#3 - Discipline Equals Financial Freedom

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Hey y’all – before we get to this week’s show, I just wanted to invite you to join me for an awesome opportunity. I am running the first Money Owner’s group coaching session for small business owners. It will start on January 7th, 2019 and will run for 12 weeks. I’m running a group for like-minded folks to come together in a virtual setting to learn from me and from one another. You will learn about managing your business cash flows and thinking like a business rock start. You also will get live coaching on the parts of your business bogging you down, like time management, setting your value, dealing with difficult clients and much much more. You will feel determine and energized in your business and most importantly, you will collaborate and learn from one another in the group. If you’re in the early stages of your business and you need help propelling yourself forward join us, I promise you won’t be disappointed! It starts on January 7th and it will run for 12 weeks. Go to moneyowners.com/beone to sign up and get more information. Or if you’re not quite ready, there’s a place to schedule a 20-minute call with me and talk it out. That’s moneyowners.com/beone B-E-O-N-E and the link will be in the show notes. Hope to see you there!

You are listening to episode 3 of the Money Owners Podcast with me, Morgen Rochard. Money Owners is a group financial coaching program that takes all the information in this podcast to the next level, providing you with live help for your financial needs. The Money Owners Podcast is designed to help you sort out who you are financially, the issues you are having with money and how to tackle them to be the best financial version of you (and we can’t do this all in one episode!). You’ll get some good ole fashioned information on being financially awesome. As a side note, this podcast does not provide any investment advice and nothing in this podcast should be misconstrued to be investment advice. If you’d like more information on Money Owners coaching, the podcast, the homework, and everything I have to offer, visit www.moneyowners.com

Hello my friends! How are you? I hope you had a great couple of weeks. I’m super excited to be staring at the wall in my home office, talking to all of you. I really mean that! I’ve been enjoying doing this podcast quite a bit and I hope you’re enjoying it too. I wanted to give a huge shout out to DJ Damian – a family friend of mine & fantastic musician – who created my new catchy intro. Yeah, it’s awesome. I’m feeling really good about today’s topic. I’m bursting at the seams with lots of good info for you.

I want to talk today about a concept that is near and dear to my heart. If you listen to Jocko Podcast (Jocko Willink is a personal hero of mine), you’ll hear him repeat over and over: discipline equals freedom. And there is nothing truer. Today’s topic: discipline equals financial freedom.

I don’t know about you, but initially when I heard the word discipline, I thought of teaching someone to obey rules with the stick, rather than the carrot, so to speak. That’s not really what it means. Merriam Webster certainly has that as listed in the definition, but we’re going to use another definition today: “to train or develop by instruction and exercise especially in self-control”. I’ll repeat that for you: “to train or develop by instruction and exercise especially in self-control”.

Let’s break this down – there’s train, develop, instruction, exercise and self-control.

Train and develop – meaning we need to learn how to do a certain behavior

Instruction – meaning we need to take some inputs on how to execute a certain behavior

Exercise – meaning we need to do those behaviors, repeatedly

Self-control – meaning we need to contain our impulses to do otherwise, because there will likely be negative emotions associated with doing whatever this behavior is and it’s much easier to do well, something easier that feels good.

Discipline is a HUGE topic when it comes to our finances. In fact – it’s one of the biggest measures of financial success. Sure, you can earn your way out of your financial problems. But if you don’t exercise some discipline over your financial life, you will ultimately feel out of control, even as a high-income earner. And frankly, you won’t have the freedom you think you will have by simply making more money. It just doesn’t work like that. The more you are willing to do work, form good habits and take care of yourself, the more freedom you will have with your finances.

