The Power of Habits

One of the most powerful topics I’ve studied recently is Habits. I’ve read and listened to some great books, podcasts and blogposts on habits. Charles Duhigg wrote a fantastic book called The Power of Habit. I highly recommend reading that book. From Duhigg I learned about what he calls the habit loop.

The habit loop consists of a cue, the routine and a reward. Once a habit becomes ingrained our subconscious takes over and every time a certain event occurs it triggers the response without our realizing it. Our minds actually begin to anticipate the reward even before responding. Because this loop becomes such a part of our nature it takes incredible willpower to stop a habit. Sometimes it’s impossible.

What Duhigg advises instead of trying to stop habits is to redirect them. More a tweak than a complete replacement. The key is in understanding the three components of the loop and identifying each in a habit that you want to change. Then you only replace the routine. The cue and the reward stay in place.

  1. What triggers the habit? When do you do the thing you wish you didn’t?
  2. What response will you put in place of the undesired action?
  3. Prepare your mind to accept that reward coming from the new action.

This habit loop can work to alter any of the habits we want to replace in our lives or businesses.

Understanding more about habits has transformed how I think about goals. Instead of just putting a goal on paper and hoping to reach it and working at it inconsistently, I now identify the consistent actions necessary to achieve the goal and work to make those actions into habits.

For many years I’ve wanted to write a book. I have pages of topic ideas. I’ve even begun a few—but never got farther than a few thousand words. This year several of my friends at different times have encouraged me to go for it. So I’ve been thinking and planning. I’ve heard that when the student is ready the teacher will appear.

Teacher #1

I read a lot of bloggers and a ton of books. I also watch YouTube and listen to podcasts. One of my favorite blogger/author/podcasters is James Altucher. He wrote a great book called Choose Yourself. I’m currently reading his most recent called The Rich Employee. In his books and blogposts and podcasts he talks a lot about how writing 10 ideas per day is a habit that contributes to his life improving every six months. I started practicing the 10 ideas per day habit at the beginning of the year. I have to say, it’s been fun and very practical. If you’re interested in this, I recommend getting Claudia Altucher’s book, Become An Idea Machine. Claudia is James’ wife. She wrote a book that gives you a topic each day to write your 10 ideas on. I found this extremely helpful the first month or so that I was building my “idea muscle” and instilling the habit. I still come back to her books occasionally if I’m having a mental block and not sure of what to write my 10 ideas about.

Teacher #2

Last year James interviewed a guy named Steve Scott on his podcast. Steve is an author and specifically writes a lot of books on habits. http://developgoodhabits.com This year as I became more interested in habits and book writing I circled back around to that Altucher/Scott interview. I listened to it at least three or four times last month. Then I went to Steve’s podcast and listened to everything he had. I checked out his newest website, http://selfpublishingquestions.com. I bought some of his books. I emailed him a couple questions. I realized that the things he has done, I can do too. Steve is a regular guy. And a nice guy like me. All this gave me hope and a path for writing the book. And the path included some habits I need to implement.

Habit #1

Over the past month I adopted Steve’s habit of writing every day. This is a common theme among writers. At the same time every day, sit down and write. If you have nothing to say, write anyway. Some days, you write crap. Some days you write completely off topic. But write anyway. Writers write. So I’m a little over a month into writing every day. I aim for 1,000 words a day. Sometimes I write 2,000. Sometimes it’s all I can do to get 500. But I write daily.

Habit #2

Another big ah ha for me was that Steve has around forty books for sale now. He only started in 2012. Steve is publishing new content almost every month. Most of his books are fairly short, even mini-books. Most are priced under five bucks. But his total income from those forty books is a lot more than I make each month at my full-time job. Hmmmm. The idea that my books don’t have to be 40,000 words or $15.99 appeals to me. I can do this. New content each month.

So off I went. Writing daily on topics that fit together. I put together my first book over the past month. And last weekend figured out how to list it on Amazon. It’s called Ben Franklin’s Guide to Financial Freedom. I wrote a little over 12,000 words and added in a 3,000 word story from Ben Franklin called The Way To Wealth. So the whole book is only 15,000 words. It’s meant to be a quick daily read to think about finances and freedom and hopefully get your wheels turning each day. Check it out if it sounds interesting. Let me know what you think. Right now it’s only on Kindle. After I receive some feedback I plan to tweak and then make a paperback available to those who prefer paper.

