This is guest post by R.J. Weiss. He writes about the basics of financial planning and wealth attraction at GenYwealth.com. If you enjoy his post subscribe to his RSS feed to get constant updates from RJ.
The best new business book I have read this year is titled Work the System: The Simple Mechanics of Making More and Working Lessby Sam Carpenter. Step-by-step, the book goes through your work to identify and improve the hundreds of systems that compose an average day. The author successfully went from working 100-hour weeks to 2-hour weeks by implementing systems in his own life.
What exactly is a system? Sam Carpenter lists the definition as, “a set of entities, real or abstract, where each entity interacts with, or is related to, at least one other entity.”
A good example I like to think of when it comes to a system is a swing produced by Tiger Woods. The golf swing is a complete system Tiger has perfected through years and years of practice.
Looking closer, Tiger’s swing, or the system, is an output of many sub-systems he has had to perfect. If one of his sub-systems starts to fail, so does his system. For example, if Tiger stopped working on one of his sub-systems such as flexibility or weight training, his overall swing would start to fail.
Just like Tiger’s swing, personal finance is a compilation of systems and sub-systems. Your goal is to refine and improve each system, so it’s congruent with your goals.
The systems approach can be applied to any area of personal finance. Let’s assume you apply the systems approach to reduce spending. Your first step is to recognize that spending is the primary system, but it’s composed of many sub-systems.
You sub-systems are budget categories such as shelter, food, clothing, etc… It’s now your job to go through each sub-system and perfect a procedure.
Assume you have identified the sub-system of food, and excess spending on groceries, as your biggest weakness. Your current procedure consists of going to the store whenever you feel you’re out of food and getting whatever looks good that day.
After a little research, you see a few procedures you can implement to help reduce the costs of food. First, you decide that making a list has proved to be an effective way of cutting costs. Therefore, before going to the grocery store, you implement a system in which you’re only allowed to buy something on that list.
After a little more thinking, you feel you’re going to the store way to many times because you’re forgetting a few basic ingredient, which wastes time and gas money Therefore, you tweak your procedure to implement an inventory check before going to the store.
Implementing these procedures has helped, but you still need to save a few more dollars. After talking to a friend, you see another way to reduce your spending, which are coupons. You do a little research online and test out a few different coupon strategies that you read about. After testing out a few strategies you decide to implement whatever coupon strategy saved you the most money.
As I was reading the post Having Enough for Life on The Simple Dollar, everything came together. The author of this post was Vicki Robin, the co-author of Your Money Or Your Life. I realized that overtime Vicki has perfected a system approach to personal finance. From earning to spending, she has a perfected procedure for each and every penny that comes in and out of her life.
This method requires very hard work initially, but I’m sure if you ask her, the work was well worth it.
Today I challenge you to identify a system you have ingrained revolving around how you spend money. Test new ways in which you can improve on that