What do you think matters more in terms of achieving success: talent or effort? One can say that both matter, and that’s probably true in most cases. However, there are some cases when one matters more than the other. Sometimes, having natural ability matters more.  Other times, persistence leads to success.

Based on what I have seen over the years, persistency and wealth have some correlation. The more persistent you are, the better your likelihood of success will be.  If we are driven and relentlessly pursue a goal, it can really pay dividends. Literally, in some cases:) If we go through the motions and try hard but don’t really push ourselves, we may end up just settling for a consolation prize, to speak. Or, in some cases, failure.

Now, I know that some folks might be quick to point out that just because someone is driven to succeed, it doesn’t mean that they can do anything they put their mind to. I totally agree with that broad statement. There are things that, no matter how badly we want them and are willing to outwork anyone in the world to get, we simply aren’t good enough.

For example: I’m 6’0” tall and of average athleticism. No matter how hard I might have tried when younger, I had zero chance of playing professional basketball. Or, for that matter, college basketball.  It never would have happened even if I worked harder than anybody alive.

That being said, there are other areas in life that don’t require exceptional skills.  Additionally, there are other goals and accomplishments that we can achieve that don’t require any natural talents than what we already have.  Many of these can be achieved through persistence rather than talent.

Examples of situations where persistency can lead to improved net worth:

• Studying hard to get good grades and receive admission to a good college (since education impacts wealth).
• Working to uncover scholarships and aid to attend college.
• Working hard to get into a great graduate school or land a job in your desired field after college
• Getting that promotion at work
• Networking to find a better job
• Pushing an entrepreneurial venture forward

You get the idea. It’s not like all of these things require innate quantifiable and measurable ability in order to succeed.

It seems to me that at many stations in life, there are plenty of people that have the requisite talent to succeed. Some may be a little smarter than others, but if you’re smart enough, you’re in the game. Then, it comes down to other factors, one of which is how much you want to succeed and how much you will do to make that happen.

Think about it all the people you have known who have achieved high levels of success in school, in their careers, or as entrepreneurs. Have they all been naturally brilliant?

I doubt it. Sure, some might have been .  But I’d be willing to be that many were not necessarily more talented than others, but just had incredible persistency.

Sustained, relentless effort – coupled with a sense of knowing where you have a chance to win – seems to be achievable for most of us, right?

My observations of such people are that they take common approaches, such as these 10 aspects of persistency that can lead to success and wealth:

1. Setting ambitious goals.  It’s important to have a clearly defined goal or sense of what we want to ultimately accomplish.
2. Visualizing  success .  Envisioning success in one’s mind, orienting thinking to that place and thereby aligning behaviors to that end.
3. Planning.  Once the goal is in mind, plans are made to reach those goals. Planning – while building in room for flexibility – provides a roadmap and goalposts to shoot for.
4. Being able to ignore naysayers. There are often people who tell us that something can’t be done, whether they really believe it or just secretly prefer that we don’t succeed in order to make themselves feel better.  Being persistent involves knowing when to ignore such obstacles.
5. Being resilient.  When roadblocks emerge – which they will in one way or another – it’s important to be able to be tough, get through them, and move forward.
6. Working hard.  This one is obvious, but persistence involves the willingness to put in the time and energy it takes to reach your goals.  One saying that I have heard a few times is that if you’re not working hard, somebody else is.
7. Efficiency.  While we all need balance, it’s important sometimes to cut nonessential activities in pursuit of a goal. This could be cutting out that hour of TV at night in order to study, or it could be packing a frugal lunch each day instead of eating out in order to pay down debt.
8. Discipline.  If you want something bad enough, you will discipline yourself to avoid slacking in order to reach the goal.
9. Passion.  I think that a big part of actually being able to charge toward achieving something is truly having that burning desire to get it done.   Personally, times where I have really excelled have been when I genuinely, deep down wanted to win and reach a goal that mattered.
10. Casting aside fear.  This could mean fear of success, or fear of failure. Both could derail people. In the times where I really wanted something and did it, I had no fear of success or failure.

It’s taken me some time over the years to be able to realize all of this, so I’ve had a mixture of successes and being completely average.  And, times I’ve failed.  For the latter, I’d like to think that when factoring out luck and chance – which does play a role in things – that being truly persistent could have made the difference.  For times where I succeeded, I know it did.  Lessons learned!

My Questions for You:

Do you think that persistency is a key component to success?

Do you agree with the assertion that in a many everyday situations, that truly relentless hard work can overcome better talent?

In situations over the course of your life where you have truly achieved a high level of success, did being persistent play a role in it? Perhaps contrast that with times where you were average or fell short.