In the meantime, I’ve written another small book called Ben Franklin’s Guide To Productivity. I’m cleaning it up and will make it available in October. I’ve also started writing a third book. So the habits of daily writing and monthly releasing content have enabled me (after years of just dabbling) to not just write a book but three very quickly!

Now my new habit for October is to build habits around publishing blog content. I’m thinking I might need to recruit help for this one. For some reason consistently blogging has tripped me up multiple times over the past seven years. That changes now (well, in October). Wish me luck!

What habits are you working on?

5 Reasons why you MUST contribute to your 401k

Too many people have statements that really do show a $0.00 balance.
Too many people have statements that really do show a $0.00 balance.

Here’s the thing about a 401k plan…if your employer is contributing a matching percentage you’re a fool not to participate.

Why do I say that?

  1. Match money. A common match is 50% up to 6% of your pay. In other words, for every dollar(up to 6% of your pay) you contribute to your 401k plan your employer puts in 50 cents.
  2. Less than you think comes out of your check. That dollar you put in is pretax. Meaning that your paycheck won’t go down the full dollar. For example, if you’re in the 25% tax bracket your paycheck is only reduced 75 cents for every dollar you contribute.
  3. Unbeatable return. So let’s sum up where we are so far. You contributed $1 out of your pay (but only reduced your paycheck by $.75) and your employer added $.50 match to your account. You took a total of $.75 out of your paycheck and instantly have $1.50 in your 401k account. That’s a 100% instant growth!! You can’t get that deal anywhere else.
  4. Long-term tax deferral. You don’t pay tax on this money until you retire. Can it get better than a 100% instant return? Maybe. See, that $1.50 will grow in your 401k account without being taxed each year. If it grows 10% the first year, you’ll have $1.65 in your account but won’t have to pull any out to pay tax on that earnings. So your $1.65 will grow another 10% the next year to $1.82. All from the $.75 you put in two years earlier. Do you understand how the tax savings help the account grow bigger faster?
  5. It’s your money. Take it with you when you leave your current employer. Some people don’t understand that your 401k is not in the employer’s account. It’s a third party account that you can take with you when you leave. Roll it into your next employer’s 401k plan or roll it into your own IRA account.

What else are you doing to save for retirement? Don’t depend on social security!

I’m not a financial advisor, so I can’t tell you what to do in your specific situation. But here’s what I’d do…skip some dinners out, hold off on the new car, wear those shoes one more season, borrow if you must—get your full match!!

While I can’t give specific personal financial advice, I’d love to answer general questions about 401k plans you have. Post them below.

The Greatest Investment in the World

bookshelf

It turns out that it doesn’t necessarily “take money to make money.” Some of the highest yielding investments you can make don’t require any money at all.

Investments in yourself–in your learning and in your experiences pay a higher financial return than any other investment you could make.

I’m taking my cue from one of America’s earliest philosopher/entrepreneurs, Ben Franklin: “If a man empties his purse into his head, no man can take it away from him. An investment in knowledge pays the best interest.”

A couple other philosopher/entrepreneurs I respect said similar things:

Charlie “Tremendous” Jones said “You are the same today as you’ll be in five years except for two things, the books you read and the people you meet.”

Jim Rohn said, “If you want change, you must change! You must work harder on yourself than you work on anything else. The greatest investment you will ever make is in yourself. Don’t invest in the stock market, if you haven’t first invested in yourself.”

Finally, one of the greatest stock market investors of our time, Warren Buffett said, “Investing in yourself is the best thing you can do. Anything that improves your own talents.”

If it’s good enough for those guys, it’s good enough for me.

Here are a handful of ways I’ve found to invest in myself:

Time. If you have time to sift through the tons of stuff out there, you can learn just about anything you can think of by searching the internet. Google it! Youtube it. Turn off the TV and learn something productive.

Books and audiobooks. For just a few dollars or a trip to the library you can read the best of what experts have to say on topics. Look up the three highest regarded books on a chosen topic by reading blogposts from people you respect or checking the online reviews of the books in question. Read the top three books and you’ll be on your way.

