Personal Finance Key to Success – Consistency

   

In a previous post I wrote about the power of habits. Simply put, habits are powerful because you keep doing the same thing over and over and over again. And as you continue this process, you naturally find ways to do that same thing, but better. Forming habits require one important thing – consistency.

Lifting Weights and Doing Cardio

I consider myself lucky that I’ve finally made fitness a habit. I try to work out about 5 times per week. I lift weights about 3 times per week and do cardio about 2 days per week (the days I’m not lifting weights). This way, I can be active almost every single day. Right before the coronavirus hit, I started my parental leave and due to that and ofcourse the virus wasn’t able to go to the gym. So instead I started working out in my basement which I had already planned to turn into a small gym – more on this in a different post.

Success was achieved in the form of looking and feeling great. Since I became consistent in working out, I’ve gained more energy, added some muscle mass, felt more focused at work, cleaned up my diet, and reduced my body fat percentage to 11-12% from about 20%. Therefore, this habit of working out has produced positive results over-time and hopefully will continue to do so.

Automation Achieves Consistency

One super-easy way to achieve consistency in your personal finance life is through automation. Some ways I’ve done this include:

  • Transferring money into my savings account
  • Investing into my 401k
  • Investing into my brokerage account
  • Paying as many bills as I can via credit card (the benefit here is strengthening of credit and reward points which I’ve redeemed for gift cards, merchandise and account credit)

Success in automation has allowed me to free up more time since these tasks are completed mostly via automation. Furthermore I’ve seen my investment accounts increase at a faster rate versus if I had performed these tasks sporadically.

Consistency Using Calendar Reminders

Setting up a simple reminder on your phone’s calendar can help provide consistency in tasks as well. I use my calendar for:

  • Annual review and updates to rebalance my 401k
  • Setting up alerts to buy certain investments at time periods when extra cash flow is expected
  • Appointments with personal finance specialists to discuss topics of interest

I set these reminders for times when I know I’ll be on the computer (mostly in the evening or early in the morning). If you set a reminder for working out at 7PM, when it’s dinner time, you’ll most likely hit the snooze or ignore it altogether.

Be Consistent Even In Uncertain Times

Even when times are uncertain, it’s important to practice consistency in your financial plans. Remember that for the stock market, history has showed us that it increases in the long-term. The S&P 500 chart below is the perfect piece of evidence to display this. If you stay on course, despite what’s in the news (good or bad), your investments will thank you. 

Personal Finance Key to Success - Consistency - S&P 500 Chart simple money man

In this chart if you pull out your investments when times are bad, you are not benefiting from buying investments at lower prices. During the 2008-2009 housing crisis, the S&P 500 dropped by nearly 50% when it was the lowest. That means if you were consistently invested into an S&P 500 index fund you would have been buying at these lower price points.

To illustrate this, let’s use the SPDR S&P 500 ETF an example. If you consistently purchased this during the 2008 and 2009 financial crisis, then over a 2 year period your average purchase price would have been $108.57. If you cashed out before then and started buying SPDR in 2010, you would be buying at an average price of $114.21. And today one share costs over $300! This is one of the reasons why time in the market practiced through consistent buying and holding pays off.

Why Consistency Works

The reason why consistency is so important is that it allows a process to develop with modifications and enhancements along the way. Going back to exercising, when you lift weights you’ll learn what works for your body and what doesn’t work. You’ll understand that you get a more effective workout on your chest by using cable machines instead of dumbbells. As the effectiveness increases, you’ll want to establish consistency because you are beginning to see results.

The same goes for your investments. Once you begin and continue to invest, let’s say every month into a 401k or after-tax investment account, a year later you’ll be able to see where you started off and where you are now. The extra advantage with consistent investing is that it will become easier over time. That is, the benefits of compound interest will become more apparent as your investments will increase in value at a faster pace. But all of this comes down to being consistent.

Even Warren Buffett says “Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time.”  And one word that can sum up time, discipline and patience is, yup you guessed it, consistency. 🙂

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