This rings true for everything. If we take good care of our bodies by eating well and exercising, we will have the freedom to chase after our kids, take exciting workouts (if that’s your thing), the freedom to feel good in our bodies and do things that we want to do. If we are really disciplined with our time and manage it well, then we will have the freedom to do other things that we want to do with our time, rather than being sucked into an email vortex and never coming out. If we are disciplined about learning new things, then we will have amazing knowledge and skills at our fingertips and we have the freedom to use that knowledge whenever we want. If we are disciplined about our emotions, then we have the freedom to think clearly, navigate tough situations, and make good decisions (right, instead of punching someone in the face who says something you don’t like or getting angry at an airline agent). The same applies for money – if you’re disciplined about your money. If you take the utmost care of all your dollars and you are intentional about everything you do, you will have the freedom of more money, money there for you in case of emergencies, money to do the things that are important to you in your life, money to buy something that is genuinely important to you in the long term.

Freedom doesn’t equal freedom. Discipline equals freedom. A philosopher said that if you dropped a person in the middle of the Atlantic Ocean, they would have the freedom to swim anywhere they want, and yet they would go nowhere. They would feel hamstrung. They would have nothing to go towards. But if you dropped that same person in the Ocean near an island they could see, they immediately start swimming to that island. This is because once the “freedom” is removed, the goal emerges. The lesson here is to put constraints on yourself and then be disciplined about following through. And while today we will only talk about this today regarding your money, this rings true in ALL aspects of your life.

And I totally get it, financial discipline is really quite hard. I’m not immune to the pressures put upon me by society & daily living to purchase things. That I NEED STUFF AND I NEED IT NOW mentality. I’m also not immune to the difficulties associated with consistent savings or restraint needed when making large purchases. I feel you! It’s work!

We will talk about all three of these today: discipline around day to day purchases, discipline around savings, and discipline around large purchases. And while I would also love to talk to you about discipline associated with investing, we’ll have to leave that one alone until my fantastic compliance consultant approves every word of an investment focused podcast.

In regard to day to day spending - you can buy anything you want, at any hour of the day and have it at your door within hours or at most 2 days, without getting out of bed. Payments are completely frictionless. You put in your credit card ages ago, but you keep spending money at your favorite stores and websites. Most recently – I got annoyed because Amazon needed an updated expiration date to my credit card. I hadn’t put in a different method of payment in over 3 years, all while I was clicking to buy thousands of dollars of cat coasters without even thinking about it. Does frictionless payments make my life better? Yes – in the moment, it’s fantastic, I get my fix, I NEED my cat coasters. Long term, not so much, how many cat coasters does a person really need?

Frictionless payments make it much more difficult to exercise self-control. Self-control in general is difficult, let alone when we have very talented people at large companies thinking up ways to make it easier for us to part with our money. One the one hand – it’s actually pretty painful to spend money, especially as the numbers get higher. But when the vendor makes it really easy for you to pay, you forget you’re even spending money. It’s one of the reasons guys like Dave Ramsey suggest that you use envelopes of cash when you’re trying to get out of debt. It feels painful to slide the cash across the table, rather than swiping a card or clicking to buy. It’s easier to exercise discipline when using cash. Does that mean that we can’t have discipline with a credit card? We most definitely can! We just have to work harder at it (and you always thought those credit card points were free 😉, there ain’t no free lunch).

So what do we do to control needless spending? Here’s an exercise I hope you’ll try. Notice the moment before you make a spending decision. There is a second before you buy something where you have time to ask yourself these three questions: 1) do I really need this? 2) will this make my life better? 3) am I only buying this because I didn’t have the discipline to plan ahead? The more you ask yourself these three questions, the more you can catch yourself in the act. Do I really need this? Will this make my life better? Am I only buying this because I didn’t have the discipline to plan ahead?

There’s this concept of using your prefrontal cortex (part of your brain that helps you to plan) rather than your reptilian brain (brainstem and cerebellum) to make reactive decisions. I’m not a scientist, so anyone who is and is listening to this is probably horrified. That said, I do know that planning is the best possible thing you can do for yourself. Planning ahead is where discipline comes from. When you are able to use your prefrontal cortex to make decisions in advance, you will follow through on those decisions AND you will not make reactive decisions from the reptilian portion of your brain. Why? You’ve already decided in advance what you will do – there’s no reason for your brainstem to kick in with a different response. You make a rule with yourself. The rule is: I always plan ahead before making purchases. Then you follow that rule EVERY TIME. You have to plan ahead until its so ingrained in your brain that you don’t even think about planning ahead anymore – it’s just what you do. It becomes a habit. You become a person who plans ahead. You make disciplined decisions about your spending because you are disciplined. That’s who you are. You’ve exercised your planning ahead muscle so many times that you don’t know how to do anything else.