We’ve all heard of the phrase “keeping up with the Joneses”.  If you have a personal finance blog, or regularly read such blogs, you might have read advice about how it’s not necessary to make spending decisions based on impressing other people.  I’m with that school of thought, which probably won’t surprise you.

Based on this way of thinking, I tend to get amused with the people who fall into the “big hat, no cattle” category when it comes to money. These are people, as the saying implies, that talk a big game, but have nothing to show for it.  I truly don’t get this way of doing things.

Don’t get me wrong – I do get some of the underlying drivers. They want to feel like they belong, or they want to prove that they’re successful, they want to show that you’re no better than them. And so on. I get the thinking. I just don’t think the way those folks do.

I knew a guy who, back in his early 20′s, bought a brand new SUV. He in no way could have afforded it, as he and I were both modestly paid employees just starting out. But he felt like the “needed” to feel like he had “made it”. Huh? If you’re in your early 20′s, just having graduated college, you haven’t made it yet. Unless you’ve survived some harrowing health scare, or something extraordinary – or are a pop star or athlete – you’re in the category of “just starting out”.  But this guy wanted to feel like he was established, to the point of spending tons of money on something he didn’t need. Good guy, and he seems to be responsible now, thankfully.

Fast forward a number of years, and I’ve seen this with a couple who bought a brand new McMansion in a great new development. They didn’t seem to have jobs that could substantiate that purchase, so I assumed that they must have sizable savings. Actually, I didn’t really care, it just struck me as unusual. Well, a few years later, they put the home on the market and had financial concerns from what I was told. Didn’t seem like they needed the massive new, impeccably furnished house. They just wanted it, and beamed with pride over living that existence. They’re nice people, so I do feel kind of bad for them.

Anyway, these are examples of people who fall for big hat, no cattle syndrome when it comes to money and material things. They take pride in wanting everyone to know what they’ve accomplished, to the point of making harmful financial decision.

Does this make sense to you?

Personally, I like the “small hat, big cattle” approach. Sounds funny, but I think you get the idea.  Live your life modestly, based on what’s visible to the others. If you have money, keep it for security and other needs – and of course to enjoy – but no need to show off. What’s the point?

Of course, I’m not at the “big cattle” stage yet, so I’m living modestly and being quite accurate in how I present myself However, in the future, as things continue to evolve (positive thinking here), I would rather live the same way and not let lifestyle escalate in order to show off to others.

This brings me to my questions:

• Would it bother you if people assumed that you had less money and were less accomplished than you really are?
• Or, would you take pride in living under the radar so to speak?
• Or, do you just not care one way or another how you’re perceived by others?

Keep in mind, I’m not talking about workplace situations, where people are undervaluing you. I’m talking about friends or acquaintances, and how they perceive your financial situation.

What do you think?

Let's use that brain and keep learning every day!

Have you ever met anyone that’s especially closed minded, and resistant to change? Someone who can’t handle bigger changes in work, technology, or society – who pines for the way things “used to be” with respect to most things?

Those days aren’t coming back. Neither is the slower pace of change that may have been a part of things in an era gone by. It sure seems as though the velocity of change keeps accelerating each passing year that goes by. Heck, it’s probably more like each passing month or week that goes by.  Technology, frameworks, processes, and communication platforms are changing rapidly. This isn’t like the telephone was invented, and then decades went by before cordless phones were the “cool thing” for years. Change seems to be happening faster and faster all the time.

Along those lines, I think it’s more important than ever to focus on continual learning. I had included continual learning as one of 15 ways to grow and protect net worth in a prior post.  If we instead keep the mindset of people who just like things “the way they have been”, and are slow to adopt different changes, we risk getting left behind. If we don’t keep up, somebody else somewhere is. Not only that, but others are driving change. Thus, it’s best to keep our head in the game, be flexible, and stay with the changes.

In addition to technological changes, I’ve come to believe that it’s probably a good idea to try to learn from any situation and any job you have. You might be in a job you don’t like right now, and it might seem like what you’re doing is not aligned with your true interest.  Fair enough.

Thing is, not sure about you, but I’ve come to find that I’ve learned lessons from every job I’ve had over the years. Yes, even a few that I had all the way back in high school. One thing is that I don’t ever want to be in that type of job again:) Other than that, and more practically, I learned some communication skills and how to handle customers. One high school job I had was as a customer service representative. At first, I was taken aback by the angry customers who came in to complain; that’s pretty much who I dealt with. However, after a while, I began to learn strategies to handle them, and resolve issues while making them feel like they got something out of the deal. It became a fun challenge to try to turn a skeptical and irritated customer into a happy one.  These foundational skills have come in handy over the years, successfully dealing with certain people in my professional career.

Also, I’ve learned to keep in mind that when you try to learn and do your best, someone is often looking. Your reputation in a job that might seem entry level can carry a lot of weight with people who can open doors for you to better jobs. An approach of continual learning can pay off in numerous way.

