Tracking is the First Step
If you don’t know where your money is going, you don’t know how to make it go where you want. Simply having a budget or tracking your finances the right way isn’t going to change your behavior.
In Fall 2016, a study was published about activity trackers (ie: FitBits) and weight loss. It was a randomized controlled trial (the best kind of study there is!). 471 participants spent 6 months on a low calorie diet, group counseling, and physical fitness prescriptions. After 6 months, the group was randomized into 2 groups: “Self-monitoring” (ie: “you’re on your own, but here’s a website where you can enter your data”) or “Activity Tracker” (ie: “here’s a FitBit. It will capture your data.”) After 2 years (!), they all weighed in. Both groups had better levels of fitness, but the group without the FitBit lost significantly more weight!
You read that right… the ones that had the fancy trackers lost LESS weight than those that didn’t have them!
Tracking Doesn’t Change Behavior
When you remember to upload your FitBit data every day, you feel like you’re making a difference. When you log in to your computer to check your balances, you feel like you’re managing your finances. Doing that one thing makes you complacent. You think: “Hey, a year ago, I didn’t know where any of my money was or how much I even had!” and today you can spout off your retirement account balances, your mortgage balance, and your total net worth.
Yes, it’s important to track. Data helps us make better decisions. But we can’t stop with just tracking. Behavior needs to change.
How to Actually Make Changes:
- Start Tracking – It’s still the first step! I’ve explained what I think you need to set up a perfect tracking system. Start!
- Pick one balance that bothers you – I think this will change frequently as your financial journey continues, but pick one balance that bugs you the most RIGHT NOW. For me, that’s our mortgage. I hate it. I hate seeing it when I track my numbers. I hate seeing how much I am paying the bank. I Hate it.
- Set a Goal – I’m big on goals (both financial and non-financial). Set a goal for that one account. What number would make you feel better about it? Don’t go all crazy and set goals that are a few years out… okay… do that, but for this specific moment, set a goal you think you can accomplish in one year. Make it a lofty goal (not easy), but not a crazy goal.
- Start Calculating – How much money does that goal require that you aren’t currently allocating to it? We need specific numbers here. If we want to decrease our mortgage balance to below $30,000 by the end of this year, that means we need $23,000. Now break that into monthly needs – We need $1,917 per month to hit that goal (our mortgage payment covers some of that principle).
- Make a Plan – In order to make progress, something needs to change. You can’t keep doing the same thing and expect different results*. What financial changes are you going to make to change? Are you going to allocate your “eating out” budget to your debt instead? Are you going to start a side hustle? Are you going to be more committed to bringing lunch to work?
- Get to Work – Keep tracking and put your plan into action. Only THEN will you start to see results!
*Did Einstein really define Insanity as this? Because that’s what the internet told me.