That doesn’t mean you can’t continue to go out to dinner 3 times a week and buy whatever crap you want on Amazon. It means that you’re more deliberate about these purchases. It means that you make these decisions in advance, while looking at all the numbers and you plan ahead. It means you build them into your plan because these are things you want to do, rather than things you find yourself doing because you didn’t plan ahead. Examples of not planning ahead, you’re dining out 3 times per week because you’re terrible at food prep and you buy stuff you don’t actually eat. Or you’re spending money on Amazon because you forgot that your Mom’s birthday is in 2 days (or yesterday, oops) and you don’t have time to go to the store. Examples of planning ahead, you eat dinner our 3x per week because its you’re favorite part of your week, you planned for it in your budget, and that’s how you want to spend your both your time and your money. Or you bought birthday gifts on Amazon on purpose, because you need something for someone coming up (who you actually want to spend money on, not this stupid gift obligation crap, we should probably talk about that on another podcast), you like reading purchase reviews and you have the money for it in your budget.

There is also the daily purchases that we need to buy to survive – but our budgets don’t necessarily reflect that. Example, our food budget – and I literally mean my and my husband’s food budget. My husband Pierre and I were super guilty of this. We used to order all our groceries on FreshDirect because we were busy little beavers who didn’t have time to trek to Keyfood or Costco. We were spending a pile of money food, way more than we should have been. I constantly bought items that seemed like a good idea or were good for a recipe one time, but then would be too lazy or strapped for time to prepare them. Pierre was buying expensive steaks. Our two goals for 2018 were to get overall food spending down and to stop wasting so much food, which would help bring overall food spending down. We started ordering more stuff from Costco (because hey Costco is awesome and we are still too busy to shop – at least this is what I tell myself, plus we don’t actually like doing it, so it does help to order some of this stuff online). We still get stuff from FreshDirect, but we shop sales. We started only buying things that we actually eat to cut down on food waste. We have done this ALL year, not just a New Year’s resolution, but an actual behavior change. And guess what? Discipline equals financial freedom. We reduced our grocery budget by 35% this year.

Bonus! Wooh! Discipline also equals regular ole freedom. We rarely ever ask, “what’s for dinner tonight?”. It’s always relatively the same. I make a large amount of food in the instant pot and portion it out (go check out my super cheap chicken recipe, link in the show notes). I mix and match with spices and sides and always keep frozen veggies around, just to round out my meal. Pierre cuts his own steaks and makes other yummy concoctions of ground meat. Dinner isn’t a thing. We save time, effort and money. Food is no longer an unintentional hobby or entertainment for us. And on the rare occasion when we want to go out, we do so, and thoroughly enjoy ourselves. I always try to order things I don’t eat at home, because going out IS entertainment. We’ve also made an effort to have good conversation and high-quality time around the dinner table at home. We have a 9-month-old, we’re not going out all the time. But that doesn’t mean we can’t put on some music, dim the lights and eat the same ole food we eat all week while enjoying each other’s company. You can do this too!

Regarding savings - everyone should be diligently saving at least 10% of pre-tax income, though the ideal savings is 22.5% (if you want to retire over a 20 year period, and we can talk about why at some later time, but basically the number balances out your current spending and how much would be saved with how much you would need to live off of, if you were no longer working – but I digress). Yet so many of us have trouble saving the 10% of income number. Something so simple as setting up automatic transfers to savings is so easy and yet so difficult – we actually have to set up this transfer. We also have to know how much to transfer. Then, we have to keep the transfer going and stop moving money back and forth between our checking account, credit card bill and newly set up savings/investing account. We have to have discipline around our savings. Discipline equals more savings.

