The 3 biggest obstacles to getting rich

Why am I not happy with my finances?

I hear this question from many people. Some people blame not enough education, and schools are responding by increasing financial education classes. But will more information help? I used to think so, but here is a story that really got me thinking.

My friend took a financial literacy class about two years ago. I recently asked her what she thought about the class. She admitted, “Honestly, the only thing I remember is that I need to get renter’s insurance.” To which she immediately added, “Ironically, I don’t have it…”

I chuckled at her answer. And that’s what surprised me: her story is so common I was not shocked. Here was a smart, disciplined person who had all the facts. And yet she failed to follow through on good financial advice. It made my mind spin: why do good personal finance ideas fail?

I’ve been thinking about this question during the past few months as I’ve encouraged people to track expenses. Despite how important it is, and how easy it is, many people I know still don’t keep track of their expenses. But luckily for me, that is exactly what I wanted to happen.

For you see, the past few months have been a mini-experiment so I could get a better understanding why ideas fail. I followed up on why people did not take the good advice and gathered my thoughts. The reasons were so similar that I hypothesize there is a systematic way that personal finance ideas fail. Here are the three obstacles to a good personal finance idea:

1. It is hard to get started

The number one reason people fail is that they simply do not start. Some people lack the time, others are intimidated, and others would rather spend the time in leisure.

It is completely up to you to take the step to get started. I try to convince you of the benefits and can give you practical advice, but this is where I stop. I cannot claim to know what is best for you no matter what I think.

Maybe you are so great with finances that you don’t need to track your money (I have not met people like this yet, but am willing to admit they exist). But per my motto, I give you the facts, and let you mind your decisions.

2. It is hard to stay on track

The next obstacle is to have some discipline and follow through. Even though you got started, you might get lazy along the way. The temptation to give up is strong.

But there are ways you can get in good habits. For instance, J.D. Roth has a nice routine for tracking his expenses. He gets receipts for every thing and keeps them until the end of the week.

Now, this works for him, but I would probably slack off one week and that would ruin my motivation. I find it best to force a daily routine with some thing I already do well, which is eat dinner at about the same time. So every day after dinner, I track my expenses. I spend about one minute to ask myself, “What did I spend money on today?” and then I put it in my spreadsheet.

So one way might be to couple a financial goal with routines you already do well. Maybe it is going to the gym, or waking up at the same time, or keeping track of a sports team.

3. It is easy to delude yourself

This is the worst category. It is the people who are tracking their money but knowingly cheat themselves by not recording certain purchases. I often think about a person I knew who would brag about his mutual fund growing over $1,000 each month…even though almost all of the “growth” was his $1,000 monthly contribution.

This is a dangerous category and I’m not quite sure what to do except recommend psychological help.

This is actually encouraging

The big three reasons sound simple enough but they really do infiltrate many self-improvements. Consider my friend who did not get renters insurance. She failed to get started by not getting quotes (5 minutes online) and did not want to follow through by filling out forms (15-20 minutes). In the end of the day, she deluded herself that it is not important enough to take care of now.

The encouraging part is that you can do better than most people simply by conquering the big three obstacles.

I suggest you try to use automatic methods that do much of the work for you. For instance, if you pay yourself first, it is easy to start since it takes about 1 minute. Then automatic deductions kick in and force you to stay on track, and thus give you no chance to delude yourself. You only face the obstacle of starting and then you’re on autopilot.