I’ve got to admit, this is not what you would typically expect to hear a financial adviser telling you to do.
I’ve been inspired by a new slogan that Nike is using at their stores: ‘Stop Exercising, Start Training’.
I know there is a big difference in my running when I am training for a major event, as opposed to just exercising to stay in shape. When I’m in training for a marathon I will be out the door regardless of whether it is cold and wet, or as we’ve seen lately, hot and humid. But when there is no big race on the horizon, excusitis takes hold – and I’ve got all the reasons in the world to not head out for a run.
Some people don’t need to focus on this because they just enjoy the process. Mark, one of my running partners is like this. He rarely races but loves to see how far he can push himself in training, and gets his satisfaction from the process.
But most people I see need something additional to focus on and motivate them.
It’s the same with finances.
When I was growing up you had the choice to either save up to buy something you wanted, or you could go and lay-buy it. The outcome might have been the same, but there is a big difference in the mindset of paying off something you have already bought compared to saving up to buy it – it feels more tangible and immediate. Credit card companies learnt this a long time ago, and they help us make these purchases and then motivate us to pay our purchases off or pay big interest bills.
Many of our big financial goals are extremely long term: pay off the mortgage, save enough to replace our income so we can stop working. It can be hard to stay focused and motivated by these over a 15 or more years.
So what we need to do is find shorter term objectives that can act as a reward, generally 6-12 months out. A key requirement is that the cost of this reward is saved in addition to what is needed to meet your long term objectives, so you are not taking away from your other plans.
It is important that these goals have a big emotional commitment. It can be a positive one – for instance when I’m training for a marathon I often picture the last 500m of the race, the cheering crowds lining the finishing chute and the feeling of elation (and exhaustion) as I cross the finish line. Or it can be a negative one, like the fear of disappointing your family if you can’t take them on the holiday you promised.
But when you’ve achieved that goal it’s important that you really enjoy the reward – and then find the next target.
So stop saving, and start buying.