Financial discipline. One of the hardest things to get into and maintain. We live in an increasingly consumerist society where we buy stuff that isn't very useful (and some that is very wasteful). We do this for a wide variety of reasons, key among then being prestige and lifestyle. The result? People living from paycheck to paycheck, and looking fly doing it. But what happens when a crisis like Covid comes along and obliterates everything? What happens when the cashflow doesn't come in for a month. Just a month.
Situation As Is
See, I'm 26 years old, I live with my parents (still), and I have very little I can call my own. I have a job, and the first thought that comes with that 'stable' salary is to move out. But I realized that if I did that, then I'd be living on scraps (pay is pitiable), and I'd eventually have to ask for help from my parents just to meet the rent. I don't want that. I want to move out definitively. And that requires having a sizable emergency fund. hence my interest in financial discipline. What I know about finances is that they are hard to control precisely. But it can be done. And once it is, it becomes a habit. It becomes easier. It becomes an obsession. I've been looking into literature on this topic a lot lately. A lot of the information out there is too much to take in. Some of it, though, is simple enough to follow, and is based on principles I'm already familiar with. So I decided to go the simple route. Here's how its going.
Track Everything
Expense tracking. That's the method I've decided to use to increase my financial discipline. When i came across it, the argument was that it is easier to track and cut out items when you can see the items. It is also important in illuminating those small miscellaneous costs that add up really quickly over the course of a month. For me though, this tactic made sense because of two reasons: The Charlie Munger policy of 'Invert, always invert'; and the psychology of the habit loop.
Charlie Munger (Warren's famous partner) preaches that inversion is one of the best ways to avoiding costly mistakes. Under this system, you do not focus on the positive aspects you want to encourage. Rather, you look at the negative aspects, whether that be behavior or outcomes, that you would want to avoid at all costs. Once you have established these factors, you figure out solutions to them. I have tried to control my spending by focusing on the things I really want and still ended up way over targets I'd set for myself. There were always unexplained holes every month. Money that couldn't be easily explained. Couple this with the stupid decisions you make thinking you have the cashflow, only to have it come back to bite you later. The mental energy it takes to stop yourself from spending is too strong. These companies spend money convincing you to buy their products. They know they'll recoup it tenfold. They know their persuasion works. So I decided to invert. On the first month of my experiment, I didn't restrict myself. I proceeded as I normally would. I bought what I normally do. There was only one change. I would write down ever single expenditure. Every. Single. Expense. And I would do it within two days of that expenditure. Simple right?
Being Conscious
Now here's the thing. Every time I was about to spend money, the thought would come that 'I will have to write this down later.' The best thing about this is that it consciously makes you actually think about that expense. Is it worth it? Do I have to? What's the value? But in my opinion, this isn't even the best part. The best part is when you sit down at the end of the month and start tallying up your expenses for that month. If you are faithful in this exercise, you will find that you have a humongous volume of expenses. Especially on the little things and the one off expenses you convinced yourself are okay. For me the realization was that I was spending large amount of money on food. Yet these was never food in the house. I was also paying a lot in transaction fees every month. Those M-pesa transaction fees build up really fast! I was also spending a considerable amount of money on one-offs. Spending money on this event, buying booze for the guys, your sister needs this. So on and so forth. That first month was eye opening.
I used these figures to set targets for the next month. Since I already knew where my money goes, I could decide what stays and what doesn't. I decided not t stretch myself too far, and keep food, fare and utility expenses the same. However, I cut the miscellaneous expenses in half. The only way I was allowed to spend more on miscellaneous items was if I underspent in the other categories. And it worked (mostly) the following month. Is it easy to do? NO. Hell no. But it reduces the amount of mental energy and control needed to refrain expenses. Just keep track of them, and you'll be able to fill in the holes, create visibility, and basis of action.
Develop The Habit
The second aspect relates to a psychological aspect of behavior called a keystone habit. This is a habit that, once picked up, leads to bunch of other habits that are related and unrelated. For most people, their keystone habit is usually exercising. I can attest to the fundamental change that exercising has created in my life over the two years. How does this relate to financial discipline? Well, sitting down every two days to write down your expenses is not an easy thing to do. It takes a lot of mental strength to do it when you're supposed to. Its too easy to postpone doing it for a later day. In short, it takes willpower. Your ability to build the willpower to do this simple habit will feed into other things. Every time you want to spend, you'll have to think of the result (you having to sit down later to sift through the expenses). This will go a long way in you limiting your expenditures. As you sit down to record expenditures, you will have to think about every single item and its use/value over the course of that month. Slowly, you start becoming more conscious to your expenses, which helps to slow you down.
The Resolution
It has not been easy so far. I've come close to quitting sometimes. I had a really expensive month (my dad was in hospital), with so many little things here and there, that I considered quitting. Luckily a friend who does the same thing told me to keep on, 'for the culture.' And I did. I'm more conscious of my expenditure now. This will not work for everyone. But try it. Who knows what results you'll get!