Sure, we could just calculate 10 or 20% of pre-tax income, divide it by 12 and then move the money every month. So, if I make 120k per year and want to save 10%, I save $12k per year and move $1k per month into my savings account. Super simple, right? Simple-ish. What if I also want to put into a retirement account? What if I spend more than my after-tax income less 10-20% for savings? What if I make $60k one month as a bonus check and the rest is my salary and can’t do level automatic transfers? What if I literally have no idea what I am doing, forgot all grade school math, and pay so little attention to my finances that this seems completely overwhelming and daunting?

Ok – yeah, I said this episode was about discipline and now I’m throwing math at you. And yes, there are a lot of moving parts. So for that I am sorry – but please stay with me friends! I promise it will get better!

Worse, the number one tip on blogs to help you “save more” is to set up a monthly auto-transfer of your cash. For the average person with consistent W2 income and no bonuses, turning on automatic transfers with the same amount monthly really works. For the rest of us – we have to be more thoughtful, diligent and disciplined about our savings. We have to think about it much more often and then we have to actually take action about it. We have to plan ahead. We have to be disciplined and honor our choice to save.

My family is an example of this. Pierre and I both run businesses. I am mostly paid on a quarterly basis and his revenue is project based. If we followed generic advice about transferring money monthly to savings we would overdraw our checking accounts. We must be a lot more deliberate about our savings. We must have discipline – meaning we look at this regularly, we plan ahead, and make decisions about this regularly (and execute those decisions). We must set aside money for taxes. We can’t just willy-nilly use the money in our accounts just because it’s there. So how do we do this? DISCIPLINE. I set up regular intervals on my calendar to assess business income and expenses, plan for taxes and account for savings. I honor this time on my calendar and exercise discipline to make sure it always happens when I schedule it to happen. Then I make sure to transfer funds (since that’s the actual savings part). If you’re a business owner, freelancer or someone who doesn’t get paid regularly (ie you’re commission based or the majority of your income comes in the form of bonuses), you MUST do this. You need to be especially disciplined in setting aside money for taxes or especially disciplined in setting aside day to day expenses if you spend more than your salary. And if you can’t do it alone or if you find you’re just not making the time to do this on your own – you should hire a financial planner or coach to help you.

Self-control and discipline around savings really circles back to purchases. I can do all of what I just mentioned, but if I am spending what I make or more than I make, then I will have no savings.

How do I save money? I exercise discipline and I stop buying a bunch of crap I don’t need all the time. I put constraints on what I am and am not willing to buy. I use discipline to account for extra expenses that come up that I don’t really want to spend money on (like home or car repairs, or health expenses). This is something I do for all my planning clients – I increase all their personal expenses by 5%, to account for extra stuff that comes up on an annual basis. Example, client spends 100k per year, 5% of that would be $5k for things that come up.Then, anything left over, I put that money away in a savings or investment account.

My other option is to make more income and don’t have lifestyle inflation that eats away at my savings. But don’t fall into this trap! Exercise discipline on yourself now – don’t have the mentality of “I’ll be making more later, so it’s ok”. If you think like that, you’ll always spend beyond your means. Exercise discipline and control on yourself now. You need to calculate what your overall savings rate would be and what that leaves you in spending. Know this number. Knowing this number is freedom – you know how the freedom to spend your money while also saving. It’s a beautiful thing.

To save, I really do need to watch my spending because it’s super easy to make more money and feel entitled to spending it. Usually this is because you’re working harder – you feel more entitled to a lavish vacation or a nice car. You earned it. And you did earn it! And you will be working till you’re 92 if you think you’re entitled (which is only a bad thing if you don’t want to work until you’re 92). So definitely ask yourself – how long do I want to work? Am I making decisions now that supports my ability to retire (or work by choice) at a reasonable age? What does retirement look like for me? Am I in an industry that will price me out as I age?

Ok, on to large purchases! Oh I love talking about this one. Things like your home, your cars, your pinball machines, your fancy once in a lifetime vacations, or your wedding, or that engagement ring you couldn’t live without and you pestered your spouse for (and now you pay $700 per year to insure, the gift that keeps on taking)! Large purchases should be easy, they are the perfect thing to plan for! You can use your prefrontal cortex because you’re not on the fly making one of these purchases! The issue here is emotions always come up when we make large purchases. There is a reason they have a big price tag – it’s because these things are something you can’t live without (or think you can’t live without because you have so many emotions embedded in what you’re making that thing mean to you).

