4 Questions to ask yourself if you are living in Financial Integrity

Financial Integrity is defined as day-to-day actions which are aligned with your personal financial goals, on top of the general money principles that lead to wealth.

You live in financial integrity when you actually do what you know you should do to honor your value for financial security.

You’re out of financial integrity when you don’t.

Look at these 4 common examples below where people are commonly out of financial integrity…

1. You are aware that wealth accumulation is achieved by spending less than you earn, but you have zero surplus or worse, in deficit every month
2. You are aware of your mediocre investment performance, but you don’t allocate some time each week to rectify this, always citing “being busy” as an excuse.
3. You know tracking your numbers and accountability is essential to long-term success, but you have no personal financial accounting and no formal way to manage your cash flow.
4. You know inching towards financial freedom is no easy task – but you allow yourself to be procrastinate, thus getting nothing done rather than attacking it one step at a time so that you make consistent, incremental progress.

Do you recognize yourself in any of these examples?

Why should you care?

Financial integrity is an important matter because it can literally make-or-break your happiness and financial success.

The simplest analogy is working at a job you hate.

Like working in a tobacco company when you don’t smoke and a family member did die due to lung cancer.

Building wealth and achieving financial freedom is not exactly rocket science. Anyone can do it. In investing, like Warren Buffett said, it’s not exactly where a high IQ guy beats a lower IQ guy.

The problem isn’t knowing about knowing or not what to do: the problem lies in the execution part.

People always have excuses in putting a certain level of priority over their their resources (time and money) so that they talk the talk every day instead of walking the walk.

The Consequences

The result is less satisfaction and constant frustration with your life.

You can never be happy as long as you live out of integrity with your values. It’s like being a two-face (sounds like being a Malaysian politician? Hell yeah!) where you believe in the important of personal finance management, yet succumb to temptations due to weak willpower and lack of discipline.

This also explains why materialism never buys happiness.

The Cause? …Procrastination

Sometime around 2006, two Harvard professors began to study why we procrastinate. Why do we avoid doing the things we know we should do, even when it’s clear that they are good for us?

To answer this question, the two professors — Todd Rogers and Max Bazerman — conducted a study where participants were asked whether they would agree to enroll in a savings plan that automatically placed two percent of their paycheck in a savings account.

Nearly every participant agreed that saving money was a good idea, but their behavior said otherwise:

One version of the question asked participants to enroll in the savings plan as soon as possible. In this scenario, only 30 percent of people said they would agree to enroll in the plan.

In another version of the question, participants were asked to enroll in a savings plan in the distant future (like a year from today). In this scenario, 77 percent of people said they would agree to enroll in the plan.

Why did the timeline alter their responses so much?

As it turns out, this little experiment can tell us a lot about why we procrastinate on behaviors that we know we should do.

Present Self vs. Future Self

We have a tendency to care too much about our present selves and not enough about our future selves. We like to enjoy immediate benefits in the present – aka instant gratification, especially if the costs of our choices don’t become apparent until far in the future.

For example:

• The payoff of eating a a bucket of Baskin Robbins is immediate (sugar!) and the cost of not exercising won’t be apparent until you’ve done it for months.
• The payoff of retail therapy today is immediate (new smartphone!) and the cost of neglecting to save for retirement won’t be apparent until you’re approaching 50 years old.

However, when we consider these problems in a too distant future, our choices usually change. In one year, you know you DO NOT want to be overweight or risk not having enough for retirement funds.

In the long-run the right decision to make is what a sane & rationale person would make, but when it comes time to decide today, in this very moment, we discount the long-term costs and overvalue the immediate benefits of unproductive behaviors.

Behavioral economists refer to this concept “time inconsistency” because when we think about the future we want to make choices that lead to long-term benefits (“Yes, I’ll save more!”), but when we think about today, we want to make choices that lead to short-term benefits (“I’ll spend it to enjoy right now.”).

The Solution to Procrastination

If you want to strengthen you resolve to make better long-term choices, then you have to find a rewarding way to make your present self act in the best interest of your future self.

You have three primary options:

1. Make the rewards of long-term behavior more immediate.

Our mind always wants an immediate benefit, so we need to beat it. If you can find a way to make the benefits of good long-term choices more immediate, then it becomes easier to avoid procrastination.

One way to do this is to simply imagine the benefits your future self will enjoy.

Visualize what your life will be like if you are financially secure in your retirement rather than depending on your children for pocket money. Then “extrapolate it backwards” about why saving money now is important to your future. And finally, get it started. After 21 days, it will become a Habit.

2. Amplify the impact of procrastination

There are many ways to force you to pay the costs of procrastination sooner rather than later.

For example, if you are exercising alone skipping your workout next week won’t impact your life much at all. Your health won’t deteriorate immediately because you missed that one workout. The cost of procrastinating on exercise only becomes painful after weeks and months of lazy behavior.

However, if you pre-commit to working out with a friend at 7 a.m. next Monday, then the cost of skipping your workout becomes more immediate. Miss this one workout and you look like a jerk.

3. Banish procrastination triggers from your environment.

The most powerful way to change your behavior is to change your environment. Peer influence is especially powerful, especially toxic friends. Like they say – you are the average of the five people which you mix closest with.

For example, it is easy to sink into a never ending cycle of incessant complaining about the government and economy during lunch/tea breaks with your colleague without doing anything productive to improve yourself. In a normal situation, you might find it hard not to join in the conversation. Now, what if your complaining lunch buddies weren’t there to begin with? It is much easier to make the right choice if you’re surrounded by better choices, like friends who are always looking for ways to improve their life and careers.

Final words on living a life of financial integrity

“When you go through life, what you’ll find is what you take out of the world over time — be it money, cars, stuff, accolades — is much less important than what you’ve put into the world.” Ben Horowitz, cofounder and Partner of Andreessen Horowitz, a Silicon Valley-based venture capital firm with $4.2 billion under management.

Posts adapted from Financial Mentor and JamesClear.com