Many Americans want a home, a car, sufficient retirement savings, an emergency fund and enough money left over to be free of their month-to-month financial stress. However, financial security doesn’t grow on trees. It requires financial discipline that spans years. According to Northwestern Mutual’s 2024 Planning & Progress Study, the number of Americans who refer to themselves as disciplined financial planners has plummeted from 65% in 2020 to 45% in 2024.
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Being financially secure requires discipline, and the best way to develop financial discipline is to have a clear and straightforward strategy. Setting yourself up for success will make it easier to maintain your disciplined approach without expending the time, effort and willpower you would need otherwise. Here’s what you need to do.
Set Goals
You need a road map to show you how to improve your financial situation. Your first point of emphasis must be coming up with your final destination. Determining clear, long-term goals will motivate you to remain disciplined and provide a clear sense of direction.
Here are some examples of long-term financial goals.
- Buying a home
- Paying off all debt
- Starting a business
- Becoming financially independent
- Establishing an emergency fund
Long-term goals provide the overarching structure of your financial strategy. However, adding short-term goals that align with them can provide extra motivation.
Here are some short-term goals.
- Paying off a credit card
- Saving for a vacation
- Buying a new computer
- Starting an investment portfolio
- Reducing monthly spending
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Track Your Expenses
Knowing where your money is going is essential to financial discipline. The best way to track your expenses is through a budget. You can create your own budget with a pen and paper or a computer spreadsheet, but this often requires more time and effort and also opens your records up to the possibility of human error.
Budgeting apps can link to your bank accounts and credit cards, allowing for real-time tracking and customized reporting. Many apps allow you to set savings goals and spending limits, helping you track your progress along the way.
No matter how you track your spending, doing so provides awareness of your habits. After tracking your spending for a month or two, you may realize that you’re spending more than you thought on restaurants, or that your impulse buys are playing a bigger role in your financial troubles than you expected.
Automate a Paycheck Routine
Financial discipline may sound like it takes a great amount of willpower, but automating your paycheck routine significantly reduces the effort you must put in. If you have a salaried job and receive a regular paycheck, automate your bank account to make transfers the day after your employer pays you.
Determine how much you need to transfer to each account to reach your goals while having enough left over to cover your monthly expenses. Then, automate your transfers.
- Retirement account: Send money to your individual retirement account or 401(k) if the funds aren’t deducted from your paycheck.
- Savings: Transfer a set amount to your emergency fund each month until it can cover your expenses for three to six months. You may also put money aside for other goals, like vacations.
- Debt: Paying down your debt immediately after receiving your paycheck is a great way to stay on top of what you owe while never missing a payment.
- Investments: Designating a certain amount for investments each month will help you grow your wealth over time.
An efficient paycheck routine reduces the amount of active discipline you need to achieve your financial goals. After automating your paycheck routine, you won’t need to consider it again.
Pay Down Debts
Getting out of debt will allow you to put more of your earnings toward assets that can grow your wealth. An Experian study reported that the average consumer debt balance in 2023 totaled $104,215. Having the discipline to make paying off your debts a priority and making more than the required minimum payment will put you on the fast track toward achieving your financial goals.
The snowball and avalanche methods are two effective strategies that you can use to get out of debt. The snowball method is a momentum builder that requires you to pay off your smallest balance first. After you pay off that debt completely, you move on to the next-smallest debt, and so on.
The debt avalanche method is similar, but you tackle the debt with the highest interest rate first. Over time, you’ll pay less interest and divert the money you’re saving toward paying off the remaining debts.
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This article originally appeared on GOBankingRates.com: The Role of Financial Discipline in Achieving Your Goals
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