Why do I say all this? Well, I think that when I was much younger, I didn’t always try to be an early adopter. Rather, I would get comfortable with a certain way of doing things, or a certain job environment, and be content. It took me some time, but I’ve come to see that my own successes have come by actively trying to learn from every situation, and improve even in some small way as a result.

If change is inevitable, we might was well take an approach of active learning, intellectual curiosity, then and adapt and/or better ourselves each passing day.

What Do You Think?

Do you try to take an active approach to learning from your experience each day?

Do you also think that it’s become more important to embrace continual learning each passing year?

Have you also noticed an accelerating rate of change in our jobs, technology, communication platforms, etc?

Anchoring can influence many financial choices

Discounts are often enticing for many shoppers.  The idea of getting something for less than other alternatives – or, the particular item itself at a “sale” price – can bring about the feeling that one is getting a good deal.  Sometimes it might be the case, but other times it could be anchoring influencing your perception of the situation.

Anchoring, as you might know, doesn’t always refer to boating:) Rather, it sometimes refers to the notion of excessively focusing on a particular attribute, or set of information, when making a particular decision. This latter aspect of anchoring can come into play for many of us in terms of our finances. Anchoring can factor into pricing decisions, as well as how consumers handle different choices.

Here are three examples of anchoring:

1. Shopping. Let’s say you are shopping for a new pair of jeans, and you see a nicely branded pair of jeans at $100 a pair. Pricey, right? For many people it would be. However, what if you saw a sticker noting that the jeans are 50% off! Hey, then you can get the $100 jeans for “just” $50! These jeans that seemed so expensive now seem like a bargain – an opportunity to get an expensive item for $50 less and half price. However, are they really even worth $50 or anything close to it? Would you normally pay that much anyway? A shopper could be impacted by anchoring here.
2. Dining. Suppose you’re at a nice restaurant, and you see a number of entrees priced at $25 each. Then, you see a hamburger priced at $12. Wow, just order the hamburger and you can enjoy the nice atmosphere and get a bargain. After all, it’s so much cheaper than everything else on the menu! Well, in this case the diner might be impacted by anchoring.  While the burger might seem like a good deal, why does anybody need to spend $12 on a hamburger in the first place? It’s probably not a deal, and might seem so due to anchoring.
3. Hiring. Imagine that you’re interviewing someone for a job, and you see on her resume that she attended an Ivy League school for their undergrad studies. Also, she’s very presentable, warm and friendly when you first greet her. Based on these factors, you might assume that she’s really bright, talented, and has a lot of potential.  What if she ended up giving mediocre answers in the interview, and didn’t seem to understand the job for which she was interviewing? Would you look past these red flags, and still think that she’s highly capable? If so, you might be falling into a situation of anchoring on to initial impression.

There are many other situations that can be impacted by anchoring.  Some of these involve money, and some might even be relationship-centric. Either way, it’s important to recognize when we might be anchoring, and then apply critical thinking to make a more informed, logical decision.

My Questions for You

Can you think of any times where you have noticed attempts by businesses to incorporate anchoring into their pricing strategies?

Have you ever fallen into the trap of getting anchored to a certain price or attribute when making a decision?

How do you avoid letting the concept of anchoring impact you when you make decisions?

Be patient, my friend

Many of us get so fired up to achieve our goals, that we can get a little bit impatient sometimes when things don’t happen right away. With information and applications at our fingertips more and more each day it seems, the bar has been raised in terms of expectations of instant results.

Nevertheless, it’s sometimes good to sit back and let things take their course. Not by being lazy, of course. Being passive and delaying an outcome by indifference isn’t a winning solution.  Rather, putting a plan in place and executing it sometimes requires patience for success to ensue. In these cases, it can be better for the result as well as your stress levels to just resist the temptation to change directions or try new things, and just let things play out.

I mention this because I’ve had a certain goal in mind of late that I’ve been getting a bit impatient to achieve. It’s been gnawing at me a bit, and I feel like I’m not seeing the traction I want to see as of yet. It gets annoying sometimes when things don’t go according to your plans for success right away.

But as I’ve had these thoughts, I remind myself of a totally different goal I had some years ago, and how things at first seemed to be failing – but turned out to be successful. I just had to be patient and let things play out.

Here’s what happened. Some years ago, I was trying to sell a condo, and had purchased another place that was a little bit bigger out in the suburbs. The condo I was selling was kept in absolutely great shape – it looked just like new according to people who saw it, and was situated in a popular area for young adults. I worked with my realtor on doing all the research and due diligence, and felt that it was priced, staged, and marketed well. Keep in mind this was during a better real estate market.

