How do I make habits that stick?
I first heard this saying "Raise the Floor not the Bar" when reading the book Do Hard Things by Steve Magness. It really resonated with me, as it perfectly culminated the past few years of my life where I was searching to form healthy habits in my life. I read many books on habits and was implementing things in my life to make me more disciplined day to day. This thought of raising the floor not the bar is essentially what I had done in a few areas of my life. I actually have a daily checklist of 10 daily minimums that I aim to keep. My goal is in cumulative keeping them 90% of the time. So over a month of 30 days I have 300 daily minimums and can only miss 10. I am going to take you through one of these "floors" or daily minimums that I do and how it came to be. Morning workout.
Step 1 - Determine the floor
In determining the floor first you need the item in your life you would like to get better or create a daily habit. For me it was daily exercise. It took a lot of soul searching to come up with a routine that made sense. Usually I start off with a plan that includes lots of running, and 3 days of weight lifting. I keep it up for a couple of weeks and eventually quit because it is too much. So this idea of the floor, what I want to be able to do the rest of my life (I'm 47 now so I may be coming from a different place). My goals were to 1. be able to play golf and be an active walker, and 2. be able to get on the floor and play with grandkids one day if they come (not yet though!!!). So my floor started off to walk 1.5 miles every morning at 3.8 on my treadmill and do 3 sets of 10 shoulder taps, without using my knees to get on or off the ground. I chose this because it is something I could see myself doing daily, even if I am tired, hungover, have a cold, or just don't want to do it that day. It is simple and I felt that no matter what was going on aside from a broken leg I could do it.
Step 2 - Commit to the floor
You need to make a commitment to do the floor daily (or 90% of the time). I took 90% of the time because that is the lowest A in school. And we want to be A players. My decision was that I needed to do it first thing in the morning, because knowing myself as the day goes on and I get more and more beaten down, the less likely I am to workout. So it had to be first thing in the morning. Now I also had other goals to fit in before work, so I decided I needed to start at 5 am (also The 5AM Club is a great book by Robin Sharma). It would take 30 mins. Now my wife and I usually head up to bed at 10 pm every night, then watch an episode or 2 of a sitcom in bed as we fall asleep (well she falls asleep in 10 mins, I usually watch an episode or two, then turn off the tv). So 11 pm to 5 am is 6 hours of sleep. I did not think that was a long term solution only getting 6 hours of sleep every day. So I wanted to move our "bedtime" to 9 pm when we went up to bed. I asked my wife if she was ok with that, and she was totally fine (mostly because she usually falls asleep on the couch at 8:30 anyways). Btw, for married couples I highly recommend going to bed at the same time if possible but that is a different discussion! It was set our new bedtime was 9 pm and I could still watch tv for 1 hr and get 7 hours of sleep a night. Some nights like Fridays, if we don't have anything early in the morning on Saturday we will stay up later.
Step 3 - Track the floor
I heard the quote before "What does not get tracked it does not get done". I am not sure where I heard that, but it is so true! You need to devise a way to track your success. I think of it as a reward for doing what you want. For me, in this case it is a calendar hanging on the wall next to the treadmill with a black sharpie hanging from it. After my morning workout, I put a big X on the day and a number which is the number of days in a row I have done my workout (my current number is 18 this morning).
Step 4 - Grind
I set my floor and committed to it not thinking weeks or months but years! I was thinking when I am 60 I should still be doing this. And I was ok if it was my current plan. Would I see benefits right away, probably not. Would I lose weight, no way. But the positive habit would work its way into my life and make me feel accomplished every morning. What a way to start off the day on a positive note. Even if I did not see anything, I was increasing my prospects of being able to be fit enough to play with grandkids when I was older, and that was my goal! Remember, this is not meant for you to become a body builder right away, it is meant for you to stick to the basic minimum. Please remember this when determining the floor!
Step 5 - Raise the Floor!
To get to step 5 it should be really well thought out and gradual. I don't think I made a change for the first year. And don't pressure yourself to change. If you are feeling good one day, then do more! But be careful, don't do anything extra that will make it hard to do the floor the next day. Like in my case squatting a bunch of weight will make it tough to walk the next day due to soreness (which is no problem because I hate squats). But on days you don't feel like doing anything only do the floor. I also took the idea that I would think about it for a month before I changed the floor. And make changes to the floor in small increments. Don't go from walking 1.5 miles to 3 miles. Start with 1.5 to 1.75 or 2 miles. Then maybe in a few months change the speed to go up .2 mph. This is long term thinking remember, this is just the floor. If you want to do some weight exercises after, do them! But don't make them part of the floor yet.
