For most, April means we file our taxes. Most find filing taxes is not enjoyable – but required. Un-enjoyable doesn’t mean un-enlightening. For example, while completing my family’s taxes, I found money being spent that we really didn’t need to be spending. We were paying for a product that had been replaced, we never recaptured the former expense. So silly to pay for two things that do the same thing when you don’t need to.
The un-enjoyable part of this monthly transaction was that the funds were moving, quietly and systematically, without drawing any attention from either of us – into the coffers of a financial institution somewhere in – well, we don’t know where. We weren’t begrudging the spent money – because we were unaware it was going anywhere. Now that we know, it’s very painful. But, we can do something to correct it.
-Which brings me to Rule Number Two. (Remember Rule Number One? – ‘Give us your money’?) Rule number two has to do with how often companies would like us to give them our money. Was your first thought? “Every minute of every day?” If not, it could be. “As often as possible” also works. Some sort of auto-draft, payroll deduction or EFT transfer is the preferred way to make this income a predictable certainty for financial institutions.
Rule Number Two: Give us your money – often, and systematically
How do they do that? Examples include; auto-draft, EFT (electronic funds transfer), direct draft, dividend reinvestment, income tax refunds, PayPal, gift cards . . . there are literally hundreds of opportunities to give away control of your money in the name of simplifying choices, or providing 24/7 access to a product or service.
‘Electronic Discipline’ takes the decision to pay another entity completely away from the consumer and places it squarely and securely in the hands of the financial institutions. Consumers are rarely required to re-visit spending choices despite that they should. The small transfer of funds that I found amounted to a few hundred dollars a year. No big deal, right? Right. But if we multiply that over all the places in our financial lives that this could take place, and again over the years during which it occurs, Holy Crow! Thousands of dollars in a few years; Tens of thousands over a lifetime; Millions of dollars for young high-earning Millennials. All lost without even realizing it.
How would your life change if you could have that money back? Would $10k help? Would it hurt? It is your money. How about preventing the transfer in the first place?
I know, it’s hard to find time to micromanage a financial life? This is the cost of doing business. Careers, families, children’s activities and just about every other way to occupy time would be more fun. This is one of the best reasons why you want to be working with a financial advisor. One who can keep you financial life coordinated and up to date with respect to changes in tax laws, benefit elections, changes in your family, your goals and your dreams and look for these types of ‘financial leaks’ at least annually.
Don’t misunderstand. I like electronic discipline – when control is retained by the person who decides which money goes where, when and how much, electronic discipline can be a great tool within a person’s financial world, The trick is not to let that tool be applied by some company outside your world.
Electronic Discipline is useful tool when used correctly. How else would so much money ever get into the accounts of all those mutual funds if not for ‘payroll deduction’? Honestly, if I had to write a check each month to my 401(k) plan, far less money would end up in that account than does. Electronic Discipline works. Apply it to your advantage as opposed to a bank’s.
Use electronic discipline to build long term savings, collect dividends, recapture debt, and eliminate fees.
Do not use electronic discipline as an alternative to budgeting.
The fallacy here is in the marketing which shouldn’t surprise anyone. Yes, financial institutions have made loads of progress providing means to allow consumers to manage their personal finances faster, easier and from just about anywhere. The unintended consequence (to consumers) is, we now believe we can manage our financial lives in under five minutes a month – during our commute or while we are at the park with the kids, or in the two minutes before dinner while the rice is in the cooker. The intended consequence (to banks) is that we miss small amounts of money incrementally falling out of our financial lives – and it all happens without anyone noticing.
. . . except the banks. They’re noticing. I promise you.
All those individual financial leaks . . . drops in their bucket.
Pay attention. Literally! Make conscious, deliberate choices. You deserve to spend some time on yourself. This financial life is the only one you have.
Don’t forget that financial institutions are capitalists. Remember what that means? Need a refresher? https://wordpress.com/post/financialcourage.wordpress.com/2340