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To Master Your Finances, Adopt a Long-term Approach

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Many adults in today’s digital age learned how to navigate the Internet and use social media before ever starting to get a grip on their finances. Children of any age tend to find their opportunities limited when it comes to gaining hands-on experience with running a household budget or bringing in additional income. Not all parents (or educational institutions) teach basic financial management or make it a priority.

If you feel as though you grew up with a handicap in this respect, you’re hardly alone. Fortunately, with all the information at our fingertips, it’s easy to find online advice on how to improve and strive for financial stability. However, when you’re presented with a list of steps in a how-to article, it can mislead you into thinking that taking control of your finances is a matter of finding and following the right procedure. Here’s why embracing a long-term approach in this endeavor can have a bigger impact than any specific practice:

A matter of mindset

Most practices that lead to sustained success are invariably time-bound. Coming from top international schools will increase your competitive edge in the job market and help you further your career. Investing early and frequently in a disciplined manner will create compound interest over the years, making it easier for you to accrue wealth.

These approaches operate based on cumulative advantage. Take a positive step now, and you can give yourself a small edge. Continue to improve in this way, and the payoffs will outweigh your input.

Adopting the right mindset is a common theme underlying many self-improvement programs. Do a bit of research, and you’ll encounter concepts such as the Kaizen principle for continuous incremental improvement or the OODA loop, which incorporates feedback to adjust what you’re doing on the fly.

If you run with a given set of financial best practices, your mileage might vary, and you’ll eventually hit a plateau. By integrating a way of thinking instead, you’ll be more flexible and not bound to the limitations of any particular approach.

woman doing her finances

Quick wins over quick fixes

This doesn’t mean that commonly circulated advice for financial improvement is not valuable. On the contrary, many of the pointers you’ll find on the Internet can prove helpful as long as you take basic steps to verify the credibility of the source. However, it’s easier to provide concise and effective advice for specific problems. Thus, quick fixes can help certain people to address immediate concerns.

This experience can tap into our craving for instant gratification and add to our short-term motivational fuel. Yet it’s possible that such advice does not apply to your situation and won’t be very helpful. Or it could lead to some improvements but with diminishing returns.

This doesn’t mean you should forego all short-term goals, however. Building on small successes will help to reinforce your commitment to financial discipline. The trick is to focus more on quick wins and set micro-quotas that you can achieve indefinitely. Set a target of saving a small amount – even $50 a month, for instance.

You can put it in a savings account or other form of investment, just make sure it’s untouched. This target is a minimum, so you can feel free to save more each month if you want. Using micro-quotas, you are taking action and conditioning your behavior without focusing on the goal itself, and this will help set you up for sustained success.

Lifestyle changes and big goals

When people seek positive changes in their lives, their motivation can often be tied to big goals. For example, someone who commits to hitting the gym might be motivated by the vision of toned abs or bigger biceps (and the status enhancement that usually goes with such achievements).

The problem with this approach is that it focuses on particular side-effects instead of underlying principles. The longer it takes to achieve such goals (and getting a six-pack can take time), the more likely it is to erode a person’s motivation. A lasting fitness commitment should be tied to the even bigger goal of maintaining good health for the rest of your life, regardless of body fat or muscle definition.

Achieving financial stability works in the same way. We enjoy the thought of making money in our sleep through passive revenue streams or being able to retire at 40 and travel the world. But finances ultimately are needed to see us through each day of living, even into retirement.

Aim for the big goal of transforming your lifestyle rather than simply becoming rich, and you’ll be able to manage your willpower and motivation for the length of time it will take to get there.

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