Anyway, after the condo went on sale, I couldn’t wait for an offer to come in. I felt that I’d make a little money on the place, and given the market activity at that time, I thought it would happen within the first 2 weeks. This was typical at that time.

Well, the first few weeks went by with some showings, but no offers occurred. No sweat, I thought. Maybe by the end of the first month, something would happen.

Nothing happened in that first month. No offers.

As the second month went on, there was a decline in showings.  By the end of that month, I was getting antsy. I had plans to move out to the suburbs, and assumed that this place would be sold in time for that to happen. I felt that based on the market situation, our pricing, staging, and marketing plan – we would have been achieved success. However, this hadn’t happened and things were dragging along.  At the time, I started to question everything, and considered dropping the price and even potentially looking for another agent.

Then, just as the 2nd month ended, I got a call from the agent. Good news – we got an offer! Even better, we got two offers!

As it turned out, two people made separate offers on the same exact day. They both really liked the place, and actually ended up bidding full price for it. So what did we do? We then went back to them and told them the situation, and asked them to submit their best higher offer. In other words, we had a 2-party bidding war!

The net result of all of this is that I ended up selling the place, and even got a little bit more than I asked for.

Had I let my worry and impatience get the best of me, I might have lowered the price or gotten another realtor. That could have resulted in less money for me, and delayed things further. But I stayed the course, followed the plan, and it worked out to be the success for which I planned. It’s not like big money was made, but it was still a small profit that wouldn’t haven’t been there had I changed plans.

My lesson: Sometimes it’s best to be patient, keep doing things according to plan, and your efforts can totally pay off.

Now to be fair, there’s something to be said for being flexible and changing plans when needed. I do think that we can’t be rigid or static in our thinking. Plus, it’s important to recognize sunk costs and be able to act based on the present and future.

However, it depends on the situation. Sometimes we should make changes, other times we have to have belief in our plans and efforts, and stay patient. Good things can happen, and sometimes patience is a virtue with money. It could be selling a home, or it could be landing a job, getting customers for your business, getting published, or even accumulating assets for a financial goal. Whatever the case is, just keeping at it can be the right move sometimes.

My Question for You

Have you ever had a time where you just kept at it, stayed the course, and reached a goal that was money related? Or, even non-money related?

Do you find that patience is a virtue sometimes?

If you’re like many of us, and impatient to reach goals sometimes, how do you manage this?

When it comes to improving our quality of life, getting the most happiness out of every day,  and reaching our goals, it helps to have some type of plan in mind. Giving some thought to what you want, and how to get there, is generally more effective the operating randomly without a plan.

To me, when it comes to those aforementioned aspirations, my framework is to focus on relationships, health, and wealth. As I wrote in one of this blog’s foundational articles, the role of money in our lives is of course personal, but for me it does encompass those 3 aspects I just mentioned.  Relationships, health, and wealth can all influence one another.  To the extent that we are strong in one area, we can potentially help ourselves in the others – with the opposite holding true as well.

So clearly, while money isn’t the most important thing by a long shot, it’s realistic to say that it can help improve the quality of our lives. To that end, tying back to the opening paragraph, it behooves us to have a plan for how to manage our money and grow our net worth.

With that in mind, I’ve come up with these 15 ways to protect and grow net worth:

