5 Ways To Create a Bulletproof Financial System To Become a Multi-Millionaire
Creating long-term wealth should be a certainty, not a lottery.
Photo by Sharon McCutcheon on Unsplash
Losers have goals. Winners have systems.
You don’t rise to the level of your financial goals; you fall to the level of your financial systems.
If big goals instantly made you rich, every Tom, Dick, and Harry pining for a million dollars would already be wealthy. Magical thinking won’t make you rich. And your financial goals will never exceed your financial systems.
Everyone wants to be rich, but few people are willing to do the work and develop the systems required to create wealth. There is an endless desire for wealth but a lack of desire to take action.
While we are told that creating wealth starts in your mind, actually having wealth ends with your system for managing money. Systems are your goals in motion; the daily set of actions you take to move you 1% closer to your financial goals.
That’s why a financial goal without a financial system is simply a financial delusion.
The Problem With Financial Goals:
When you write down a goal, you gain direction. When you design a system, you make progress — Thomas Oppong
Instead of putting all your energy into crafting lofty financial goals, build a system that can function without you. Your system is a set of habits that helps you take positive action without you having to think twice about it.
A valuable financial system takes the significant stress away from remembering to consistently save and invest. Through your financial system, creating wealth becomes a certainty, not a lottery.
A good and reliable system will take an investment of time and effort to create. But once created, it will make your life easier in the long run.
Systems reduce the number of decisions you make every day, and they get you to take action without wasting energy.
Setting an ambitious investment goal without a matching financial system is like having a cup with a hole at the bottom. No matter how much water you put in the cup, you’ll never be able to fill it fully.
“Goals can provide direction and even push you forward in the short-term, but eventually, a well-designed system will always win,” says James Clear.
You first make your financial system, and then your financial system makes you.
Creating Your Own Financial System
Here is my 5-step process for making my financial system. Remember that what works for me probably won’t work for you.
Keep what works; iterate on what doesn’t.
Step #1: I Make All My Financial Decisions Easy
Friction can be the difference between a rock rolling down a hill or staying in the same spot. Friction can also be the difference between living comfortably in your retirement or having to eat canned beans for every meal.
That’s why I made investing easy and spending hard.
Automating my saving and investment reduces the friction associated with the task. By reducing the number of active decisions, I have to make means consistently saving and investing becomes easier.
I call this the set-it-and-forget-it strategy of financial management. I am lazy and don’t want to actively think about saving money and investing on a day-to-day basis. The less I have to think, the better I do.
By automating my financial system, I can rest assured that I will be a multi-millionaire by 56 years old (I am 26 years old now) without having to change my current lifestyle. It’s a huge relief not to have financial insecurity looming over my head.
Screenshot of my Retirement Account Calculator
For me, creating wealth is now the default, not a choice.
This frees up my time and energy to create new businesses, scale existing sources of income and further my career. Any additional investments I make mean that I will be financially independent at a younger age.
Steps to implementation:
Choose an easy savings target you can implement today. If you aren’t saving at all, start with 5% and slowly scale your savings rate by 1–2% until you reach your target savings/investment goal.
Create an automatic transfer to occur whenever you get paid. This could be weekly or monthly, depending on your pay cycle. You can do this online through your bank’s online banking services.
My current automation system looks like 40% for savings, 10% to a Vanguard Index Fund, 30% to fixed costs (rent, groceries, etc.), 2% to a travel fund, 1% to a gift fund, and 17% to spend on whatever I want guilt-free.
Once in place, you won’t have to think about what needs to happen with your money. Your default becomes your new normal, and you won’t feel like you’re depriving yourself of anything.
With that 17% of my pay, I can choose to decide to spend it on whatever—coffees, brunch, and eating out. I don’t ever feel guilty about it because I know my system is already working to create wealth for me.
#2 I Make All My Financial Goals Obvious
As Peter Drucker said, “What gets measured gets managed.”
Many people think they lack the motivation to save and invest, but what they really lack is clarity in their goals.
Now is the time to get specific.
Answer this question: What do you want your money to do for you?
Your answer could be more freedom, flexibility, or security. It doesn’t really matter to me so long the goal is meaningful for you.
Make your goal clear and specific.
Any ambiguity in your financial goals leads to ambiguity in your financial results. You can’t expect to achieve a financial target that you refuse to see.
