  • After dinner I will play with my children for three minutes

This process works the same for financial goals. We all hear the advice that we should pay ourselves (save) 10% first, but few people do it. If you aren’t saving any money right now, can you save just 1%? If that is too much, how about .5% (one-half of one percent)? Can you add .5% more to your 401(k)? Can you pay an extra $5 this month towards your debt?

Again, these steps seem so small that it seems they won’t make any difference. Starting small, then moving up from there, works!

Here’s an example. About 2.5 months ago I decided to start jogging 3 days a week. I haven’t been jogging in at least 10 years. I started a program where the first week looked like this:

  • 60 seconds jogging
  • 90 seconds walking
  • Alternate for 20 minutes

Almost anyone can do that, right? If that sounds too hard you can decrease the jogging and increase the walking. The point is to increase, over time, the amount of time jogging and decrease the amount of time walking.

I’m on to a different program now where I run for four minutes then walk for one. My endurance and strength have built up and now I am running four miles in about 40 minutes, and that includes 10 minutes of warm-up and cool-down time.

Am I where I want to be, fitness-wise? Not quite, but I’m making progress. The name of the game is improvement, not perfection, and that applies to your money, your fitness, your family, and every other area.

Here’s my challenge to you:

  • Pick one area from the seven areas of your life.
  • Set a small goal – one you know you can’t fail at.
  • Let me know what your goal is in the comments below or on Facebook or Linkedin.

If you found this helpful, I would appreciate it if you would share it with others using the links below!

How We Almost Lost a Home

by Ryan H. Law

About 15 years ago my wife and I moved to Indiana, excited to start a new adventure far from where we both grew up. We rented a great apartment that fit our needs and expenses. It was close to the library and shopping, not too far from my work and it had a nice pool. It was perfect.

build a homeHowever, after a while, we got restless. We wanted to own a home. After all, that is the American Dream, right? So we started looking for homes. We found a brand new community that was being built, and they offered 100% financing. We picked out a home we liked and put down some earnest money, then they started building it. What an exciting time!

There were some red flags, though. The first one was that we couldn’t actually qualify for the loan on our own. We didn’t have enough income or credit history. The sellers used some “creative financing strategies” to get us qualified, which involved using a tax credit that would bring our income up. We also had to get a co-signer.

Red-FlagAnother red flag was that we had no money for a down payment or closing costs. Of course, to the seller, that was no problem. They could just roll it all in to the loan.

We really couldn’t afford the payment, either, but we were excited about the home and figured if we qualified, that things would work out. We drove out nearly every day to see the progress on our home.

At some point, though, reality set in. We really couldn’t afford this home. We panicked and contacted the seller, asking to be released from our contract. Of course, they said no. We were committed. We explained that we couldn’t really afford it, but that didn’t deter them. We had a real estate lawyer look over our contract. He said he couldn’t see a way out. We weren’t sure what to do.

We got lucky, though. They had committed to have it done by a certain date, but they got behind on construction. We were able to argue that they had broken the contract, and we were therefore no longer bound by it.  They let us get out of the contract and sent our earnest money back.

Perhaps they also realized that if they had forced us to follow through, we might have lost the home in a foreclosure or short sale, which would have looked bad in this brand new community.

We ended up moving shortly after that, and have been very cautious about home buying since that time. In fact, we waited more than 7 years before we actually purchased our first home.

Along the way we have learned some important lessons. Before you buy a home, I recommend you consider the following:

  1. Make sure your income is stable.
  2. Have 3-6 months’ worth of expenses in an emergency funds in the bank.
  3. Pay off ALL high interest debt (credit cards, vehicles, student loans, etc).
  4. Save up 20% for a down payment. If you put down at least 20%, you don’t have to pay Private Mortgage Insurance (PMI). PMI is generally 1% of the loan annually. On a $200,000 home that will be $2,000 per year, or $166 a month. That’s a lot to be adding to a mortgage payment each month.
  5. Make sure your TOTAL home cost (Principal, Interest, Taxes, Insurance, HOA fees) is no more than 25% of your take home pay. The lender will likely qualify you for much more than you can afford, but stick with your price range. Let your Real Estate agent know exactly the price range you are looking at, and stick with it. We were fortunate to find a great Realtor® in Missouri[1] who helped us find exactly what we were looking for in the price range we were comfortable with. Find someone you trust who will help you do what is best for you, not their commission.
  6. Remember that homes come with extra expenses. For example, if the water heater goes out in your home, you have to pay for a new one. Experts recommend that you save anywhere from 1-4% of your home’s value per year for maintenance and repairs. On a $200,000 home that is $2,000 – $8,000. While $8,000 is probably a bit high, the reality is that you will have to pay for repairs.
  7. I recommend that, on top of repair money, you have enough saved up to pay your insurance deductible. After all, if the roof gets destroyed in a hail storm, the insurance company will pay most of the repairs, but you have to pay your deductible first. That can be anywhere from $1,000 – $5,000.

