Sean Sparkman:Discipline can be the path to a more prosperous financial life.

(this article is excerpted from Sean’s upcoming book: Income-Do:The Way of Mastering Money and Your Life. )

by Sean Sparkman

Pathfinders Wealth

Martial arts legend, actor, and author Bruce Lee believed that acquiring the faith to pursue any goal involves possessing a positive mindset.  Unfortunately, positivity doesn’t come naturally to most of us.  Positivity requires work to develop and discipline to nurture.  Suppose you want to improve your chances for a more prosperous and less stressful retirement, prosperity. In that case, you must recognize that the journey to financial well-being is about more than accumulating wealth for wealth’s sake.  It’s about fostering a holistic approach to your money.   

 #1 Make a budget, but be sure to give yourself grace.

Whether you’re trying to lose weight, get fitter, win a martial arts tournament, improve your relationships, or create a retirement plan, you need to hold yourself accountable with a set of guidelines and objectives. One effective way to foster that accountability is to have a written action plan.  When trying to build financial discipline, a common starting point is the creation of a budget.  Now, for many people, the word budget fills them with dread.  If you fall into that category, then you need to begin thinking of a budget as a set of helpful guidelines, not a burdensome collection of set-in-stone commandments.  

To start a budget, you’ll first need to answer some essential questions:

How much money do you have coming in?  Income is not what you HOPE to make or MIGHT make if everything lines up perfectly and you hit your sales targets.  Your income is the actual amount of money you’re earning right now.  If your income tends to fluctuate, do a reasonable estimate based on the past six to twelve months.

How much money is going out, and where it’s going? If you live a transactional lifestyle and tend not to pay attention to how much cash comes out of your pockets on a daily basis, then you need to get a handle on this immediately.  If you’re good with spreadsheets, list every single item and how much you spend on each one.  Many phone and computer apps will keep track of your budget for you.  For instance, some apps help you find “leaks” in your budget, such as subscriptions for products and services you no longer use.  When it comes to making and sticking to a budget, there’s no such thing as too much technology.

How do you want your life to look in retirement?

As you’re drafting your budget, write down a few life goals.  What kind of lifestyle would you like when you stop working?  Do you want to travel?  Spend more time with your kids. Start a business?  Buy an RV or a new car? How much money do you think is realistic to achieve these goals and aspirations?   Do you anticipate needing long-term care or advanced medical care?

What things should you cut from your budget?

Once you know what your income needs are, then it’s time to start making cuts! The best place to start is with any extraneous monthly costs—things like entertainment subscriptions or gym memberships that aren’t necessary for maintaining your current lifestyle.  Once those are gone, look at other areas where cuts could help, like cell phone plans, electricity usage, eating out less, reducing insurance premiums, shopping with a list, paying off your debts,

Rule #2: You must be honest about your debt.

If you want to become more financially disciplined, you must be honest about what you owe and how much servicing that debt is costing you.  Start by making a list of all of your debts, including credit card debt, student loans, personal loans, car payments, and mortgages.   For each debt, note the interest rate, minimum monthly payment amount, and total balance.  Finally, add in the minimum monthly payment that goes towards these debts each month – you can get this information from your statements or by asking the lender directly.

Doing these steps will give you an accurate picture of where your money is going right now.  Facing up to your debt situation will also help you envision where this money could be going instead.  Addressing your debt now will assist you in building lifelong financial discipline.

Rule #3: An emergency fund is more critical than ever.

Establishing and maintaining an emergency fund is another way to build habits that create financial discipline.Traditionally, experts believed it was essential to have at least three to six months’ worth of living expenses saved up in case something unexpected happens.  I now say that if at all possible, try to save enough to take you through an entire year.    Events like layoffs and medical emergencies are more common than ever, and inflation continues to gnaw away at earnings.  Then there’s always the possibility that Mother Nature will throw a curve ball right at your head, and you’ll experience costly weather-related issues.  Having a safety net is one of the best things you can do to smooth some of life’s inevitable stresses.   The good news is that there are ways to create safety nets using insurance and other financial products, which are essentially self-replenishing.  This means that if you have to take out money for an emergency, your money continues growing as if you hadn’t touched a dime.   I’ll include some resources at the end of this book where you can discover more about this specialized safe money vehicle. 