“Being specific about what you want and how you will achieve it helps you say no to things that derail progress, distract your attention, and pull you off course.” — James Clear
We often spend money on meaningless things because we are not clear enough on what we want our money to be doing instead. Being clear with your goals means your spending can reflect your values.
Every dollar you have can be used to work for or against you. You get to decide what they do for you. Just remember that money is a terrific slave but a terrible master.
Don’t work for your money; let your money work for you.
Step to implementation:
Create a spreadsheet of your fixed and variable expenses over the course of a year. Get an understanding of where you’re currently spending your money. You are minimizing the amount of ambiguity in your expenses.
Write down the ideal lifestyle you want to be living in 5 years or more. You can start with dot points. What time do you want to wake up? How much do you want to work? Do you plan on having a family? You are minimizing the ambiguity in your lifestyle goals.
Once your goal is obvious, start creating your system to support your goals. If you want full-time work to be optional in 5 years, you’ve got some serious savings to do.
#3 I Change My Environment to Make my Financial Goals Attractive
I’ll be the first to say that saving and investing regular amounts every month is not sexy and can be unrewarding in the short term.
Buying new kicks or fancy clothes provides an immediate surge in your serotonin. Great for feeling good in the moment, not so good for your savings goals.
How do you combat this? Change your environment.
“One of the most effective things you can do to build better habits is to join a culture where your desired behavior is the normal behavior,” writes James Clear.
Hang around people who are open about talking about their investments. Surround yourself with people who value frugality and investing in assets. You will feel encouraged to achieve your financial goals when everyone else is doing the same thing.
Saving money becomes a way to bond with your friends. An activity you can share together and support each other through.
We are social animals who crave fitting in and being part of the crowd. Going against group norms can make you feel uncomfortable. If you hang around five smokers, you’ll quickly become the sixth.
Steps to implementation:
Find a tribe or culture that rewards the habits you are trying to attain. You can look at Facebook groups, Instagram pages or even Meetup.com.
This means you might have to set firm boundaries with people who move you away from your goals and hang around those who naturally push you toward your goals.
#4 I Make Achieving my Goals Satisfying
There are two fundamental laws of habits:
Habits that are rewarded are repeated.
Habits that are punished are stopped.
Often we don’t get the feedback needed to make saving and investing a satisfying experience.
Therefore, aim to make your saving and investment habits rewarding.
Simple, but not easy.
Steps to implementation:
Gamification: Every time I invest, I record it in my daily journal as a win. After a while, I don’t want to break the streak of wins. I sometimes give myself artificial targets such as 10 weeks consistently invested or 100 weeks to unlock a new level or give myself a reward.
Visualization: I use a dashboard to track the changes in my investment net worth. It is a simple and powerful way to physically see your financial system working and your progress toward your goals. Like seeing your favorite character in a game level up.
#5 I Make my Financial Goals Public
If your financial goals are made to show, they are made to grow.
As a society, we don’t talk about finances nearly enough. Even with close friends, whenever money comes up, the tension in the room becomes palpable.
That’s part of the problem. If we could normalize money talk, we can share best practices and gather tips for how we can save more money.
You don’t have to share what you make with the world, but you should be regularly chatting to those you trust about your salary, promotions, and side-hustle income.
I’ve made it a point to talk to people I trust about my financial status and future goals. I feel less lonely, and if you choose correctly, people are usually very open and supportive.
Making your financial goals public provides a level of social accountability. You want to be consistent with your past pronouncements. Cognitive dissonance can be a surprisingly powerful tool to use against yourself.
Steps to implementation:
Find a group of people you can chat honestly about your finances. This could be friends, families, or colleagues. Identify people who feel comfortable and open to talking about money.
Share your financial status and goals with them. This doesn’t have to dominate every conversation but can be a topic every so often.
Summary:
If you fail to prepare your financial system, then prepare to fail in your financial goals.
The point of a well-designed system is to help you to get what you want without really trying to get it. Your system should reduce friction, provide clarity, be rewarding, and provide accountability toward your goals.
“A system looks like luck to an outsider. It’s not. Its deliberate practice” — Tim Denning
By following these steps, you won’t feel like you're depriving yourself of sacrificing your happiness for the sake of money. You are guaranteeing your financial freedom instead of leaving it up to chance.
Feel free to use all or some of my financial systems. Chop and change what doesn’t work for you.
I wish you luck in your financial progress!
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