Life

Budgeting doesn’t have to be painful. In fact, it can be a fun game.

Some friends of mine played this fun little budgeting game I created called Carl Richards’ Budgeting Treasure Hunt.

When they started, they had a goal of saving $1 million dollars. Crazy, right? The only way that ever happens is by getting lucky in the stock market or an inheritance.

Years later, I got a call. “Carl,” they told me, “we did it! We just crossed the $1 million mark.”

They didn’t get lucky, and they didn’t inherit a ton of cash. They just played the game. Here are the rules.

1- Pay attention. Every time you spend money, just take three seconds to notice what you’ve done. Don’t judge, just notice.

2- Find wasted money. If you start to notice that certain purchases don’t make you happy, consider that wasted money. Another good place to find wasted money is in basic utilities or subscriptions you’re no longer using.

3- Automate savings. Take the wasted money you found and spend it! But the trick is, spend it by automatically saving it every month. This can go into a savings account, into an investment, or you can increase the amount you’re throwing at your mortgage.

4- Repeat. The goal is to see if you can move your automatic savings number up a little each month. This can actually be fun! Again, think of it as a game.

Meeting big financial goals is not about getting lucky or having a big break, it’s about consistently doing boring but effective things. The solution is not to grit your teeth and work harder at budgeting. The solution is a simple mindset shift from “Harder, Painful, Grrr” to “Fun, Exploration, Treasure Hunt.”

So stop trying so hard, and play the game.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

Pretend for a minute that you find yourself in the enviable position of having chosen a few winning individual stocks.

You’ve made some money, and now you want to sell.

The question is: How do you know when it’s time?

There’s no one right answer to that question. But for starters, do yourself a favor and don’t confuse luck with genius. It’s really important that you’re honest with yourself. Did you make this decision based on lengthy research, or was this something a buddy mentioned to you on a bike ride?

With very few exceptions in my entire career, picking an individual stock and having it triple in price was a function of luck, not skill.

Second, review how these investments fit within the context of your financial life. Keeping an individual stock just because it went up does not qualify as a valid reason. That doesn’t take the larger context into account.

Next time you’re wondering if it’s time to sell, take a step back and do the following:

1- Clearly identify your financial goals.
Get out a piece of paper, and write down what you want the future to look like. Don’t spend hours or days on this task. Give yourself some slack. It’s life, after all. Things will change, and it makes sense to revisit and redefine your goals periodically. But you have to start somewhere. These goals really are nothing more than educated guesses, but they’re at least a set of markers in the sand, something you can use as a reference point for your decision-making.

2- Make a plan to get there.
Again, don’t spend too much time here because the variables that go into building a plan are nothing more than guesses. Still, the process is important. Using the information you have, estimate how much you can save for the next 36 months, make a guess at the rate of return you hope to earn, and carefully consider what risks you’re comfortable taking.

3- Decide if your current investments fit the plan.
Maybe they do. Maybe they don’t. I don’t know. But if you look at your plan, you will.

4- If the investments don’t fit, sell!
Now, you need to be prepared psychologically for what that means. I can promise you that if you make the decision to sell an investment, the stock will triple over the next couple of months after you sell. Vice versa, if you make the decision to hold an investment, of course, it will lose 20 percent of its value over the next three months. That’s just Murphy’s Law. That’s how this works. But as frustrating as that can be, you have to stick with the plan.

Making the decision to sell or hold an investment is relatively simple when we’re aware of the cognitive traps of fear and greed. It should be clear to anyone that if you own an investment that has tripled in price, and you made that investment based on luck, it would be wise to take some of the profit and go home.

Investment decisions like buying or holding are best made when you do so in the context of your financial goals. Picking the next Apple is not a financial goal. Saving for retirement or having enough money to send your kids to college are financial goals. Once we’re clear about the why, our goals, and we have a plan to get there, making investment decisions becomes much more simple.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

If you want to spend less, try spending more.

I know that sounds crazy, but it works. And I know it works because I’ve experienced it many times.

In the early 2000s, my wife and I didn’t have a lot of extra money. But we loved to ski, and we needed new ski pants. I had my eye on a pair of ski bibs from a high-end company called Moonstone. The bibs were clearly well-made, but they were just over $300 per pair.

According to conventional wisdom, we should have been buying $50 Walmart pants instead. But I just had this gut feeling that we should buy the Moonstones. So we saved and saved and saved, and finally bought them.

Two decades later… we still have them. In fact, when my kids go skiing, they grab the Moonstone bibs because they are still the best ski pants we own!

I can almost guarantee you that if I had bought the $50 pants from Walmart, they would have been gone before the end of the first season. At one pair per year, I would have had to buy those $50 pants at least 20 times by now. That’s more than three times what I spent on the “expensive” Moonstone pants. And on top of that, I would have had to deal with all the cognitive, emotional, and logistical drain of perpetually having to replace the old pants.

The obvious retort to this is, “But Carl, I don’t have enough money to buy the nice thing.”