Here’s a good example: Pierre and I may want to own a home. And I say “may” because I have some thoughts around homeownership that I need to work out. Anyways, doesn’t matter for the purposes of this example. We want a home. Should be simple right? We look at our savings, we look at our income, we decide that we don’t want to spend more than 20% of our income on a home so we can continue to save money, we calculate that we can afford X and we only shop within that price range. And this is very likely what we will do, since I’m a nutty financial planner – but I’m going to think back to the me before all the financial planning happened. Who was I back then? What would past me be thinking?

Past me would look at those numbers and say – but it’s really important that we live on a large piece of property, that we have enough storage, that we have an updated kitchen, that we have 2 ovens and 2 dishwashers (although I’m still rooting for 2 dishwashers!), that our bathroom have heated floors (I mean really, who doesn’t want that?!), that we have enough space for kids and separate home offices, Pierre wants a fire pit, that we live in an area that’s super safe and where the schools are good for our kids, that we have an awesome master bedroom and bath… and on and on. I can keep going but I won’t bore you.

Past me would not distinguish between wants and needs when it comes to this home, because I have emotions wrapped up in owning it. Past me has a bias towards a beautiful pristine home with everything updated because I grew up with a lot of home renovations. Past me believed that building equity in a home was a foundation of building wealth. Past me did not question any of my thoughts, because my thoughts were truths (much like we’ve previously discussed in the other two podcasts – so if you missed it, go back and listen!).

And then something changed – we currently live on the 2nd and 3rd floor of a very old home. The floors have a little bit of a slant. The heating is always clanking in the winter. We have window AC units instead of central air. The bathtub in our son’s bathroom has a little drip. And you know what – it’s all okay. In fact, its more than ok. We LOVE living where we are. LOVE. We’re in the middle of Brooklyn, and not in sexy Brooklyn, we’re in not cool Brooklyn and we love it anyway. We realized that we don’t need that much to be happy. There’s diminishing marginal returns. Which is why I always say to splurge on the things you really love, that you’ll notice all the time and cut corners where it doesn’t matter.

So when I start to question these thoughts about being a homeowner and about having a dream home – I realize that a home isn’t that important to me. Having a home – a place to go to, a place where my family is, a place where I can love my family and share things with them, that is very important to me. A dishwasher and a washer/dryer is very important to me for my sanity, but the home in and of itself is not. So this is where discipline around your thoughts and emotions is really important. See, just how we discussed last episode that our thoughts about our money causes our feelings and in turn causes are actions and then also causes our results – now we’re adding that we can be disciplined about those thoughts. We can question them. We can learn if those thoughts are simply thoughts rather than truths.

And let it be known that my thoughts are not truths – I am just giving you an example. See, owning a specific home in and of itself may be very important to you. AND THAT’S OK! I give you permission to spend money on the big things that are super important to you. Just make sure what you’re spending money on is what you want to be spending money on, that you’re being intentional, that you’re planning ahead, and that it is how you want to live your life. Don’t go through life thinking that your finances are happening to you. Discipline is how you regain control. Discipline is how you make choices rather than making the choice to allow things to happen to you instead.

It’s all a choice – you can choose to be the person who exercises their discipline muscle and takes control of the things that are within your control or you can choose to be a person who doesn’t do that, and has to react to your finances as they come up. Take some ownership and recognize which person you are CHOOSING to be. It’s all a choice, my friend.

That’s all I have for you today. I hope you enjoyed this episode of Money Owners. No homework this week, but the transcript this show can be found at www.moneyowners.com/podcast/3. If you want to get more information and updates from Money Owners visit www.moneyowners.com/subscribe. If you liked the show, please give it a good review on iTunes, it really helps. And I hope you’ll tune in again in 2 weeks. I will be having a very grateful Thanksgiving show!