I started this workout floor about 2.5 years ago. As I said, I was walking 1.5 miles at 3.8 mph and doing 3 sets of 10 shoulder taps, without using my knees to get on or off the ground. Present day this is my current floor: Walk 2 miles at 4 mph and 2% incline while jumping off after each quarter mile and alternating the following: 2 back stretches which take about 40 seconds or 17 shoulder taps followed by 17 good pushups. I alternate those after each quarter mile for 1.5 miles, then just walk the rest. I have slowly worked up to where I am, and I don't see too many changes in the near future, but I am committed to keeping the floor daily.
What is a floor you can commit to in order to improve your financial life? Don't pay ATM fees? Sleep on it before buying an item? Only eat takeout or dine in once a week?
Welcome to Building Arks Blog
It all begins with an idea.
Welcome to the Building Arks blog. My name is Dan and I am using this blog as a way to keep some of my notes about personal finance and behavior as they are so intertwined. I chose the name Building Arks based on a quote from one of my hero's Warren Buffett. The quote "Predicting rain doesn't count. Building arks does." I really like this because we should not focus on what people are saying is going to happen in the market, in the country, in the world. Because we cannot control any of it. When it comes down to it, we need to focus on what we can control which is really only our world. How we act, spend, think, speak, treat people, work, etc. We cannot control politics, the stock market, or what mortgage rates will be. But we can control our spending, invest wisely and most importantly treat people well. That is building an ark for a storm.
I have two reasons for starting this blog.
The first reason is that I have learned a lot in my years of personal finance, as I started off a reckless spender and in debt. I had worked may years and read a lot to change my mind on spending and financial behavior. I have 3 kids and although I speak to them a lot about this topic, am not sure it always sticks. So I wanted to get my thoughts down somewhere in case they need it in the future. I would like to write this as if I am letting them know what I have learned, but I also think it could be helpful for other young people starting out, or older people who want to make a change. I really just want to serve people by giving them some guidance from things I have learned in life.
The second reason is that in the past couple of years I have been feeling like I need to get into personal financial coaching. This is my initial start into it. I figure if in the future someone is to want a financial coach to give recommendations, they should have a pretty good understanding of the coach they are getting. This will act as my resume. My honest hope is that by reading this blog you would not need my coaching, but if you should I would want you to know what you are getting.
A little about myself. I am in my late 40s, and have a beautiful wife and 3 sons. I am a Christ follower and am devoted to Him in what I do. Prior to a career shift 10 years ago I was in various corporate accounting/finance roles. For the last 10 years I have been a consultant at a financial planning software company. I get to help built corporate budgets! When I was in college, I was not good with money. I had credit card debt, and I sometimes paid the minimums. I was always into personal finance, I just was not much of a reader so, I just took the advice from the easiest places, the people selling it to me! Credit card companies, banks, investment advisors. Also the "common sense" financial advice that goes around from school, and in blurbs in the paper. I was always into tracking my spending. I remember after I started my first job out of college, I set up a quicken account. After hours of setting it up, I was excited about seeing my first Income Statement after the first month. When my wife and I got married, we were very normal Americans. Car loans, mortgage, student loans. My wife had 3 rules for me when we got engaged. The first was that I had to pay off my credit cards before we got married. The second was that we would always pay off our credit card each month. The last was that we would not pay ATM fees. That was my first foray into personal finance discipline. As my wife would tell you now, she created a monster!
I plan to update this weekly, so please come back!
Why is Personal Finance Important?
It all begins with an idea.
Personal Finance is not something that is discussed a lot. The reason is that there emotions such as shame and pride. If you feel you don't have a lot, you feel shame like you are not doing something right, or you cannot control your spending, or you don't make enough money. If you feel pride, you think that you have done it all on your own, you may look down on others as if they have not saved enough or were not diligent enough. In my life, I have felt both of those. Even now sometimes. The truth is that we are taught or not taught about personal finance. If we are not taught it, we learn it other ways. We can learn it from the media, or watching people who look rich and think that we need to look rich as well. Sometimes what we are taught could be incorrect. Here are some examples that I believe are incorrect that I was taught (always have a mortgage as it is a tax deduction, college loans are investments in your future, you must build your credit score with a credit card to name a few).
For me, the number one reason is Financial Independence. At any moment I can be let go from my job. Sure I may get a severance, but at times when people are getting let go, usually it is a macro economic force that is impacting the entire workforce. I may have difficulty finding a job, or at least one that paid as well as my other job. If you have a strong emergency fund to fall back on, you don't have to take something that may not be the right fit. Not everyone starts out as an adult at what I would call financially independent, but as you work your way to it, you see benefits. I had to put myself on a path to financial independence, and very rarely do we have a clean start. If you do, hold on to it and don't be tempted by debt. You can become financially secure by being a wise spender and spending less than you make; then letting the stock market increase your investments over the very long term.
