There are three laws of motion. Today I just want you to remember Sir Isaac Newton’s First Law. From Newton’s Laws of Motion: “The first law says that an object at rest tends to stay at rest, and an object in motion tends to stay in motion, with the same direction and speed. Motion (or lack of motion) cannot change without an unbalanced force acting. If nothing is happening to you, and nothing does happen, you will never go anywhere. If you’re going in a specific direction, unless something happens to you, you will always go in that direction. Forever.”
I think this law of motion applies to personal finances. Your finances are like a stream that, if uninterrupted, will continue in the same negative direction. The force may increase, but the direction will remain the same. Many of us need to have some way to stop the downward financial spiral. Are you ready to figure out how to change the direction of your personal finances?
When it comes to financial decisions people are often paralyzed by indecisiveness and fear. The options, choices, and language is overwhelming -– Roth IRA, Traditional IRA, 401K, 403(b), Coverdell ESA, and the 529 Plan. You wish there were a Rosetta Stone edition for personal finance language.
You might say, “I really should be saving something for retirement”. But then after entertaining the thought for a moment you automatically begin to feel overwhelmed. So you do nothing
I recently read the book I Will Teach You To Be Rich and the author Ramit Sethi introduced the “85% Solution”. The 85% solution essentially says that it is better to start and know 85% and do it 85% right than to not start at all.
Here is a helpful illustration (adapted from what Sethi provided). Numbers are for illustrative purposes only.
It is better to do something, even if that something is not best. Sometimes we become so consumed by trying to do the best thing that we do nothing.
The book, I Will Teach You To Be Rich also introduced a key point in regard to establishing a financial plan. Most of the work involved in developing a good financial plan is on the front end. As a result, once the plan is in place the effort required to maintain it will decrease over time.
The following chart has been adapted from the material in I Will Teach You To Be Rich.
The initial requirement of time, attention, energy, and intensity increases dramatically. There are changes to be made. Decisions to make. Articles to read. New skills to learn. Paperwork to fill out. People to call. It all seems overwhelming. However, you need to remember that your financial momentum has been going in an opposite direction. You are now trying to swim upstream. You will feel overwhelmed. You will feel discouraged. You will feel like you will never be able to accomplish your goals. But, once you adjust the momentum in your favor and you pass beyond the time, energy, attention, and intensity demanded, things will start getting easier. The easiest thing is to do nothing, and the worst thing is to do nothing.
At this point you will have set up some new practices. You may need to establish a debt reduction plan. A budget may be on your horizon. You may be looking at a meeting with your HR manager. You might need to meet with your financial adviser.
Remember that once all that initial leg work is done, you do not need to remake those same choices. In the future you will not making major changes or decision changes — only tweaking things occasionally. Before you know it, your investments are being automatically drafted and you are doing better financially than you ever have without the effort. At this point the effort will simplify, but your positive financial change will continue. This is because you have stopped the negative financial direction and are now starting to enjoy the downhill part of your financial plan.
Well known proverb: “How do you eat an elephant?” One bite at a time.
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I'm just an average mom, trying to live a frugal life and get out of debt. I write about things that have (and haven't) worked to improve my family's financial situation. What works for me may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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