6 Feb 2022

Compounding of discipline and fitness

Someone I know asked a badminton coach once: “Exercising is boring. How do you keep up the routine to exercise every day?” The coach said, “Yes, it is a bit difficult initially. But once you see your fitness improve as a result of exercising, you feel good. For example, you may not tire as much as before when climbing stairs. Often, that’s enough encouragement to keep going.”

I am experiencing the same thing now, but in financial fitness. For many years, the only “accounting” that I did was reviewing my credit card and bank statements to make sure that there weren’t any surprise charges. Only in 2013—well over a decade after I started making money—I got serious about money management. (The trigger for this came from an unlikely source: Thirukkural!) This is when I started learning about money, investing, etc.

It was a slow start, though. Only in 2019 I decided to write down my expenses as they happened (instead of reviewing once a month). I didn’t have a clear idea of what will come out of this. I was just entering all the expenses into a spreadsheet. Eventually I started making graphs to visualise where my money was going every month. It was all just a futile or fun exercise that didn’t alter my spending choices or money management. I was spending just as before, but now I had a record of where my money was going.

‘Fitness’ by Nick Youngson CC BY-SA 3.0 Pix4free.org

In 2020, I started goal-based investing (thanks to Kuvera!) instead of just putting money in random assets. The combination of expense tracking and structured investing led to another revelation: I must plan for big ticket expenses. Not planning for large expenses was giving me unnecessary financial stress, I realised. More monthly savings and more planning followed.

Until 2 months ago, I couldn’t answer the question “How much is my monthly deficit or surplus”. I could see the list of expenses, but it wasn’t obvious how much I was overspending each month or how much surplus I had left. That led to making one other spreadsheet for monthly budgets. With a budget in place, I now have a good idea of my fiscal discipline at any given time. This is far better than blindly going through the month and meeting expenses as they come up. This budgeting exercise made me realise that I should take some pocket money for myself.

I have a money management system that I keep refining as I go. It keeps getting sophisticated over time! It’s the same thing that the badminton coach said. Once you see some benefits, not only do you continue exercising regularly, you’ll also add more exercising routines, eat better, make changes to improve your sleep, and so on. A good change in one place spills over to neighbouring places and suddenly one day, the change is so massive that it’s overwhelming to a beginner.

If someone had showed to me 10 years ago the same system that I follow today, I would have been overwhelmed and wouldn’t have had the courage to start. Even if I had tried, there’s a good chance I would have failed. The secret is to start small and improve over time. Slow or fast doesn’t matter. Small or big doesn’t matter. But what matters is if you’re doing something that’s sustainable, and if you’re moving in the right direction. Like with compounding, you may not see any change for the first many years. And then, suddenly one day, you’d be witnessing a great change that looks almost unbelievable.