1. Get a good formal education.  I’m starting with this one since there has been much chatter in the blogosphere in the last few years about the value of a college degree, and whether or not it’s really worth it. This topic was addressed here in a discussion on the choice between college or entrepreneurship. Well, I do think that where one goes to school and how much it costs can greatly impact the ultimate value proposition of a particular investment. However, that doesn’t change the reality that a college education is important and does matter. Plenty of data out there indicates that those who avoid higher education will face a lifetime of lower earnings. Again, just be extremely careful when making your decision on where to spend tuition dollars. Also remember, you can always be an entrepreneur and a college graduate!
2. Embrace continual learning.  Keeping up on the education theme, it’s important to keep in mind that what we learn in our formal education gives us a good foundation and an essential piece of paper, but the learning doesn’t stop there. I think that the ability to continually grow through experience, along with the trait of intellectual curiosity, are important factors in determining personal and career advancement. We can always learn something new everyday, and add this experience to our toolbox.
3. Focus on your career.  Your experience, and the value you can add to someone who will pay you for your services, is what will make you a big share of your money.  Unless you’ve inherited big money, where else – realistically – are you going to be able to generate the income for your food, shelter, transportation, etc? Basically, my idea is this, as I’ve expressed before: you have to make money before having anything to save.
4. Generate multiple sources of income.  While your career will likely be your biggest source of income for a good part of your life, you don’t want to put all your eggs into one basket. Jobs can be lost, career tracks can be altered, and a whole host of so-called unexpected events can happen. For safety, it’s a good idea to work on alternate sources of income that can be done on the side. Plus, aside from safety, these efforts can provide additional income and maybe an opportunity to do something entirely different someday!
5. Discern wants from needs. What do we need? I had put together a personal finance hierarchy of needs that I think provides a framework for thinking about certain priorities. Along those lines, it’s essential to be able to decide upon what we presently need, and what we simply want. For example, if given an option of a older, dated 3 bedroom house or a brand new, sparkling 4 bedroom McMansion, choosing the older home over the newer home is looking at needs vs wants. Nobody needs a brand new house.
6. Maximize the income minus expense gap. Once we earn money, as noted above in #3 and #4 – and figure out needs vs. wants, as noted in #5 - we can work on saving. This is the bottom line, where income and expenses intersect to result in savings. It’s kind of like a company that reports profits -  income minus expenses equal how well they did. I mean, unless we focus on this gap and actually save, our net worth will have difficulty growing.
7. Practice effective asset allocation.  Put your savings to work for you. If you have an immediate need for funds, you may want them in safer investments (like cash). If your investment timeline is longer, you may want to increase the percentage of funds in stocks. There are many approaches people take to asset allocation, and it’s vital to utilize one that matches your situation.
8. Put money in your employer 401(k) plan.  The employer match is a great deal for employees. The rate of return that you can earn on such allocations can be significant. For example, if you drop in $3,000 – and your employer matches it dollar for dollar with another $3,000 – that’s pretty good!
9. Manage Risks.  Not all risks are bad. It’s good to keep in mind that risk and potential reward often go hand in hand, which is factored into our decisions in #7 above. Additionally though, there are risks in which we need to protect the downside.  When it comes to assets, the the Buffet’s Rule #1 on losing money is one to keep in mind when it comes to making up losses. In a different context, avoid big losses, and get proper insurance for your home, health, and vehicle. Additionally, proper estate planning falls into this category as well.
10. Eliminate Debt.  If you owe someone money, you’re essentially a servant to them. If you needed to take out a mortgage loan to buy your home, then you’re effectively a servant to your lender. If you don’t pay your lender, you’ll be out of your home. That puts things in perspective, right? Plus, by paying high interest, you can really dig yourself in deep. Best to avoid debt if you can, and pay off what you do have as soon as possible
11. Think long-term. While living in the moment is important and a source of joy, we also have to spend some time also thinking of the future too. Taking a long-term time horizon, and remembering that we ultimately need to retire, is fundamental to growing and protecting net worth.  Personally, I like to think that I’m working for the me of today, as well as the me of 35 years from now, who might not be able to work. That’s my biggest financial motivator right now – making sure I’m not old and broke. The opposite would be old and financially prosperous, which is preferred!
12. Be relentless and persistent.  My own observations are that the times where I’ve truly wanted something badly enough, and really, really worked hard for it – are the times when I’ve achieved the most success.  I’ve observed this in others too, where some people who are determined and tenacious may achieve things that others who are seemingly brighter and more talented – yet less persistent – may not.  The more I’m around, the more it seems like once you pass that threshold of being “smart enough” to do something, the next real differentiator between success and lack of it is hard work.
13. Be resilient.  For most people, life is not a straight, linear path to some type of nirvana. While we hope that the majority of days are spectacular, there will be a few speed bumps along the way. More than that, there might be times where truly “unexpected” setbacks occur. Job loss, health issues, divorce, accidents, and the like come to mind. It may not be easy, but try to be mentally tough and prepared, as the odds are that at least one of those less than exciting events will happen to most of us.
14. Nourish positive relationships.  So, we’re back to what I said up front – how wealth is tied in some way to relationships and health. In terms of relationships, this can take on many forms. First of all, people that are married tend to have a higher net worth than those who are single, on average. At the same time, divorce can damage finances severely.  So, that’s one way relationships matter! However, this applies to many other relationships. If you get along with your boss, for example, you’ll be better off than if you were at odds. If you network well, you’ll learn more from others and might have more professional and business opportunities than if you were more isolated. To the extent that you enjoy people, are interested in others, and are able to get along with others effectively (and smartly), it seems like you’ll be in a better position to succeed.
15. Stay healthy. Most importantly, of course, being healthy means that you can enjoy life and be there for family and friends. However, it also matters for your net worth. First of all, if you’re not healthy and incur significant medical bills, that be money out the door that you could have saved. Second, and actually this might be more important, if you’re not healthy, you’ll have trouble working. Which means, you’ll have trouble earning an income.  That’s yet another motivator to eat well, get plenty of exercise, and manage stress. Even sleep can impact wealth, so it’s important to get enough!

My Questions for You

What are your thoughts on this list? Are there any here you especially agree with?

