What is the most basic rule of financial success? What will any financial expert tell you is fundamental to improving your finances? What is the first principle of making money?
Don't roll your eyes, because it's so obvious and your parents have probably told you 100 times.
The number 1 rule is to spend less money than what you earn.
When I'm giving advice about money, this statement causes a look of disappointment on the face of most people, with reactions like "everybody knows that!" and "what kind of expert are you?" as if they were hoping for me to give a secret formula to suddenly make them rich without trying.
Here's the reasons most people find this basic rule difficult:
- You're responsible for earning your own income
- You're responsible for your own expenses
- Therefore people who are in violation of the number 1 rule have nobody else to blame and can only hold themselves accountable.
It's my belief that a person's situation is the result of their current set of skills, behaviours and habits. Your outcomes are a product of what you know, what you do, and how you do it.
And this doesn't just apply to money, it applies to all areas of your life. If you take responsibility and accountability for any area of your life, you can build new skills, behaviours and habits to create new outcomes for yourself.
To start improving the areas of your life, look at goal setting as a first step towards positive change of your skills, behaviours and habits. But here's what I mean about success in finances being an outcome of success in life:
In the workplace, your income is the result of the outcomes you can deliver for your employer. If you asked your boss for a pay rise, would they agree that you deliver more value than what you are paid? Or if you had the advice of a recruitment consultant, what income would they say the job market is willing to pay for the outcomes you promise? If you're self-employed, how much goods and services can you deliver, and how does the market value them?
Therefore if you want to change your income, you'll need to change your skills, behaviours and/or your habits so you can deliver new outcomes.
Any household budget has necessary expenses for tax and fixed living expenses, and a certain amount of mortgage or rent. But beyond this, most people allow their spending on nice things and fun "discretionary" expenses to use up the rest of their income.
Many people do not have a habit of saving on a regular basis. And of those who do have a habit of saving, many are only saving a tiny amount, just enough to feel better about themselves while saving only a fraction of what they are still spending on discretionary expenses.
People's ability to save, or not save, are dependent on their spending behaviours and habits.
Replace "Money" with "Success"
I love reading books or articles on money and wealth, and then replacing the word "money" with the word "success". I've realised there is very little difference to the success I can achieve in any area, whether it's money, health, relationships, family, recreation, personal development or charity. Try it for yourself, and also try:
- Replace "financial independence" with "freedom"
- Replace "assets" with "knowledge"
- Replace "income producing" with "rewarding"
I don't believe people are naturally good with money. I believe that they've built up the skills, behaviours and habits in their life to be good with money. And that means you can change any area of your life to be successful by learning new skills, displaying new behaviours and building new habits.
How to change your Habits, Behaviours and Skills
The first key to change is to acknowledge where you currently are, and determine where you want to be. Again, don't roll your eyes, but you've probably heard this before: Set Goals.
Why set goals? Because right now your brain and your body is in a pattern of using its existing skills and displaying existing behaviours in a habitual way. Those neural pathways are currently set and are being reinforced every day, and that means you're stuck with yesterday's skills, yesterday's habits and yesterday's behaviours.
To set new neural pathways, you need to reprogram your brain with a new vision of the future. You need a clear picture of your future in your mind, so that you can visualise your future self as different to your past self and start establishing new pathways.
The outcome of having set your goals is what gives you your vision of your future self and your plan to acquire new skills.
But most people don't get around to setting goals.
We have created a Goal Setting Workshop, which provides an environment where you can get your goal setting done in just 90 minutes.
The workshop allows you to identify the top priorities in your life and create the picture of what you want your future to look like. In just 90 minutes, you'll walk away with your vision for the future and your plan on the next steps to achieve your future goals.
Click here for more information on upcoming workshops, and register your email address for a special offer for your first workshop.