Monday, February 6, 2017

Getting Out Of The Comfort Zone For Better Financial Health

Humans are strange creatures, many of us have different personalities and interests but one thing we all like is this thing called comfort zone. This sets the baseline for our life. The thing about comfort zone is everyone's zone is different. This is what makes it so interesting and how we can make use of this knowledge to have a better financial health.

We often hear the phrase "you need to get out of your comfort zone". This is especially true for young people as its the stage of life to explore and learn. However, even for older people, there's this phrase "it's never too old to stop learning". No matter how much we like the comfort zone and being comfortable with where we are, it can be a bad thing because it certainly means we have stopped learning and progressing.

If we want to continue progressing and having better financial health, getting out of our comfort zone is necessary. Let's explore how we can get through this uncomfortable feeling.

Where is your comfort zone?

Our comfort zone is the baseline for our life. This can be how we spend our money, where we have been working at for the past few years and our routines in life which we are comfortable with. The baseline of our life may or may not be good. We may see some problems for our future if we continue living the way we live now but are reluctant to change. This is called stuck in the comfort zone.

Getting out of the comfort zone is not easy. It requires us to change our routines. I've been blogging lesser due to my recent change in job which requires me to learn and adapt to a new environment. I was in my previous job for 6 years and got too comfortable. Taking the courage to get myself out of my comfort zone is not easy but a necessary part for me to progress in my life. The first 2 weeks were hell and it got way too uncomfortable. I was an engineer and now I changed to become a business analyst. I was overwhelmed with all the things I had to learn and change my routine which I've been doing everyday for the past 6 years. But, after awhile, the new routine starts to set in and a new zone will be formed soon.

Getting out of the comfort zone does not just apply to our jobs. What about our financial habits? For some, the comfort zone is to think before spending while for others, the comfort zone is to spend uncontrollably. Whichever is destructive for our future, we should try to get out of that comfort zone and change for the better.

If we always live from paycheck to paycheck with nothing left at the end of the month, this is our comfort zone. It becomes the baseline for our life where our wants become needs. To get ourselves out of this comfort zone, it requires courage and will not be easy at first. But, after awhile, we'll get used to a new comfort zone only if we take the first step to curb spending. From living paycheck to paycheck, we now have 20% savings left at the end of the month and this will become a new baseline for our life.

Secrets of the comfort zone

The secret to getting out of our comfort zone is knowing that this zone is defined by ourselves. After a change, we will get uncomfortable but it gets comfortable again very soon. The standard of that comfort zone also raises as we continue progressing. From being an intern in a company, we move on to taking up small executive roles and proceed to senior roles and finally the management level.

For our finances, progressing in a career will definitely improve our financial health as we have more income. Our comfort level of how we spend then determines where our final financial health will stand. Some of us may be comfortable overspending no matter how much income we have. This is a comfort zone which we may want to change. After being disciplined in our finances for awhile, we will find that we will no longer be comfortable overspending anymore.

How about financial freedom?

I've not talked about financial freedom for a long time on my blog. The past one year focus was on increasing income as I realised my expenses had to increase in the future to be more sustainable. Financial freedom is what many people yearn to have after working hard in our lives. It is the thought that finally I don't have to work in a job I do not like anymore just for the money.

Getting out of our comfort zone ultimately should lead to financial freedom. If we change job and earn higher income or progress better in our career, we can save more money. If we change our spending habits and start saving more money, we can reach financial freedom earlier.

How much exactly to save to reach financial freedom? I wrote some blog posts back in 2014 where if we save 75% of our income, we can retire in 7 years. Here are some other scenarios:

  • Save 50% of our income and reach FF in 17 years
  • Save 20% of our income and reach FF in 37 years 

Savings alone is not enough. We have to invest and compound the money. For the above scenarios, the compounded rate is 5% before retiring and 4% investment return after retiring. It works out that the amount saved and invested at 5% would have grown to an amount which would cover our current monthly expenses with just a 4% yield. You can read more on how it works here.

Therefore, getting out of our comfort zone to have better financial health requires 3 steps:

  1. Getting uncomfortable to progress in our career or business
  2. Getting uncomfortable to change our financial habits
  3. Getting uncomfortable to learn investing

Both increasing income, saving money and investing requires getting out of our comfort zone. Once we take the first step, it gets easier thereafter. Are you prepared to get out of your comfort zone in the new year for a better financial health? I have to remind myself too.

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