Buying a home can be a great decision. In general, homes appreciate in value, meaning that you should be able to sell it in the future for more than you bought it for. Even that isn’t always true, though. Remember 2008? Some markets have yet to fully recover from that housing crash. Go slowly and buy what you can afford when you are ready.


 

[1] A shout-out to our friend and Realtor® Ted Webber: http://www.tedwebber.com/.

Buy Experiences, Not Stuff

by Ryan H. Law

For most of us Summer is about half-way over. My question for you is this: What have you done this Summer to build lifelong memories with your family?

I want you to think back to your childhood for a minute and think about some of the gifts you received. How many can you remember? You probably remember a few. I remember getting a stereo one year, and a skateboard a different year. I can remember a few other items as well.

Now think back instead to some fun experiences your family had. For me that brings up many memories of camping or hiking as a family, trips to Disneyland and Sea World, family reunions and others.

Which of the two memories triggers happier thoughts? For most of us, it is the experiences. In fact, research by Thomas Gilovich of Cornell University has shown that we get greater pleasure from experiences than we do from “stuff.”

I’ll share one recent example from our family. We were up at Bear Lake in northern Utah enjoying a day on the beach with some extended family. We decided to rent a boat for an hour, and we had a blast. It was definitely worth the money we spent on it. We could have bought cheap souvenirs for the kids instead that would have been lost or broken in a week or two, but instead they built wonderful memories on the boat.

Here is how my friend and colleague Carl Richards expressed it in a great image:

DD_MoneyHappiness

 

 

 

 

 

 

 

 

 

So with just over a month of Summer left, what are you going to do to build some memories with your family?

Financial Planning Tool: PowerPay

By Ryan H. Law

In response to the Credit Card Act of 2009 many credit card issuers have raised rates, raised minimum payments, lowered credit limits and added on extra fees.

Here are some statistics:

  • 53% of 2000 people surveyed reported an increase in their credit card interest rate in the past year.  One card increased its rate up to 79.9%.  That’s not a typo – 79.9%!
  • 26% reported reduced credit limits
  • 21% reported increased fees

Source: Credit Card Tricks and Traps http://www.rd.com/advice-and-know-how/credit-card-tricks-and-traps/article175291.html

So do you just have to put up with this from your credit card issuers?  Of course not!

If you are finished paying too much of your hard earned money to interest and fees, then it’s time for you to develop a debt elimination plan.  Here’s what you need to do:

  • Make a commitment to STOP charging things to your credit cards.  Cut the cards up, shred them or do whatever you need to do to stop using your cards.
  • Build up an emergency fund.  If you use your credit card for emergencies, you can avoid doing that in the future by building up an emergency fund.  Experts recommend you have 3-6 months of expenses saved up.  Make that your long-term goal.  For the time being, though, try to get one full paycheck in the bank as soon as possible.
  • Gather up all of your recent statements and make a list that has the creditor name, amount owed, minimum payment and interest rate.  For our example let’s use the following numbers:
Creditor Name Amount Owed Minimum Payment Interest Rate
Citicard $14,567 $230 18%
Discover $994 $60 12%
Visa $7729 $262 29%
Student Loans $19,334 $223 6.8%
Auto Loan $21,000 $406 6%
  • Pay the minimum on each card and any extra towards your highest interest loan.  A common mistake people make if they have an extra $50 is to put $20 on this card, $10 on another, etc.  If you concentrate any extra money on one debt, though, you will get it paid off much faster.
  • Make Power Payments.  When you have paid off your first debt, roll that amount over to start paying on your next highest interest rate debt.  It would look like this:
Visa Citicard Discover Student Loan Auto Loan
$262 $230 $60 $223 $406
$262 $230 $60 $223 $406
$492 $60 $223 $406
$492 $60 $223 $406
$552 $223 $406
$775 $406

Can you see how powerful this technique is?  Using this technique can save you thousands of dollars in interest and shave years off your repayment time.