Steps to building your emergency fund.

Let’s take a look at the fundamental steps that go into creating a viable emergency fund. 

Step 1: Determine your savings target

It might seem self-evident, but before you can think about building an emergency fund, you will need to figure out how much you need to save.  As I mentioned before, I think setting aside a year or year and a half’s worth of money is wise if you’re able to do it.  I know one friend whose daughter has socked away enough cash to meet her expenses for five years!  While she may be the exception, it’s still an impressive accomplishment.   Create a thorough list of monthly expenses, including mortgage and rent payments, utilities, credit card payments, groceries, insurance, and fuel. 

Numerous websites offer handy calculators you can use to estimate your expenses for six months to a year.   Check out the resources section to discover these and other helpful tools.

Step 2: Set realistic monthly savings goals.  When you approach your monthly savings in this manner, you’ll find that not only do you attain those goals, you will surpass them.  On the other hand, if you attempt to wait until you have a lump sum of money to fund your emergency reserve account, you could wind up discouraged and frustrated.   As the philosopher Seneca once wrote, “The greater part of progress is the desire to progress.”

Step 3: Create “money muscle memory” with automation.

Developing “money muscle memory” does many of the same things.   Consistently practicing a few core money moves, aided by automation, can make creating and preserving wealth seem nearly effortless. Doing so will also improve your money decisions, so you’re less apt to make mistakes that will take years to correct.

One way to get started building money muscle memory is to set up processes to help you save.  Whenever it’s possible, use automatic transfers and deposits.  If you can, divide your paychecks between your checking and savings accounts.  “Out of sight, out of mind” can help you meet your savings goals more painlessly and create habits that evolve into muscle memory. 

Step 4: Spare change, anyone?

Smartphone technology has evolved to the place where you can effortlessly save money.  For instance, many savings accounts and savings-focused apps link to your checking or spending accounts to round up your purchase amounts.  The extra “change” is then automatically transferred to your emergency fund account.  While this may seem trivial at first, over time, you’ll see the results as your account grows a little every day.  Smartphone apps can also help you find and cancel unused, unnecessary subscriptions. 

Step 5: Send your state and federal tax refunds directly to your savings account.  If you are lucky enough to get a tax refund, consider having it directly deposited into your savings account rather than your checking account. 

Step 6:  Change your ideas about what constitutes an emergency.  If you want to keep your emergency fund, you must be clear about what an emergency truly is.     Emergencies are situations that could drive you into debt or force you to spend precious retirement money, such as layoffs, medical emergencies, or natural disasters.

Think of your emergency fund as a financial safety net that is separate from your daily cash flow and is vital to keep you out of debt during a crisis.   Once you’ve built your emergency fund, never stop nurturing, growing, and protecting it.  You’ll discover that in doing so, you’ve increased your money discipline in new and exciting ways and have increased your confidence dramatically.

Summing it up:

A healthy financial life relies on discipline to achieve a stable and prosperous future. Budgeting, saving, and making sounder financial decisions demand self-control and a long-term mindset. Discipline in financial matters ensures financial goals are met, and unexpected challenges are navigated with resilience. Well-known sales and marketing trainer Jim Rohn observed, ”Everyone must choose one of two pains: The pain of discipline or the pain of regret.”

Discipline acts as a guiding principle, shaping character and influencing your daily habits. It can empower you to set and pursue goals, overcome obstacles, and maintain a sense of purpose. Whether in the dojo, the boardroom, or the various arenas of life, discipline is the linchpin that transforms aspirations into tangible achievements, creating success and fulfillment.