Another reason that I think it is important to be financially independent is stress. When you are concerned about money and paying bills you don't sleep as well, you are nervous, you are thinking about how to make ends meet. A big reason for divorce in this country is money. If you don't have debt, you sleep better at night!
Knowing how to prudently spend, invest and plan is the key to personal finance. There is not one app that can do it for you. There are apps that can help you but it is only a tool not the brains behind the operation, that is you! Fortunately for me it is based around simple math. The other thing that is learned is the psychological side, and the critical thinking to some financial decisions. It is not how much you earn. You earn what you earn, your spending should be below it, but there should be room for saving as well. That does not mean that you should not try to make more money, it just means that right now, the reality is that you bring in x and you should not spend more than y.
These are my reasons, what are yours? Take a minute and dream about how it would feel in a few years if you had no debts (or at least none except a mortgage). Would you sleep better? Would you work better? Would you have better relationships?
Now think of 20 years from now. You own your house outright. You have no debts. Your 401k is seeing larger gains every year than you put into it. You can buy a car with cash (of course a sensible car). You can pay for that 2 week trip to Europe with cash. You feel confident you can pay for your kids college and still retire early.
It is possible, you just need to start today.
I heard the Chinese Proverb "The best time to plant a tree was 20 years ago. The second best time is now"
What should my net worth be?
It all begins with an idea.
How do you figure out how you are doing financially? This is the big question people always have, and the first place they look is the Income. Do I make over 100k a year? Can I buy the things that I want to buy? This is partially true, but it is only the starting point. This only takes into account what you bring in. The more important question is what do you do with it? Enter Net Worth Calculation.
The Net Worth Calculation is Assets - Liabilities = Net Worth. This is the balance sheet side of your financial life. It is the value of assets like bank accounts, investment accounts, 401ks, houses, college funds etc. Assets that you can value. The Liabilities are amounts that you owe like credit cards, mortgages, student load debt, car loans, all those great 0% interest offers out there.
Please note that Net Worth is to be compared against yourself not others. First of all it is not a good conversational piece to talk about with families, friends or coworkers. Also it is not productive. If you were comparing your net worth to others you would start to get jealous, and try to push things a long outside of your values and principals. Or you might start to lose humility and start to think you are better than others. I liken it to golf. I am not a good golfer, once I start comparing myself to good golfers I start doing things differently trying to compete, ultimately changing my game and messing up my swing (not too hard to do). I keep score for myself only and aim to do better than the last time out.
For Net Worth calculations, I like to keep things simple and only add assets that are readily identifiable, consistent and can be easily valued. The consistency is key. For a long time I would go to Zillow and get the value of my house each month. I did not see that as productive. It would go up or down each month, and it was not easy to sell, and if I did want to sell I would need to find somewhere else to live which would most likely suck up the gain I realized. So I keep my house at cost, so it is consistent. Plus, it is conservative. I also don't keep cars in my net worth. The reason being is that cars depreciate (from the moment you drive it off the lot and every mile after). Plus, by counting the loan but not the car it really makes me think twice about buying a car, as it will have a big impact on my Net Worth. I also don't keep other assets like furniture, jewelry, or other household items. So really on Assets it is really just financial assets like, bank accounts, investment accounts, money markets, cash in the safe, money you have loaned to others (if you plan to collect), rental properties, business assets etc.
Liabilities, the conservative side kicks in here. Anything you owe someone else goes in this listing. That is mortgages, student loans, credit cards, personal loans from friends/family, I even put my property taxes as they are paid every year and a fairly large amount of money. This is where you want to list everything. For one it will keep your debts top of mind, and two it will be conservative. If you don't pay them at some point there will be ramifications down the road.
You may ask "If I cannot compare to others, how do I use this information?". There are a couple of ways. The first way is to compare year over year. This is where consistency comes in. How much did my net worth increase over the year? A metric I like to do is look at how much my total net worth went up, then subtract out unrealized gains/losses on investments, this tells you the impact of what YOU did with YOUR income and expenses throughout the year! It is a really good tool. The other is something I read in the book The Millionaire Next Door by Thomas J. Stanley Ph.D and William D. Danko Ph.D. It is a simple calculation that has its flaws, but is a nice way to see where you are. Take your age * your total annual income then divide that by 10. That would give you an expected net worth. It is very high level, but it helps you see how you are doing. Once again, this is more on the trend verses the actual number. So I do a long range budget out 5 years. Do I see myself closing the gap to that expected net worth number? Do I see myself exceeding it?
The best way to track this is to set up an excel or google sheet. So what is your expected net worth? Are you close to your number?