There is software available that will help you set this up and give you detailed payment calendars.  It was developed by Utah State University Extension and is available online, for free.  The software is called Power Pay and you can access it at http://www.powerpay.org (note: if you have an iPad or iPhone you can access an app from the homepage of that website).

PowerPay

I plugged the numbers above into the software and here are the results:

Paying the debts off without power payments will take you 16 years, 10 months to pay off.  The total you will pay back is $112,104.09, with $48,480.09 being interest!

If you pay using power payments, though, it will take you 6 years, 5 months to pay off with a total payoff of $90,891.04 ($27,267.04 being interest).

Power payments save you 10 years and 5 months and $21,213.05 in interest!

There is also a feature on Power Pay where you can add extra payments, so if you are getting a tax refund you can plug that in there, or if you can devote an extra $100 to debt you can plug that in there.

I encourage you to take some time to plug your own information in the software to see how power payments will benefit you.

Financial Planning Tool: Credit Karma

Good Credit Score

Your credit score plays a larger factor in your life than you might realize. For example, your credit score is a factor in:

  • The rate you pay for loans
  • The deposit you pay for utilities and your cell phone
  • Your auto insurance
  • Getting the job you want
  • Getting into the apartment you want

In addition to all of these benefits of having a good score, monitoring your score regularly can also alert you to potential problems. If an account was opened in your name that you are not aware of, you could be a victim of identity theft.

There are several ways to monitor your score, but one method stands out due to its ease of use, how comprehensive it is, and the price (it’s free). That tool is Credit Karma.

Here is how Credit Karma describes their services:

Our goal is to help you understand your credit and get more out of it. Along with providing free credit scores, reports and monitoring, we offer insight into what it all means and show you product recommendations, like credit cards and loans, based on your credit profile.

Basically they pull a copy of your credit report and scores from TransUnion and Equifax, and you can check it as often as you want (the website recommends weekly). You can then go in to detail about the six factors that determine your score (credit card utilization, payment history, derogatory remarks, age of credit history, total accounts and credit inquiries), along with recommendations for how to improve in that area.

For example, if the website shows that you have a poor ranking in credit card utilization you can click on that area and it will show how utilization is calculated, how much of a balance you are carrying on each card and several tips for improving in that area.

You can also run simulations to see how different scenarios would affect your score. For example, you can simulate what will happen to your score if you close a particular card, or pay your balances down or make a late payment.

Questions about Credit Karma

Is it secure?

Yes, it is secure. You do have to enter your social security number for them to be able to pull your report, but they take your data security very seriously. You can read about their security practices here: https://www.creditkarma.com/about/security.

Doesn’t pulling my credit hurt my score?

Yes and no. A hard inquiry (such as applying for a loan) does affect your score (only to a small degree, though). However, a soft inquiry does not. A soft inquiry is when you pull your own report, or your employer does, or a company like Credit Karma does. Reviewing your report and score on Credit Karma will have no effect on your score.

Will Credit Karma sell my information?

No. Their privacy policy restricts them from selling your information.

How is it free?

Credit card and loan companies pay for targeted advertising on the site. You will see recommendations specific to your situation and score. For example, when I logged in today it showed my four recommendations for credit cards, based on my credit score. I find their advertising very unobtrusive.

Check out Credit Karma today at https://www.creditkarma.com/.

Credit Karma logo

If you are looking for a post about how your credit score is calculated you can find it here:

NOTE: This will be the first in a series of articles about financial planning tools. I will review the tools that I have researched and use for my personal finances. If you have other tools you use to manage your money, please share them in the comments or in an e-mail.

Wheel of Life Approach to Life Balance & Goal Setting

Hardy quoteThe one skill most responsible for the abundance in my life is learning how to effectively set and achieve goals.” –Darren Hardy (author of The Compound Effect and former publisher of SUCCESS magazine)

In my last two posts I have talked about how to set goals and how to make changes in your life. This week I am going to cover what areas of life you should set goals in.