Magazines. There are still some great articles being written on certain topics. The other way to use magazines is for researching the influencers in your topic’s industry. Use the magazine to find out what events are coming up and who you should reach out to (network with) in the industry you’re interested in.

Podcasts. Listen to interviews on topics you want to learn. Subscribe to your favorite podcasts and they’ll be waiting on your favorite device for whenever you have a few minutes of downtime.

Online courses. You can learn as much as or more than you would sitting in a college classroom from the comfort of your couch.

Seminars and conferences on DVD or online. You’ll miss the networking and camaraderie that is part of attending live events. But you gain advantages of relaxing in your pj’s and having the option of pausing when you need to go pee. In addition, you can replay the parts you need to hear again as you apply what you’re learning.

Seminars. Live events like seminars, conferences, even trade shows can be extremely valuable. Stage speakers are usually excellent. You will often find like-minded people at live events. Don’t be afraid to talk with people. Many times the most value will come from side conversations. You may meet people you end up doing business with or becoming friends with.

Coaches/mentors. If you want to become top-notch at something, you probably need coaches/mentors. Professionals in all arenas of life use coaches to perform at the highest level.

College courses. I don’t necessarily recommend going for a four-year degree. It depends on the field you want to go into. Sometimes a degree is required. If not required, I believe college is often overrated. Check out the quality of classes and the professor that teaches. Often you can pick and choose specific courses that you want to learn without going for a degree.

Networking. Finding others that are working on similar projects as you can encourage you to keep going on a project. Reach out to people on LinkedIn, Twitter, Facebook and MeetUp.com.

Experience. Volunteer your time to learn from someone who does what you want to do. Take a job somewhere for a couple of years to learn skills you’ll need. Don’t be discouraged if your project doesn’t yield the exact results you hoped for. Review, Learn and Pivot. You just learned something valuable to apply to your next project.

Experiences. Do you have a bucket list? I used to think this sort of thing was self-indulgent. I now see taking a trip with my dear wife as an investment, not an expense. Sometimes a trip you’ve always wanted to take can be rejuvenating. Even life-changing. Can you think of a better investment?

So there you have it. The greatest investment in the world is YOU. What other ways do you invest in yourself?

How to Get Out of Debt

The Brand New 1999 supercharged Buick Regal GS we just had to have.
The Brand New 1999 supercharged Buick Regal GS we just had to have.

 

The formula for getting out of debt is a slight variation on the formula that I shared yesterday. Check it out if you haven’t seen it…

3 Simple Rules of Money

Getting out of debt is also a simple formula. It can be fun if you decide to make paying your debts off as fast as possible a game.

  1. Earn money. The first step of pretty much every financial goal. A key ingredient is money and I recommend earning it rather than stealing it or waiting to inherit or hoping to win the lottery.

If you want to pay off your debts faster, pick up a second source of income. A part-time job, freelance gig, etc.

  1. Save more of what you earn. Another way to pay your debt down faster is to find ways to spend less of your earnings each month. Check out your local thrift shops. Eat leftovers instead of going out to eat so often. Use coupons at the grocery store.

One other area to save that can be a biggie is the interest on each loan. Often you can negotiate the interest rate lower if you call and ask for the supervisor.

  1. Grow the payments. Here’s where the game gets fun.

Take as much money as you can live without each month and use it to put an extra amount on the highest interest loan you have. Let’s say you have the following loans:

    • $5,000 @ 12% interest, $100 pmt
    • $2,000 @ 8% interest, $40 pmt
    • $7,500 @ 18% interest, $150 pmt

In this example you would pay extra money on the $7,500 loan each month. If you can earn and save an extra $750 per month and apply to the $7,500 loan, you’ll have it paid off in less than 10 months.

Now take that $750 extra per month, plus $150 (the regular payment you were making on the $7,500 loan) and put that $900 against the $5,000 loan each month.  You’ll be free of that loan within five months.

Now take the $900 plus the $100 and apply against the $2,000 loan. All paid off in another couple months.

This example will change according to how much money you can generate from earning and saving each month, but now you know the rules of the game.

There is one advanced strategy that I hesitate to talk about because it is misused so often. If you promise to use it responsibly, I’ll let you in on a tactic that I used to get out of my debts quicker.

If you have decent credit, you can often get teaser rates on new credit cards. Teaser rates range from 0% to 5%. Even 10% can be a good deal if you’re paying over 20% currently.