Which of these approaches do you feel like you do best and worst?

Do you have any more suggestions on general tips to grow and protect net worth.

Why not you? If others can achieve their financial dreams, you can too!

Flipping that around, I’ve had some of those “why not me” thoughts of late. Extending those thoughts to everyone reading this, I ask the same thing regarding you and your ability to reach your financial goals and have your wishes come true.  We can’t that be you?

Well, I’d like to think that we can achieve our financial dreams, and make them happen. Just think about it – there are plenty of people out there, probably hundreds of thousands at the minimum, that are absolutely getting it done. While their aspirations may vary, they’re accomplishing what they want to do without settling for “good enough” or partially meeting goals. Additionally, some of them are achieving tremendous success probably beyond their wildest dreams.

Are these people all exceptionally brilliant? Maybe some are, but then again probably most of them are not. Are they lucky? Sure, I’ll bet luck plays a part in a lot of success (or lack of it), but it’s not necessarily a driving factor? Did all these people have built in advantages? Well, maybe some did, but again I doubt that most of them did.

Really, I’ll bet that many people are able to achieve lofty goals by being goal oriented, on task, disciplined, and persistent. They want it badly enough, and are willing to strategically make the right sacrifices to have it happen.   Think about it – there have been instances in life for all of us where we have wanted something badly enough that we managed to make it happen.  Why not make it happen on a bigger stage, so to speak, with our higher financial aspirations?

I’m talking about getting things done now in order to make longer term dreams happen. Since Rome wasn’t built in a day, using a classic saying, that might mean taking longer-term aspirations and working on your goals for the year as necessary steps.  Some of these goals could be things such as:

• Paying off all credit card debt
• Paying down 2 years worth of mortgage payments in 1 year
• Getting a great performance review at work
• Doubling the % of income saved vs. the prior year
• Finishing a degree
• Buying a home at below market value
• Building a profitable online business
• Finding a new job making more money

Whatever the case is, it’s achieving these smaller goals that can help us achieve our bigger picture dreams, whatever they might be.  Kind of like steps to take along the path to success.

While it shouldn’t necessarily take a New Year to get us moving, the really New Year is here now so we might as well embrace this as a time to step it up and really commit to making measurable progress toward our goals. Think of how great it will feel to achieve success this year, even more than what you’ve done in the past. I figure if others are making their longer-term financial aspirations happen, why can’t I. Why can’t you, either?

Of course, we can do it if we put our minds to it. I’m probably a bit fired up now, but I’m really excited about making this year a very successful one, and looking forward to your success as well. Let’s make it happen!

What motivates you to save money?

This question probably brings out a big variety of answers. We all have different life experiences, family situations, quality of health, etc. Additionally, no two people are exactly alike in terms of personal values and dreams. Sure, there are probably some similarities, including some close ones. But our unique lives lead us to some different financial motivators.

What truly drives one person to save money might be different than what impacts the next person.  That is, if that person is motivated to save at all. Clearly, looking at our personal savings rates here in the US (and Canada, for that matter) compared to global savings rates, this might not apply to all of us!

Anyway, being in the camp of people who thinks saving is important, I do have a variety of motivators.  Some aspirational, others more practical. But there’s one motivator that especially drives me:

I don’t want to be old and broke

Simply put, I don’t want to grow old and worry about how to pay bills and how to get by. Deep down, underneath all my other motivations surrounding making money, this one is the one that lights the fire within to get things done. I saw an older person working at a restaurant recently, and she looked like a tired grandma. She clearly wasn’t the owner of the place. I felt really bad for her, almost wanted to help her do her job.  Also, I just didn’t want to end up like her.

Surprising? Well, I know that there are people who don’t share this motivator.

I had a conversation about this in the last year, where I was told that one can’t live life in fear, and should think positively and not worry about it.  In other words, have some goals but realize that you can really enjoy your money when you’re younger – when you’re mobile, can travel, have younger kids, etc.  The idea with this way of thinking is that being motivated by things or experiences that money can buy is a better way of approaching it. Why bother worrying, when you focus energies on enjoying your money, is how the line of thinking goes.

It’s easy for me to see the point, and I do share some of those values. Life is to enjoy, and we simply can’t delay gratification forever. Every single day is to be enjoyed, and sometimes this enjoyment does involve spending some hard-earned money on wants as opposed to needs. A life focused strictly on needs would be a boring life.

However, while holding that view to some degree and fully believing in enjoying each day, I just can’t shake that under the surface fear factor when it comes to money and age. Visualization is key here.  To me, the visualization of being old and having far less energy than a younger person – yet needing to work hard to stay afloat financially – sounds atrocious.  You never know what your health will be, even if you eat healthy, exercise regularly, manage stress, etc.  Sure, you can put the odds in your favor by making good decisions, and I’m all about that these days. But who the heck knows what the future actually holds? None of us has a crystal ball.