A preliminary note, though – before you set goals it is important that you consider the answer to the question, “Who do I truly want to become?” As the oft-repeated quote goes, “People may spend their whole lives climbing the ladder of success only to find, once they reach the top, that the ladder is leaning against the wrong wall.” Everyone knows “successful” people who lost everything that was important on their way to the “top.” They lost family, friends, trust and so much more.

Clayton Christensen wrote an excellent book titled, “How Will You Measure Your Life?” He tells a story about how, at his 10-year Harvard Business School reunion, all of his classmates seemed to be doing well. Many of them were on their way to the top of their companies and were earning enormous amounts of money. What he found out, though, was that many of them were unhappy.

Many did not enjoy what they did for a living and there were numerous divorces or unhappy marriages. One of his classmates told him he hadn’t talked to his children in years.

As the years went by, things got progressively worse. One of his brightest classmates, who earned more than $100 million in a single year as Enron’s CEO, ended up in jail for his role in the Enron scandal.

Christensen shares these stories with his students on the last day of class and then writes these questions on the board:

How can I be sure that:

  • I will be successful and happy in my career?
  • My relationships with my spouse, my children, and my extended family and close friends become an enduring source of happiness?
  • I live a life of integrity – and stay out of jail?

Have you ever asked yourself these questions? If not, now is a good time to do so. Pull up a note and write out the answers to them. It can be an enlightening experience, and critical to setting goals that ensure your ladder is leaning on the right wall.

With that as a background, let’s move on to what areas of your life you should set goals in. I’ve read a number of different ideas, but I find the Wheel of Life approach to be the most comprehensive and easiest to use. My two main sources of inspiration on this are Zig Ziglar and Darren Hardy. The seven areas of the Wheel of Life are:

Wheel of Life

  • Personal & Social
  • Work & Career
  • Family
  • Spiritual
  • Financial
  • Mind/Intellect
  • Physical/Health

You need to get specific, though! You need to define specifically what success looks like in each area, and you rate each one on a scale of 1-10, with one being very poor and 10 being outstanding.

To help you set this up properly, I have created a Wheel of Life planning worksheet with some suggestions by both Zig Ziglar and Darren Hardy.

You can access that here: https://ryanhlaw.com/resources/

Let’s look at an example. For Physical/Health one suggestion is, “I eat a healthy breakfast every day.” If I eat a healthy breakfast 3-4 days a week I might rate myself a 5 in that area. I can then follow up with a few questions:

  • What number would I like to get to?
  • What will it take to get me to that number?
  • Am I ready to make a change in this area (am I am the Preparation stage of the Stages of Change)?
  • If I am ready to make a change, what small step can I commit to – one that I am guaranteed not to fail? Another way to look at this would be to ask, “What will take me to a 5.5?”

Does this amount of work seem daunting or overwhelming to you? If it does, let me take you back to Darren Hardy’s quote from the beginning of the article:

“The one skill most responsible for the abundance in my life is learning how to effectively set and achieve goals.”

This type of work is what Stephen Covey calls Quadrant II work – important but not urgent. Commit to set some time aside to properly plan your life.

You can find the Wheel of Life Planning worksheet here:

https://ryanhlaw.com/resources/

Changing for Good

Successful author, entrepreneur and speaker Jim Rohn said, “Your life does not get better by chance, it gets better by change.”

Are there areas of your life that you want to change? Do you want to lose weight, get in shape, stop a bad habit or start a good habit? None of these things are going to happen by chance. They are only going to happen if you make a decision to change. In my last post I talked about goals – I want to dig deeper today into how you actually make the changes in your life that you want to make and how goal setting fits in to this.

Back in the early 90’s three researchers – James Prochaska, Carlo DiClemente and John Norcross wanted to know the answer to the question: “How did people make changes in their lives?” They were expecting to find some common denominators among those who had made changes and maintained them. What they ended up finding, though, was a model that they called Stages of Change.

In this post I am going to walk you through the five Stages of Change and discuss some ways you can incorporate them to make a positive changes in your life.

stagesofchangegraphicThe first stage is Precontemplation. In this stage you don’t know that you have a problem. It’s the alcoholic that says “I don’t have a drinking problem – I can stop anytime I want” or the person who is in the early stages of heart disease due to their lifestyle but isn’t aware of it. For those in the precontemplation stage there is no intention to change their behavior. They may wish to change, but this is different from intending to change.

