This blog post is Part 3 of a 3 part series. You can find Part 1: Values and Part 2: Standards and Real Life here.
One of the hardest parts of growing together as a team is creating habits that support your values and standards. Values drive your behaviors and lifestyle, and standards are how we determine what our values look life in day-to-day life. You can agree on values and on standards, but execution can be hard if you don’t have habits to match. Your money habits are tied to your lifestyle habits. This is great news, because you can make a change in your lifestyle by addressing money, or you can change your finances by addressing lifestyle.
Reason #3: You don’t have complimentary money/lifestyle habits
If you change your habits, you will change your life. Habits are how you make your standards a reality. Our ideal was a clean house. Our standard was a clear counter. Our habit was putting appliances away every time we used them. I grew up with a coffee maker out on the counter, and changing that habit took some effort, but after years of doing so, I no longer find it difficult. I just put the appliance away after each use.
A few habits you might want to adopt to make your standard a reality include:
Financial security:
· Habit 1 – Pay off debt: credit cards, student loans, car payments. You can either pay off your smallest sized debt first and use each reduced debt as motivation for the next, or you can pay on all equally and put extra payments to the highest interest debt first. Studies indicate paying smallest to largest is best for follow-through. Math suggests starting with highest interest. Do what works for you.
· Habit 2 – Have some savings: Save 1-3 months of income to cover necessary expenses. If you have more variability in your income, you may want to save 3-6 months of income
Financial Independence (long-term):
· Habit 1 – Gradually increase investments in a tax-advantaged retirement account: If you receive a raise, increase your retirement saving by a small percentage. Let’s say you receive a raise of $2/hour. If you work a 40 hour week, that translates to $4,000 more dollars/year. You can increase your saving for retirement by 25-50% of your raise, which means you’ll be saving $1,000-2,000 more each year.
· Habit 2 – Acquire rental property: Rental income is a steady and constant stream of income. We purchased a dilapidated condo in a developing (code for “still pretty cruddy”) part of Washington, DC, used sweat equity and cash to gut and renovate it ourselves, and now rent it out. Rent covers everything, as well as a little extra that we save for necessary expenses. We intend to pay the mortgage off 5 years early, at which point the rent comes in as comfortable steady income. For us, rental income is a habit of maintaining a property, keeping up with our renters, and waiting for the rental income to slowly increase over time and finally be a clear income stream.
Financial Independence (near-term):
· Habit 1 – Talk about what matters to us: At nearly 13 years of marriage, we are still astonishingly different. We’ve found it takes at least three conversations before we come to an understanding, and agree to take an action. One of the most interesting outcomes of this habit, has been my declining multiple job opportunities. Although they offer a bump in income, they ultimately do not fit with what we want individually and as a family. By talking several times a month about where we stand with money, and what we want to accomplish in the next 3-5 years, we are able to make large decisions more quickly.
· Habit 2 – Earn more each year: Whether through rental income, buying more stock, or increasing my hourly rate, we often discuss what it would take to hit a higher number, and evaluate if we want to push ourselves to earn more. Waiting on your employer for a raise is the common way to earn more, but getting a new job/side hustle, reaping dividends from stock are all excellent ways to increase income and build wealth, because they put increased earning directly in your control.
One of the peculiar aspects of finance is we think know-how gets you further ahead. I know countless people who don’t hold even an associate’s degree, and yet have money and the ability to retire before 60. They relied on habits to get them their outcomes. Conversations about your dreams are vital, but your day-to-day habits around money will dictate your final outcomes.
This blog post is Part 3 of a 3 part series. You can find Part 1: Values and Part 2: Standards and Real Life here.
Photo by Daniel McCullough on Unsplash.