Using your budget to break bad habits and master your personal finances
Even more than our education, our habits are a reflection of our lives. Habits are very easy to develop and very hard to break, and once they're developed, they control our behavior—sometimes in ways that we don't even recognize. Often these bad habits lead to other bad habits. It's a vicious cycle.
For instance, many people want to be in shape. In fact, it's that time of year when people start making resolutions to go to the gym and get fit. Emboldened, they go sign up for a membership and begin working out. Soon they realize that working out is hard and that it hurts. That's when bad habits developed over many years creep in. They start hitting the snooze button. "Just ten more minutes and then I'll get up and go to the gym," they say. Then ten minutes turns into an hour. "I'm running late for work! I can't go this morning, but I'll go at lunch," they say. At lunch, a friend wants to go get hot wings. "I'll skip just this once," they say. And so on. Before long, they've canceled the gym membership, and they're back to their old habits.
When it comes to money, most people have bad habits
Many people I talk to want to be rich. They even read my books and have an understanding of what it would take for them to reach their financial goals. But they lack the discipline to become rich. They may come to a seminar and leave excited about, and committed to, building their asset column and financial education, only to have their bad financial habits derail them.
For instance, they may want to set aside money for investing every month, but then they see a sale on some shiny new object they've wanted for a while. "I'll start investing next month," they say. "I need to get this now so that I'll save money." Then, when the next month rolls around, they realize that they've gone out to eat a little too much and that they won't have any money left over after paying their bills. "I have to pay my bills," they reason. "I'll start investing next month." Then another month comes and they're in the same predicament. "I should readjust my budget," they think. But then they remember their favorite TV show is on. "I'll do it tomorrow." Before long, they give up on their goal of investing and let their bad habits win.
Rich Dad said that the rich had a very simple way of breaking bad money-habits. "The poor pay themselves last, and that is why they're poor," he said. "But the rich pay themselves first, and that is why they're rich."
The difference between rich dad’s budget and yours
This month we’ve been talking about budgeting (“ What How You Budget Your Money Says About You ” and “ 4 Tips on Budgeting to Get Rich ”). Rich Dad's budget was different than most people’s because he treated his asset column as an expense—and his most important expense. Every month, no matter what, he put money aside for his investments, even if he didn't have enough money for his other bills. As a young man, I didn't quite understand.
"Are you saying you don't pay your bills?" I asked.
"Of course not," said Rich Dad. "I firmly believe in paying my bills on time. I just pay myself first...before I even pay the government."
"What if you don't have enough money?" I asked.
"I still pay myself first," said Rich Dad.
"But don't they come after you?"
"Yes," said Rich Dad. "That's why I always find a way to pay."
How budgeting motivates the rich
For Rich Dad, paying himself first motivated him to work harder and smarter to make sure to pay his bills and creditors. He used the fear of not being able to pay his bills, sometimes a situation created by paying himself first, to motivate him to make more money. He worked extra jobs, started companies, traded in the stock market—anything he could to make sure he met his obligations. After paying himself first, he used the pressure from creditors to form good money habits.
"If I'd paid myself last," said Rich Dad. "I would have felt no pressure...but I'd also be broke."
Kim and I put Rich Dad’s advice into practice early in our marriage. We found that, just as Rich Rad had promised, we learned to get motivated to find creative ways to make money. In the process, we learned more about ourselves and how to make money out of thin air.