Running Out of Time

Sam Swift

Jul 7, 2016

By Sam Swift, CFA, CFP®

My kid is approaching his first birthday which means that my (weak) excuses for not working out and eating poorly are starting to run thin. He’s in a comfortable routine now (including bypassing the pile of toys each day to play with the dog leashes/empty cups/shutters), which means it’s time for me to get back into a healthier routine. Of course, I know the answer is to eat healthier foods—and less food in general—and hit the gym more. It’s simple and boring but effective. There is no shortcut. This being a financial blog and all, I realized the same is true for your financial fitness: save more, spend less, and invest wisely.

So what’s the answer? How should one accomplish this? Well, the best workout routine is the one you’ll actually stick with. The best diet is the one you’ll actually stick with. The best budget is the one you’ll actually stick with.

Studies have shown that whether you are using Atkins, Ornish, Volumetrics, or the Zorkin Method (I only made one of those up), there won’t be much relative difference in the result after one year. The key is sticking with whatever you’re doing. If you love carbs, the Atkins diet shouldn’t be your method for consuming less calories since it’s likely you’ll eventually give it up. The same can be said of budgeting; whether you’re using the Envelope method, the Cash Only Budget, PECOTA, or the Balanced Money Formula (again I only made one of those up), you need something that makes sense and you can stick to. Just as the goal of any diet is to reduce calories, the goal of any budget is to get you to spend less and save more. A diet or budget that is too restrictive will fail and could lead to you being worse off down the road when you inevitably splurge.

Of course, the diet is only one part to the fitness equation. Studies show your diet is likely responsible for the majority of weight management, but exercise is extremely important to your overall well-being. The budget is also only one part of your finances; what you do with the money saved is extremely important to your overall financial well-being. Long-time readers know the answer is to have a low-cost, globally diversified portfolio that has an appropriate risk/return tradeoff for your unique situation.

But here’s where the analogy finally breaks down in a good way. If I want to maintain (what’s left of) my physical fitness, eating well and exercising will always be a part of my life. I can’t do both of those things for a year and then expect it to continue to benefit me for the rest of my life. However, when it comes to your financial fitness, you really can frontload a lot of the work if you’re so inclined. By being a good saver early and investing wisely, you can set yourself up for financial freedom in the future. It’s not that you won’t ever have to think about saving and investing again, but you can make it far easier on yourself and have a much more flexible future budget by doing all the right things now.

In the meantime, I still have one more week before baby’s first birthday and we’re ordering the cake early…

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