Not sure about you, but being old and broke sounds terrible. The way to take personal responsibility for that is to save money when younger, allow compounding to work it’s magic, and invest intelligently.

The way I see it, we are working not only for our lives today, but we’re also working for the lives of a senior citizen. We’re working for two people, and both of those people are actually ourselves! You’re working for the you of today, and the you of old age.

Saving for old age is a need, not a want.  When considering the financial hierarchy of needs, it’s not as important as taking care of daily needs for now, but it’s still important. I’m not expecting social security to be around.

Don’t get me wrong, I think that people have the potential to do a lot as they get older. Heck, there was a story recently about a 100 year old man who finished a marathon in Toronto. The guy apparently didn’t take up running until age 89.  Incredible! So, there are people that can succeed in business or their career, even later in life. So much is about attitude.

But I don’t want to count on a miracle comeback late in the 4th quarter of life. Better to have some peace of mind by preparing for the future while repsonsibly enjoying every day as much as possible! Doing both, rather than one or the other, sounds good to me.

My Questions for You

What motivates you to save?

Are your true motivations aspirational, or defensive?

Do you think about money needs in old age, even if that’s far off for you?

The Pareto principle, sometimes known as the 80/20 rule, is a concept that has many applications.  The main idea is that 80% of the effects are resultant from 20% of the causes. Or put another way, 80% of the results come from 20% of the effort.  Lately, I’ve been giving some thought to how this way of thinking can be applied to our lives in terms of money.

The Pareto Principle and Business

The Pareto principle is often included in many business decisions. When working on selling a particular product, it’s generally not a good idea to try to be everything to everybody. In other words, your product will a good fit for some people, and not as good of a fit for others. Plus, there might be some potential customers that can be influenced to buy your product, and some that will be resistant to buying it.  Thus, it’s important to target sales efforts for a product (or service) effectively, so that your resources are used wisely. It’s often cost prohibitive to mass market most products.

The result: we might see that a large percentage of our sales come from a small concentration of customers. To apply the Pareto principle, we would say that 80% of sales come from 20% of customers.

Or, you could discover the following:

• 80% of sales come from 20% of marketing channels
• 80% of advertising-sourced revenue comes from 20% of your advertisements
• 80% of your customer complaints come from 20% of your products
• 80% of your productivity comes from 20% of your employees
• 80% of your referrals come from 20% of your customers

If you’re a blogger, to take another example, you might find that a significant percentage of your referrals come from a small percentage of referring sites.

The Pareto Principle and Personal Finance

While the Pareto principle has been oft-discussed in terms of business, I think it might be underutilized in personal finance.

In terms of how we spend our time with respect to improving our financial situation, and working toward our money-related goals, there are different ways to go about it.  A common theme I see throughout the blogosphere, as well hear in conversations, is the use of money saving strategies. People come up with all kinds of ways to save a few bucks, and will frequently take interesting measures to do so.

For example, you just know there are people that would drive an extra 10 minutes each way – 20 minutes round trip – to buy gas at place that’s 5 cents per gallon cheaper. They just can’t stand the thought of intentionally paying more for gas when a cheaper alternative is available nearby. The thought of spending 20 minutes to save maybe 75 cents is quickly rationalized, if thought about in the first place.

Don’t get me wrong, I’ve engaged in some unique practices too. My idea of picking up pennies at the drive-thru might be a bit extreme , though at least I donated what I found .  Additionally, as I’ve shown in the Squirreling Gone Wild series, there are plenty of interesting things people do to save money. There’s no shortage of wacky schemes out there!

Those schemes are often harmless and fun. Ok, admittedly (and obviously) and I get a huge kick out them:)

However, it’s when people invest a lot time into saving a few pennies or even dollars, I wonder if that’s the best use of time in terms of meeting money goals.  Now, of course saving is great, and is vital to personal finance success. You can make all you want, but if you don’t save anything, you have nothing to show for your accomplishments.  But in order to save, don’t we have to make money too? It’s all a balance.

This is where I’m going to start thinking a bit more about what’s the most impactful use of my time:

If I’m spending 20 minutes going to a certain store to save money, how much is that really yielding?

If I’m spending an hour looking for an online bank that pays $0.001% more in interest, how much extra is that really getting me?

If I’m spending all day at work trying to get a routine task perfected, how far is that getting me? Could I do a visible, value-added special project instead?

What I’m getting at is that I suspect that many of us spend a lot of time doing things that ultimately don’t yield big results.  Even when aggregated, the little wins don’t always equal the big wins. Should we be focusing on getting better ROI on our time, spending it where we can truly get results?