The second stage is Contemplation. In this stage they are aware that a problem exists, but they haven’t taken any steps to overcome it. They are contemplating changing sometime in the next six months, but research has shown that people will contemplate changing for years before actually doing anything about it.

Preparation is the next stage. Those in this stage intend to change their behavior in the next 30 days. They may have already taken some small steps, such as purchasing running shoes.

Preparation is where goal setting kicks in. If you want to stop eating sugar, for example, but you are still in the contemplation stage then setting a goal isn’t going to help – in fact, it can be harmful because you aren’t going to keep your commitment. If you are ready to commit, though, and you are ready to make a change in the next 30 days, then use my last post (https://ryanhlaw.com/how-to-set-and-achieve-your-goals/) to set your goals!

Action is the stage where you take decisive action. You actually go running, you throw away all your cigarettes or take any other action that exhibits positive behavior. You enter the action stage on day one and stay in this stage for six consecutive months. That means that if a smoker, for example, goes three months without a cigarette then smokes one on a stressful day, then quits again, they start this stage back over.

The final stage is Maintenance. Those in this stage have changed their behavior for at least six months. This stage was originally called Termination but was modified to reflect that maintenance is not static – it is a continuation of change. For example – at Alcoholics Anonymous meetings everyone introduces themselves as an Alcoholic, even if they have been dry for years. They recognize that they need to maintain the change.

I differ from the authors in only one regard. Action is seen as the step where you completely stop or start doing something. You completely quit smoking, or you exercise for 30 minutes every day, or you completely cut out sugar, or whatever the action is.

For many people (myself included) that’s too overwhelming. Smaller changes, where you are guaranteed not to fail, have proven to be more effective. I’ll give you an example from my own life. I would like to be better at studying the scriptures. My ultimate goal would be 30 minutes each morning, but I often get overwhelmed when I think about doing that and it’s the first thing to go. Sometimes reading even one full chapter seems daunting. Recently I gave myself permission to think small. Just a verse or two per day. That I can do (and, consequently, I have the last few days). Does that mean I have failed? No! Am I where I want to be? Not yet, but it’s better than where I was. The focus, for me, is on getting better, incrementally, not perfection.

Getting better

 

 

 

 

 

 

 

Perhaps this means I am still in the preparation stage for scripture reading, but I’m OK with that.

Think about a change you would like to make in your life. What stage are you at? Are you ready to move to the next level? What small goal can you set for yourself – so small, in fact, that you are guaranteed not to fail?

Remember, life does not get better by chance. It gets better by change.

How to Set and Achieve Your Goals

GoalsSuccessful entrepreneur, author and public speaker Jim Rohn tells a story about meeting his boss and mentor, Earl Shoaff, for breakfast early in his career to discuss success. Shoaff suggested they start by reviewing Rohn’s list of written goals.

“I don’t have them with me,” Rohn responded.

Surprised, Shoaff asked, “Well are they out in your car?”

Hesitatingly Rohn responded, “Well…no…when I say I don’t have them with me, I mean that I don’t have a written list of goals at all.”

“Then,” Shoaff responded, “I know exactly where we need to start.”

Jim Rohn became an avid goal setter and credits it as one of the key principles behind his success, and he isn’t alone. Many other successful people credit goal setting with their success as well.

To be honest, I’ve known about goal setting for years, but I haven’t been great at actually writing them down and tracking my progress. Most people are similar. The average American sets the same resolution ten years in a row unsuccessfully, and most resolutions are abandoned within four months.

I’m working on changing some of my habits, though, and setting goals is a great place to begin.

I’ve been doing some research and want to share with you some thoughts on how to set and achieve your goals.

“I thought this was a personal finance blog, not personal development” you might be thinking. It is! Setting clear, concrete, specific financial goals is one of the keys to success in your personal finances. Goals gives you a reason to budget and to say “no” now because you are focused on what you want to achieve long-term. Also, personal development is one of my favorite topics to study, so as I learn things I will continue to share them here. I hope you find it helpful.

Let’s get to it, then. Here are the seven steps to successful goal setting and achievement[i].

