Four Money Personalities and How to Build Wealth
There are four types of finance personalities.
Most people spend all they earn each month (sometimes more). As pay increases, they celebrate by improving their lifestyles. No matter how high wages rise, they never get ahead.
Good Intentions, Impulsive Spenders
Many of us have good intentions, set super strict budgets but become demoralized by perceived lack of progress, leading to impulse buying the latest smart TV or similar.
I have repeatedly set extremely optimistic budgets, only to give up when unexpected expenses come and cause, in my mind, failure.
By This time Next Year We’ll be Gazillionaires…
These are often chronic over-spenders who are looking for a quick fix. They are vulnerable to Get Rich Quick schemes as will invest impulsively, motivated by fear and greed. They occasionally get lucky, but the vast majority will end up broke.
Slow & Steady Achievers
Health, study and finances are not a sprint. All three require small positive choices repeated over months to years. These choices need to be sustainable, not feel like a sacrifice, and be built into your weekly habits and routines.
These habits should be as automatic as possible, requiring little mental energy. The more time spent reviewing decisions, the more likely you are to change them in a moment of weakness.
A no spend month is unlikely to make a difference to your long-term financial future, especially if you over compensate afterwards!
How to Become A Slow & Steady Achiever
So how do you tackle a big audacious goal?
Want to pay off student loans or mortgage, fund extended travel or save for financial independence and eventual retirement?
Many of the attributes that make you good at studying for, and passing exams can also be used to build wealth. Passing challenging exams takes preparation, scheduling, plenty of sacrifice and sustained commitment over (what feels like) a ridiculously long period of time.
Securing your financial future is less intense, but requires the same preparation, scheduling, a little sacrifice and, most importantly, sustained positive action over many years. So lets consider your financial goals as if they were your next set of exams. How do you go about studying for and passing those massive postgraduate exams?
Set Goals & Write Them Down
Which exam are you going to sit? When do you want to sit them? Aiming for special merit/prize or just to get them done? Consider life events in the meantime and set realistic goals accordingly.
Postgraduate exams are hard. They often require a year of study to prepare. A YEAR OF STUDY. Alongside working part or full time. And the usual adulthood responsibilities such as preparing food so you don’t starve.
Money is a means to an end, not a goal in itself. What are your values and goals?
What money do you need to achieve your goals and live a life consistent with your values?
Make a list of goals. Consider future events (weddings, kids, house purchase, travel) and set realistic deadlines around these.
There will have to be compromises- there is never enough money to go around. Take advantage of this to really review what you truly value. Which goals are the most important?
Write down your goals and dates somewhere that you can review them on an annual or bi-annual basis.
Find Your Resources
Plenty of your colleagues have sat through these exams before, and can point you to the best resources. It’s very easy to get overwhelmed with more resources than you can ever consume. Find the textbooks you need, a small list of the best websites with articles and practice questions. Find some study buddies and senior colleagues willing to act as coach.
All your senior colleagues have also been on a financial journey (for better or worse). Money is a taboo topic, so rarely is wisdom learned passed down to junior colleagues.
We all just start afresh when it comes to money. Generation after generation make similar, preventable mistakes, because money is a taboo topic.
I’m thrilled you’ve found this site. It is my hope to create a forum sharing knowledge to help doctors fast track their way to financial know how. But there are thousands of finance sites for you to procrastinate on (especially if studying for exams!)
My advise is find a couple of reliable, trustworthy and highly relevant sources. Subscribe to get regular information to keep up to date. Educate yourself by committing to reading a magazine or book per month or an email or two a week.
Money Magazine is an excellent resource- a monthly magazine containing lots of personal finance, superannuation updates and introduction to investing explained for non-finance people.
An email subscription to this blog will get you weekly articles covering topics relevant to Australian doctors, to give you a shortcut to financial knowledge usually built over a 15+ year career.
Dev Raga is another Australian doctor who has released a fabulous podcast covering the basics of investing in a step by step fashion. I thought his detailed coverage of Mortgages and Wills, two tricky but important topics, were particularly helpful. His experience in both areas is obvious. He releases a 10-30 minute every week or two, great for bite sized learning during your commute.
I would advise learning before you have financial decisions to make. Choices we make can have massive financial consequences that we don’t recognize. Where you buy a home, for example, can impact the need for vehicle ownership, private or public school for your kids, capital growth potential and therefore investing equity. A baseline level of knowledge, and an idea of where to get more information will lead to better informed everyday financial decisions.
Breaking Your Goals Into Manageable Chunks: 1 Bite at a Time
How do you even tackle the huge curriculum?
Start with a calendar and break the curriculum into chunks, spread over the months you have assigned for exam preparation. I would always advise leaving spare ‘chunks” of time at as no-one ever sticks to their study schedule- it always takes longer than planned.
Break your financial goals down into more manageable chunks over time periods.
Use online calculators at Money Smart to work out how much you need to allocate each pay period to achieve your goals.
Usually, you will not have enough. Start with what you can manage and review every time your pay increases, putting most or all of your payrise into the plan until your on target.
It ussually feels feeble, as if you will never reach your goals and arent making any progress. Trust the process, automate and look back in a year or two – you will likely be amazed at how far you have come. The hardest part (like exam study or a new diet, is getting started).
Do it Over and Over and Over Again
You also will not feel like your making progress studying. Just keep hammering away and keep your eye on the prize – post exam celebration (make sure you plan some wonderful reward – you deserve it).
Schedule regular exercise, get outside daily and plan the odd evening off to watch a movie, read a book or engage in your favourite hobby. You will find your mind better focused after taking the time out.
Automating your savings will make your plan more sustainable. During the early months/ years, before the results are showing, you will need some extra motivation to stay the course. If you have a friend or partner interested in similar goals, an accountability buddy can help,
Consider listening or reading something regularly to help maintain motivation. I like the Choose FI podcast, it is based in the US but is full of ideas and ideas to raise your savings rate.
There is also a lot of talk about value and Ithink this is something that is worth focusing on. What are your values – and does your spending really reflect them? Do you really value having the latest Iphone or is environmental sustainability important to you – encouraging you to buy less, hold on to something for its useful life and only upgrading when you need? If you spend money consciously only on what you value, your savings rate will increase with minimal impact on your enjoyment.
Review Your Progress at Set Intervals
Practice written questions provide some insight into your progress, but letting a senior colleague practice test you (as intimidating as it is) is the most valuable tool available in getting you through the exams.
Set a regular time to review your financial goals, progress made, and whether your spending is aligned with your values. Tax time is a good time to do this, as you have to review your finances anyway. I like to review at tax and time and end of the calender year.
Plan for When Things Go Wrong
Leave some slack in your schedule for unexpected time stealers. It’s unlikely you will avoid any illness or other emergency that stops you studying for a period. Plan for it.
An emergency fund will provide protection from the financial side of unplanned events. This is critical in the early years when you don’t have a lot of financial reserve. Ensure you have appropriate and adequate insurance in case of major emergencies and personal tragedy.
If you’re investing in the stockmarket, it will dip, correct or crash. Write down your strategy for when you get jittery and feel like following the herd and selling assets at the worst time possible. Listen to JL Collins’ dulcet tones in the Stockmarket meditation. Namaste.
All that is required for financial success is a written plan, regular automated investments and some planning for the unexpected. Be aware of your money personality and be aware of your weaknesses. Try not to either completely ignore your finances or become obsessed, and have a plan when panic or the latest hot fad may distract you from your sensible plan.