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This Is the Most Important Factor in Personal Finance

By Catherine Brock – Apr 25, 2020 at 9:31AM

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You can't get rich without making daily decisions that aren't immediately satisfying.

By some estimates, you make 35,000 different decisions in a single day. You make choices about what to eat, what to wear, how you spend your time, and, of course, how you spend your money. Across those topics, there's a recurring conflict between the right decision and the most enjoyable decision. Fresh fruit smoothie or Belgian waffles covered in syrup? Pressed button-down and trousers or t-shirt and joggers? Wake up early or sleep in? Buy an extra life on that game app or set the phone down and read a book?

We navigate these decisions differently, depending on the immediacy of the consequence. When there's potential for a quick, negative outcome, that can push us to the other choice. You rise when the alarm sounds because you don't want your boss' reprimand, for example. But when the consequence is less clear and less immediate, you have to choose between instant gratification and a vague, longer-term benefit.

That conflict is ever-present in personal finance, and it requires a store of willpower to navigate. You simply can't build wealth without using your willpower to make daily decisions that aren't immediately satisfying. Those daily decisions are the building blocks of getting rich, and they include setting aside time for budgeting, forgoing unnecessary spending, and saving and investing for retirement.

Woman with notepad and calculator

Image source: Getty Images.

Willpower to budget

In a 2019 survey, only 25% of respondents agreed with the statement that "everyone should budget." But the budget is recognized by personal finance experts as one of the most important practices in good money management -- because you have to pay attention to your spending before you can change it.

Budgeting is, unfortunately, tedious. And until you settle on a system that works for you, it can also be very time-consuming. It's easy to see why you might choose to watch Tiger King in lieu of combing over the details of your spending.

You can hack your budgeting willpower by breaking the process up into smaller tasks. Don't try to solve the riddle of your spending in one day. Instead, commit to 15 minutes daily at a set time to work on your budget. Start by adding up your take-home income. Then review one month of account statements and categorize the transactions as essential, non-essential, or debt repayment. After that, you could dive into the non-essential spending to see what improvements you can make.

Willpower to spend less

Once you build a budget, you have to follow it. And that requires you to tap into your willpower and say no when spending opportunities present themselves. But here's a secret. The lure of immediate gratification is strongest in the first moments when the idea of spending pops into your head. You drive by a Starbucks and, suddenly, you're paying $6 for an oversized latte at the drive-through window. If you hadn't turned off the road, you might have forgotten about that tasty latte in just a few minutes.

Help yourself out by minimizing those immediate spending temptations. Unsubscribe from retail emails, use grocery pickup or delivery so you're not in the store, and take up an attention-consuming hobby like reading or gardening. You can also impose a waiting period on your spending decisions. If you're spending mostly on small things, like lattes, a short waiting period of seven or 10 days might work. If you are a splurge spender, set a longer waiting period of 30 days. This gives you time to let that temptation cool. If you don't forget about the purchase, you can at least evaluate it with a level head.

Willpower to save and invest

When you budget and spend less, you free up cash. You should use that cash to build an emergency fund and save for retirement. Of these two, retirement saving might be the easier nut to crack, especially if you have a 401(k). You can take willpower out of the equation by automating your retirement plan contributions and investment choices. Set aside $500 monthly and forget about it. If you invest those funds in the stock market at a 7% return, you'll amass more than $600,000 after 30 years. It really is that simple.

Maintaining an emergency fund, though, can be trickier. You can and should automate your emergency fund deposits -- again, to reduce your reliance on willpower. But you also must have the self-discipline to let that cash sit around until you need it. Your waiting period should help you here. You may want to make your emergency fund slightly harder to reach as well. Open an account in a different bank from your checking account, so you can't transfer the funds instantly. Or invest in a no-fee CD. Either tactic creates a delay, and that makes it easier for you to resist the short-sighted temptation to spend.

Put off instant gratification to get rich

Think of your willpower as a muscle. Start by practicing it in small ways, maybe by choosing a budgeting session over Tiger King or skipping the oversized latte. You will get better at it over time. Eventually, you'll find you enjoy making the "right" decision over the instantly gratifying one. That's when you know you can set any financial goal and meet it, which is precisely how wealth is built.

Catherine Brock has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.

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