As human beings, the desire to make things simpler is hard-wired into our brains. Sometimes this can lead to undesirable outcomes: for example, maybe we took a shortcut on the front end of a complex project, hoping to beat a deadline, only to realize we skipped over key information, causing us extra work to double back, ultimately resulting in a missed deadline. But often, this desire to simplify is genuine and harmless.
One of my favorite simplification methods is mnemonics. You may have heard a variety of these over the years; for instance, in sales, ABC means “Always Be Closing”. It serves as a simple reminder to a salesperson if they get off track during a sales presentation to focus on the objective at hand, which is to make a sale. Or another example is in driving, ABC means “Accelerator, Brake, Clutch”. It’s a simple reminder of the basics that will lead to a smooth and safe trip. Tens of thousands of these tricks exist, and they come in handy when you’re trying to get back to basics and remind yourself of key information in accomplishing your goals.
To that end, a mnemonic device that’s been helpful for me in the context of personal finance is “Always Be Challenging”. The beauty is it’s simple and applicable to nearly all areas of your financial life.
When it comes to applying the ABC mentality, start with your goals. What is it you hope to achieve? Is it reducing your spending? Or how about saving for your kids’ college? Maybe it’s to get a promotion. Always Be Challenging is applicable in all these scenarios, and I’ll show you how.
- Reducing spending – The sky is the limit here with regard to all the ways you can reduce spending. The ABC mindset may lead you to challenging if you’re getting the best bang-for-your-buck on insurance coverage or internet service or even trash service. You can challenge just about every single expense in your budget under this premise. It may require a creative solution to reduce the spending, but that’s the point of the exercise!
- Saving for college – Like the example above, there are multiple ways to challenge this savings goal. Are you saving soon, saving often, and saving sufficiently (see the S.O.S. of Savings article here: https://sowadime.com/2020/08/07/keys-to-saving-save-soon-save-often-save-sufficiently-sos/)? If you’re saving soon, saving often, and saving sufficiently, are you putting that money into the best risk-adjusted mix of investments for the time horizon? Are you taking full advantage of these contributions when it’s time to file your income tax return (most states allow a tax deduction for contributions to in-state 529 plans)?
- Promotion – This one is a bit different than the other two examples as it relates to personal finance, but the ABC mentality is still applicable. Are you challenging yourself daily to be more productive, efficient, and creative? Are you networking appropriately with your peers and colleagues to build and foster mutually beneficial relationships? Do you challenge yourself to be a lifelong student and to study and absorb relevant information to create value for your company?
In the end, be creative about how to challenge your personal finance assumptions and goals. The journey to financial freedom can be a meandering path, often with unexpected detours and speed bumps. But one of the most important tasks is to challenge yourself to develop better ways to achieve your goals.