Step One: Get specific

Many of us have vague goals in mind, such as, “I would really like to lose some weight,” or “I would love to be financially successful.” This is a good start, but it doesn’t answer a key question: How will you know when you have reached your goal? In other words, what does success look like?

“I would like to lose fifteen pounds” is much better than “I want to lose some weight.” After all, if you go down by a pound you have technically achieved your goal of losing some weight, but that isn’t what success really meant.

Step Two: Decide when you are going to act

Setting and achieving a goal requires you to change your behavior in some way. To lose weight you need to eat healthier and exercise. To be successful financially you need to start budgeting, paying off debt, and saving for the future. The most successful goal setters realize that behavior change is hard, though, and they set up a plan for when they are going to do the new action (such as exercise or budget).

They do this with a specific technique called if-then planning. If they have a goal to exercise regularly, they get specific about when to act by saying, “If it is 7 AM, then I will work out for 30 minutes.”

This concept has been tested over and over. For example, there was a group of people who all said they wanted to exercise regularly. The first group was taught about if-then planning and they collectively agreed that, “If it is Monday, Wednesday or Friday, then I will hit the gym for 30 minutes before work.”

Group two had no specific plan for when to act.

Weeks later 39% of group two was still exercising regularly, while 91% of the if-then planners were still exercising!

Step Three: Take small steps

When we decide we want to achieve a goal we usually get excited and want to jump in the deep end. For some people, this might work, but the majority of people are going to sink. Research has shown that taking really small steps can be the best way to achieve a goal. Robert Maurer, author of “One Small Step Can Change Your Life” tells a story about a girl named Julie who needed to lose weight and get her blood pressure down. He was tempted to tell her to exercise aerobically for 30 minutes every day, but he knew from experience that while the advice was good, she was unlikely to do it and would just feel misunderstood and guilty.

Maurer decided to try something different. “How about if you just march in place in front of the television, each day, for one minute?” Julie responded that of course she could do that. After all, there was no way she couldn’t succeed.

Was she going to get healthier exercising for a minute a day? Probably not. What happened the next week, though, was that Julie came back excited that she had achieved her goal. Together they built up the exercise habit, minute by minute, for a few months, until she started exercising for 30 minutes each day.

If you set really small steps towards your goal you will achieve success over time. The steps should be so small that you are guaranteed success.

This can be easily incorporated with if-then planning:

“If it is a commercial break during this show then I will march in place during one commercial.”

“If it is noon I will go on a five-minute walk.”

“If it is 8:00 in the morning I will read one verse in the Bible.”

“If I am getting home from work I will spend five minutes connecting with my spouse.”

“If it is after dinner I will play with my kids for three minutes.”

Step Four: Honest and regular monitoring

Thomas S. Monson said, “When performance is measured, performance improves. When performance is measured and reported, the rate of improvement accelerates.”

Honest and regular monitoring, and preferably reporting your progress to someone else, will help you improve.

Different goals will have different monitoring periods, but monitoring weekly is a good step for most goals. “Did I stick to my budget this week” or, “did I hit the gym three times?” or, “what is my current weight?” are all great weekly questions to ask. Remember that early on the goal should be much smaller. Did you march in place during one commercial break each night? Did you read one verse of scripture each day?

You need to set aside a specific day and time to review your progress. I have read that reviewing your progress on a Wednesday is a good idea – you are half-way through the week and can still make some changes before the week is over. You should review your goals daily, but track your progress on a Wednesday.

Step Five: Be realistic

There is a vital difference between believing you will succeed, and believing you will succeed easily. A group of people who were enrolled in a weight-loss problem were interviewed and asked if they thought it would be hard when they were faced with temptation, such as free donuts in the breakroom. Some said it would be easy to avoid temptation while others thought it would be hard, but believed they could be successful.

The second group (the ones who recognized that it would be hard but believed they could do it) lost 24 pounds more than the ones who thought it would be easy!

For most people, behavior change is hard. Believe in yourself, but be realistic about obstacles you are going to face.

Step Six: Focus on getting better, rather than being perfect

My seven-year old son is playing coach-pitch baseball this year, so he goes to practice each week and he and I play catch and practice batting. Do I expect him to be perfect – to hit every ball and throw every ball perfectly? Of course not! Is he getting better, though? Absolutely. He and I both recognize that is the goal – to get better.