Sign up for the new card with the teaser rate, then transfer your existing high interest debt to these cards to take advantage of the teaser rates while you’re attacking the debt.

Now here’s why this is an advanced strategy that can bite you if you are not EXTREMELY careful:

Watch the transfer fees. Sometimes the new credit card company will charge a fee to transfer the balance. This fee can be more than you would pay in interest. Factor the fee into the monthly interest over the time you expect to pay it off. Is the rate still lower than you’re currently paying?

If you make a late payment, the credit card company will jack your rate up to an astronomical rate (20%+) instantly. Set up payment via electronic transfer from your bank and watch it closely each month.

Also teaser rates are only low for a limited time. After that time, the rate will JUMP. Be careful to pay off the card before the jump or transfer it to another card with teaser rate.

Human nature is often how you got into debt to begin with. It’s tempting to slip into bad habits when you use one card to pay off another. All of a sudden you have an empty credit card…so many things you could buy.  =)

These are all strategies my wife and I used to get out of debt over the years. I seem to learn everything the hard way. I’ve tried out all sorts of debt…college debt, auto loans, consumer debt, credit card debt, business loans, family loans. I love the feeling of having none of that now. We are now down to a small mortgage and no other loans.

Do you have any debt stories? How about freedom stories of getting out from under the debt?

3 Simple Rules of Money

3 Rules pic

It is important to understand the basics of money if you wish to gain financial freedom.

Unfortunately, this isn’t taught in schools. Most parents don’t understand finance well enough to teach kids. And so the cycle of poor money habits continues.

The good news is that getting financial freedom truly is simple. I didn’t say easy.

We all know physical fitness has a couple basics…eat right and exercise. Simple, but not always easy.

The basic rules for money accumulation are as follows:

  1. Earn it.
  2. Save it.
  3. Grow it.

Told you they were simple steps. Follow these and you’ll find financial freedom.

Earn it.

Obviously we can’t have financial freedom without any finances. First step in getting some money is earning it. The more you earn, the faster you can reach financial freedom.

We live in a time when there are thousands of ways to earn money.  Here are a few… a traditional job, freelance graphic design, your own photography business, selling stuff on ebay, mowing lawns or doing chores for your parents.

Save it.

It’s not enough to earn lots of money. Many people earn millions of dollars and still don’t have financial freedom. The problem is they spend more than they earn.

The second part of the formula is to save the money you earned. At least some of it. 10% is a number that is often used as a baseline that you should save out of your earnings. The more you save, the faster you can reach financial freedom.

I can hear you saying you can’t possibly save 10% of your paycheck. I hear you saying your bills are already more than you make. I didn’t say it’d be easy. I’m only telling you what the formula is.

You can try another formula…winning the lottery, finding a rich uncle or marrying into money. I wouldn’t count on those methods though.

The hard truth about the simple formula is that you only have a couple options…earn more and/or spend less.  Earn more by finding additional clients, picking up a second job, getting into direct marketing, negotiating a raise at your job or any number of moonlighting options. AND/OR spend less by clipping coupons, canceling cable tv or eating out less so you can begin saving at least a couple percent each month.

This sounds more dramatic and difficult than it actually is. Try it for a couple months and see if you don’t feel more confident…on your way to financial freedom!

Grow it.

Okay, this is where it gets fun. Earning and saving can be tough work. As you learn to grow your money though you’ll be excited at how your money can multiply.

The way to grow your money is to invest it. Carefully!

Take your time and really learn the areas you choose to invest in. Each possibility has unique opportunities as well as potential pitfalls. Look at your personality and timeframe to see whether investing in stocks, bonds, real estate, a friend’s business or your own business make sense for safely growing your money.

Remember: Warren Buffett, one of the richest people in the world, has two rules regarding investing:

  1. Never lose money.
  2. Refer to rule number 1.

Seriously, you worked hard to earn that money. Treat it right. Don’t be careless in your investing choices. I have literally spent hundreds thousands of hard earned dollars to learn (and keep learning) that lesson. I’ll share some of those sad stories in future blogposts.

The cool thing about this little formula is that it consistently works for both personal finance and business.

Leave a comment below to let me know how you apply this simple formula to your personal finances or business.