What I’m trying to tell you is that you can’t afford the cheap thing because you’re going to have to buy it 20 times!

So save up until you can buy the nice thing once. I know it hurts at first… but trust me, in the long run, it’s worth it.

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

There’s a very important question we all need to ask ourselves from time to time.

Say it with me… Why?

Why do we invest how we do? Why do we spend what we spend? Why do we save so much (or so little)?

After all, the moment we start asking, “Why?” is the moment we’re likely to discover that our behavior doesn’t always line up with our values.

This type of introspection isn’t easy. And I suspect it’s one of the key reasons we do dumb things with money. We’re afraid to know why we do what we do, so we never take the time to understand.

But here’s the thing: Asking ourselves why we make a certain money decision is integral to our financial success, even if it takes a bit of time and effort to reach an answer.

So go ahead… ask yourself: Why?

Here’s another great question:

Why not?

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

One day, I imagined that I had a vault where I kept the most valuable lessons I’ve ever learned.

I opened the vault and was surprised to find that everything in there had been hard at the time. Often, deeply painful.

I saw unforgiving weather on trips to the mountains. Major financial mistakes. Cherished ideas that I was sure would work but didn’t pan out.

Because my most valuable lessons are so painful, I keep them in a vault and don’t visit them often. Isn’t that interesting? My most valuable lessons are the ones I seem to be intent on protecting myself from.

That’s backward. Instead of trying to protect myself, I should build a life that exposes me to those sorts of experiences as often as possible (with some much-needed rest and recovery in between).

So now, I’m trying to learn to be comfortable being uncomfortable. I’m setting my life up in a way that allows me to do things that may not work. I’m conducting experiments that are safe to fail instead of fail-safe.

I’m trying to cherish hard-earned lessons.

Doesn’t that sound better than keeping them locked away?

-Carl

P.S. As always, if you want to use this sketch, you can buy it here.

It’s 6 a.m. in Park City, Utah. I’m in the shower. I go through all the typical shower rituals — I wash behind my ears, shave, and more — until I’m ready to get out. I grab the handle for the water, pause, take a deep breath and then turn it.

I don’t turn it off, but to all-the-way cold. Then I stand there shivering for two minutes. It’s the 23rd day in a row that I’ve done this. If you’re like most people — including myself, sometimes — you’re probably wondering why.

I’ve known about the benefits of taking cold showers for a long time. Many of you are probably familiar with some of the science. You may have read about it in Tim Ferriss’s book, “The 4-Hour Body,” or seen it in a Fast Company article.

A quick trip to Google Scholar will also reveal a smattering of academic papers about the benefits of cold-water therapy, including weight loss stimulation, increased circulation, and stress reduction. Taking a cold shower may even serve as a potential antidepressant, according to a 2008 study published by the National Institutes of Health.

But I’ve discovered that the biggest benefit I get from taking cold showers isn’t any of the wonderful things listed above (I’ve noticed many of them, though). The thing that most draws me to the cold water is also the thing that most repels me: it’s really hard to do.

Even though I know all the research, understand the benefits, and feel great every single time I do it (at least immediately afterward), it’s still hard. Not just hard, but really hard. And maybe even a little bit scary, if I think too hard about how it’s going to feel every time I reach for the handle.

Both from the scientific work I’ve read and from my own personal experience, I know it will be beneficial. I even know that I’ll be glad I did it right afterward. And yet, there is still this daunting gap between knowing I want to (and should) take the cold shower and actually doing it.

And that, in a nutshell, is the biggest reason to do it (with the caveat that if there is a water shortage in your area, you should find something else to do that is hard). It reminds me a little bit of that Mark Twain saying, “Eat a live frog first thing in the morning, and nothing worse will happen to you the rest of the day.” I’m not suggesting that taking a cold shower in the morning will make sticking to your budget in the afternoon trivial by comparison. That’s not the point.

The point is that starting your morning by tackling challenges head-on will help encourage similar behavior throughout the day. And, it turns out, there’s a wealth of research to back up this idea as well. People who do hard things first tend to procrastinate less and get more done, according to Brian Tracy’s book, “Eat That Frog!”

It’s important to note that it’s not just about taking cold showers, it’s also about doing it in the morning. Consider that a one-two punch. According to the Florida State University psychology researcher Roy Baumeister, one of the leading experts on willpower, “The longer people have been awake, the more self-control problems happen.” In other words, if you wait until the evening to take your cold shower, there’s a greater chance you just won’t do it. Not to mention that it nullifies the whole idea of getting your day started on the right foot. So don’t just do it, do it in the morning.

The world is full of hard and scary things. We are at our best when we can tackle them bravely and confidently, not when we are accustomed to shying away. Set your alarm for two minutes earlier, get in the shower and before you turn it off, put it on cold. Think of it, quite literally, as stepping out of your comfort zone. It may be really hard, but just remember that most good things are.

This column, titled The Benefits of Getting an Icy Start to the Day, originally appeared in The New York Times on March 14, 2016.