It is important to remember that you are developing ability and learning to master a new skill. A smoker, for example, may have the goal to quit smoking. If he has been smoking 20 cigarettes a day but has cut down to 10 has he failed? No! He is getting better and that should be celebrated.

Step Seven: Build willpower

Most goals have one thing in common – resisting temptation, and you need willpower to resist those temptation.

Willpower, however, varies from moment to moment, and gets depleted with use. Willpower is like a muscle – it needs time to bounce back, but it does get stronger over time.

Making and keeping commitments to yourself is one of the best ways to strengthen your willpower muscle. If you commit to get up at a certain time, do it! If you commit to track your spending every day, do it! Don’t commit to do something unless you are going to keep it. Making a commitment to yourself and then breaking it will weaken that muscle. For this reason you shouldn’t take on two challenging goals at once.

Here are the seven steps again:

  1. Get specific
  2. Decide when you are going to act (If…then thinking)
  3. Take small steps
  4. Honest and regular monitoring
  5. Be realistic
  6. Focus on getting better, rather than being perfect
  7. Build willpower

I encourage you to take some time this week to set some goals using these steps. I commit to do this.

 

[i] I have gathered this material from a number of sources, but I am a fan of using research to back things up, rather than anecdotal evidence. Two books that I have really enjoyed are “9 Things Successful People Do Differently” by Heidi Grant Halvorson and “One Small Step Can Change Your Life” by Robert Maurer. “The Compound Effect” by Darren Hardy is a great follow-up to these books.

 

Habits of the Wealthy

My last two posts have mainly focused on the internal world (thoughts) of the wealthy. Success, however, is a combination of our attitudes (internal) and our habits (external).

Before I go any further into today’s post, I want to clarify a few things:

  • Wealth does not (automatically) equal success. If fact, you can find story after story of wealthy people who are estranged from their families and have no real friends. However, while the media loves to focus on those types of stories, there are many stories of wealthy people who are very successful in other areas of their lives as well.
  • You may not want to be wealthy. Wealth brings additional challenges that some people may not want. The habits and attitudes defined here, however, can help in any area of your life.
  • We are not wealthy (yet). We are doing better financially than we ever have, and I am confident that these habits will only improve what we have done.
  • These posts only apply to those in a free-market economy, such as America. Being born in poverty in a third-world country brings an entirely different set of challenges. People born in poverty, however, can rise out of it using these types of habits.

If you would like to be better off in the future than you are now, however, this post, and my previous two posts, should help.

rich habitsMy post today is based on some great research that Tom Corley has done. He spent five years studying the habits of the wealthy and the poor. Tom’s family was wealthy until he was about 10, then they lost everything overnight and lived in poverty the next 11 years. Tom didn’t want to live this way – he wanted to know exactly what wealthy people did to become and stay wealthy. Here are some key findings from his five-years of research:

  1. The wealthy live within their means. They save approximately 20% of their income and spend no more than 25% on housing, 15% on food and 10% on entertainment. This reminds me of one of my favorite quotes about millionaires:

    “Millionaires become millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.” -The Millionaire Next Door

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  3. 88% of the wealthy read at least 30 minutes per day about their career, education or for self-improvement. Only 2% of the poor do this. 63% listen to audiobooks as they commute, while only 5% of the poor do this.
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  5. 67% of the wealthy watch less than an hour of TV per day. 77% of the poor watch more than an hour of TV per day. Instead of watching TV the wealthy work on hobbies, or side businesses, or they volunteer and network.
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  7. And speaking of volunteering… 3/4 of wealthy people volunteer with an organization or cause they believe in at least 5 hours a month, while only 10% of the poor do this. Volunteering is a great way to network as well.
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  9. 62% of the wealthy are focused on at least one major goal every day. Only 6% of the poor do this.
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  11. The wealthy wake up early – 44% get up three hours before their work day begins. 3% of the poor do this.
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  13. 81% of the wealthy make and prioritize a to-do list the night before, while only 19% of poor people do. In addition, they focus on the tasks – they complete, on average, 70% of their list.

There are other habits as well, but these seven are a good starting place. If you were to pick one or two of these to begin focusing on, what would you choose?

My plans are to work on:

  • Listening to audiobooks as I commute
  • Waking up earlier
  • Prioritizing my to-do list the night before

I would love to hear what area you are focusing on – please leave your comments below!