Financial Discipline


Sometimes the easiest way to define something is to illustrate its opposite.

An undisciplined person receives a paycheck, cashes it at the bank, and proceeds to spend every penny of it as fast as possible. Time from cash in hand to cash gone: ~4 hours.

A disciplined person receives a paycheck and sets aside some portion for their baby daughter’s college. Time from cash in hand to cash gone: ~18 years.

A disciplined college grad lands a new job. They set up a 10% deferral into their 401k. Time from cash in hand to cash gone: ~40 years.

The Financial Discipline Factor. (Patience, really.)

Rules One and Two ask you to be disciplined. Rule One is where you think about your needs now and Rule Two is where you weigh those now needs (and wants) against future needs (and wants).

If we want to measure financial discipline, we could consider first the amount you’re saving as it relates to your gross income, then the time until the savings is used.

 Financial Discipline Factor (FDF) = % Set Aside * Time Until Use
 Retirement = 10% * 480 months = 48 (massive)
 Christmas = 1% * 12 months = .12 (good)
 Daughter's Wedding = 1% * 240 months = 2.4 (impressive)

At this point, these numbers should mean nothing to you 🙂

The semi-fictional guy we cited above that blew his paycheck in four hours (.005 months)?

 Who Knows What = 100% * .005 = .005 (horrible)

So many of you are thinking, “Well, I sure as heck don’t blow my paycheck in four hours.” And I’ll admit that I used that as a somewhat extreme example, but consider this:

You’re constantly incurring obligations that are to be paid with money you haven’t yet earned.

An innocuous example would be the utility bill. You’re sent the bill after you’ve consumed the utilities. If you’ve consumed before you’ve received the money to pay, does that change our equation?

 Utilities Consumed = 3% * -1 month = -.03 (is this okay?)

Or what about using a credit card? You’re not even spending your money! And what if that $3,000 vacation you charged takes you three years to pay off?

 Vacation Charged = 6% * -36 months = -2.16 (ouch!)

YNAB & Financial Discipline

  • Rule One – you’re weighing your obligations and being proactive regarding what you need to do now with your money.
  • Rule Two – you’re considering longer-term expenses/goals and integrating them into your Rule One decision making.
  • Rule Three – if you lose some discipline, paying yourself back first rights the ship.
  • Rule Four – you only consume services for which you already have the funds (using this month’s money for next month’s bills).

I’m still fleshing this out in my mind. Examine what your money is doing as it relates to timing. Think of the time between an obligation incurred and the money in hand to pay it, or the timing of a goal far in the future, and the money in hand to reach it. Financial discipline is the ability to save for a goal that will be realized some time in the future.