In other words, maybe we should apply the Pareto principle (80/20 rule) to our efforts to grow our savings and net worth.  Focus our efforts where results will happen, instead spending time on low-yield activities.

Now, I’m not saying that I’m going to let making money guide my life, or choose daily activities in this way. I’m only talking about time that’s actually spent in the pursuit of money, one way or another.  Admittedly, after some reflection, I could probably improve in this area quite a bit.

My Questions for You:

What do you think of this concept of the 80/20 rule?

Do you ever think about this in your own life?

Do you have any additional examples of the Pareto principle to share?

Many of us are big proponents of living within one’s means, and saving for retirement and other life needs. In order to do that, we often try to save as much as feasible based on our current income level.  This makes sense, and is a cornerstone of growing one’s wealth.

To this end, saving money almost becomes a sport to some people. Check that – it IS a sport to many, who spend big chunks of time looking for deals, cutting coupons, reading about ways to save money, and so on. Some people, like me, even write about ways to save money! As any regular reader knows from the Squirreling Gone Wild series, I personally enjoy observing and hearing about people who go to extremes to save a few bucks. And yes, sometimes I take part in the fun too.  I truly enjoy saving, both in terms of finding ways to cut costs and in getting deals. Some people get so caught up in squirreling away money any which way they can, that they cross lines of fairness, which clearly isn’t cool.

When saving becomes an obsession, it’s easy to forget about making money. I shared my thoughts about this in the post Saving is Great, but Don’t Forget to Make Money Too.  When consumed by saving, income growth – or worse, income preservation – is often forgotten.

I thought about his some more, and am considering the ROI of time invested in both saving and income growth. Here’s my question:

Is it more productive in the long run to increase time on income preservation and growth, while reducing time spent on saving?

To some degree, we’ve explored part of this topic in a few prior posts.  Clearly, spending time on saving is important. It’s just that when we take it a step further and analyze it, there are diminishing returns to our time.

Meet Jane

Let’s take an example of a random person – let’s call her Jane – who makes $4,000 per month after taxes. Jane’s expenses are $3,600 per month, netting her $400 in savings per month.  Jane is saving 10% of her income. Let’s also assume that she does so without giving it much thought.

Next, let’s say Jane decides that she wants to look for ways to save more. Let’s say she starts looking for coupons, spending an hour a week searching and cutting/printing. Let’s say she goes an hour out of her way each week to go to different places that can save her money on regular purchases – groceries, gas, cleaners, etc.  How about we also assume that Jane spends another 2 hours per week online reading about ways to save money, talking about shopping, or thinking about saving on good deals. Maybe another hour tracking her spending in great detail, recording all transactions and filing away all receipts. Total weekly time spent focusing on saving is maybe 5 hours, and let’s say that projects to 20 hours per month.

How much can she save? Well, it depends on her situation, but let’s say that she can cut her expenses from $3,600 per month to $3200. That’s $400 in savings for 20 hours of her time. $20 per hour isn’t bad!

After a while, however, Jane can only cut so far.  The next month, if she spends 20 hours of time focused on savings-related activities, how much could she save? She already took care of the low-hanging fruit, so now it takes more work. Maybe now she’s identified the opportunity to save another $200. So, based on 20 hours, that comes out to $10 per hour. The third month maybe she’ll cut another $100 from her expenses, making her payoff $5 per hour.

Eventually, there’s only she could save, and her ROI in terms of time starts to diminish.

What about time spent on income?

First off, if Jane is working, she’s already spending the better part of the day generating income. Hopefully, she’s positioning herself to continue earning income and maybe make more. But what if she invested some of that time on income – let’s say 12 out of those 20 hours?

She could spend those 12 hours researching different side businesses. Or, she could spend time pursuing an advanced degree part-time. Perhaps she could learn about investments. Maybe should devote that extra time to her current job, and really make herself invaluable or even promotable.  Or she could spend some of the time working, and the rest networking, meeting other professionals and learning about opportunities.

What would her ROI on that time be?

It might be low. It might be wasted time. Or, it might be well worth it and pay massive dividends down the road. If she really invests her time right, she could work toward growing that income much higher. Who knows, maybe she could double her income, increasing it $50,000 to $100,000? Or more?

If she spent all her time obsessed with saving, she couldn’t gain $50,000 back in reduced expenses. There’s a limit to what can be gained that way.

By investing some time in income growth, there ROI could range from zero on the low end, to an upside that could be quite high.

If in the end, saving or growing income is all about having more money. Thus, it pays to think about ROI on time, and consider balancing time between saving and income growth. There’s a combination there that’s right for each of us, based on our own individual needs.

And the portion of wealth creation that’s spent on saving…if it’s an exhilarating sport to you, enjoy it! I know I do:)