By Jim Ludwick
Learn more about Jim at NerdWallet’s Ask an Advisor.
Our daily lives are constantly bombarded with drama, courtesy of the media. Drama, in headlines, stories and videos, gets attention and helps content creators get their message across in a cluttered media landscape.
As a financial blogger, I confess that I’ve attempted to do that, too, believing that a little drama will increase the chances of you hearing my advice and, in my opinion, my helping you achieve your financial goals and live a more fulfilling life.
But the truth is that there’s very little drama involved in the unglamorous work of paying down debt, saving for future goals and spending wisely. It’s all about habit — the habits taught by parents, siblings or friends that help you make smart decisions with your money.
It’s not easy to develop good financial habits, and it is easy to be led astray by all sorts of well-intentioned advice or fancy products and schemes that end up separating you from your hard-earned cash while making someone else richer ahead of you.
Many of these opportunities to amass riches are sold on either greed or fear. In other words, drama.
Drama in headline form
The examples are everywhere and come along like clockwork.
“The market is going to crash,” says the guru who predicted crashes in 2000 and 2008 and tells you he can predict the future.
“Don’t miss the next Facebook or Google stock about ready to go public,” says the tech stock expert who urges jumping aboard the latest hot company.
“Time to go cash,” says the fearmonger who sees another looming financial crisis.
If you see these headlines, there’s a good chance they’re intended to persuade you to subscribe to an expensive newsletter of doubtful repute or an online subscription service that claims it will alert you to the next action you should take to snare riches or avoid disaster.
Must you listen to all this urgent advice? Or is there some simple way of thinking about your finances that is easy to understand and puts you on your way to financial freedom?
There is. And while drama won’t help you get there, D-R-A-M-A can.
Keeping it simple
Follow these five basic steps and you won’t need all the promises, guarantees and sure things that are constantly promoted by people who may not have your best interests at heart.
D: Determine your goals by reading and thinking about them. Seek out credible sources of information that have a track record of offering sensible advice and avoiding get-rich-quick thinking. Take it all in and begin to formulate your plans for spending, saving and investing.
R: Record your goals and share them with friends or relatives to gain support. Let people around you know what you’re trying to do. It will make the goals more real to you, and it’s always good to get encouragement in the early stages.
A: Allocate your limited resources to prioritize saving and debt reduction. Take a hard look at your income and think about the best way to distribute it. Do you have high-interest debt? Prioritize paying that off. Save as much as you can along the way, but put your focus on getting debt-free first.
M: Measure your progress on a periodic basis, ideally with a friend or mentor. Studies have shown that people are more likely to reach their goals if they broadcast them to their social circle. Even when you don’t feel like following whatever system you’ve laid out to reach your goal, you’ll be more likely to bear down and get it done if you know that friends or family will be aware of your progress — or lack of it.
A: Appreciate what you’ve accomplished and reward yourself in a positive way. When you reach your goals, pat yourself on the back. You can even splurge — a little — on something you enjoy as a way to reward yourself. Discipline is wonderful, but sometimes it’s good to have some fun, as long as it doesn’t undo the progress you’ve made.
That’s all the drama you’ll need to get to financial independence. Have a nice journey.