How to embrace financial failures in a way that makes you richer

Good financial intentions: we all have them. Yet, with the American savings rate at an anemic 4.6% of income and the average household credit card debt load of $15,956 (for households with credit card debt) – our good intentions aren’t amounting to much financial good.

Happily our failure on this front has a silver lining: the chance to learn.

There are probably as many reasons for failing to control your financial life as there are people. Dip your toe into financial self-help literature and you’re sure to be wowed by the often deeply rooted emotional reasons why we overspend and under-save. It’s fascinating stuff. But reading about it will only take you so far. If you really want to pull yourself out of your financial rut, you will have to stop being an armchair observer of other people’s failures and become a student of your own.

Here are four critical steps to embracing your financial failures in a way that will enrich you over the long haul.

Step 1: Keep track

We know it sounds depressing: track my failures?!? Why on earth would I want to do that?

The fact is if you aren’t willing to take an honest look at where you are going off the rails, you will not ever learn how to stay on them. Nobody is perfect; we all fail at one point or another. Those who succeed quickly get over their fear of failure and figure out how to learn from it. As Samuel Beckett said so eloquently: “Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.”

Thus, when it comes to getting your financial house in order, you must establish a ritual for documenting your financial failures. Pick one night a week where you look back over the previous seven days and identify any missteps. Did you overshoot your food budget? Jot down how much you went over and why you did. Did you compulsively shop? Note when, how you felt before you went shopping, and what kinds of things you felt compelled to buy. Did you feel better after? Or worse? The more detail you can put around the event, the more likely you will be to learn from it over time. And don’t be tempted to skip this step. You may think, “oh I’ll remember this.” But you won’t. Or you may, but you may not want to think about it too much. There’s something about having to face the cold, hard facts – both when you write it down and then again when it’s time for your weekly review – that leads to real learning and inspires permanent lifestyle changes.

Step 2: Identify critical patterns

As you gain experience documenting your financial mistakes and missteps, clear patterns will start to emerge. Perhaps you are chronically over budget when it comes to food, or once a month you hit the mall without any plan and do some damage with your credit cards.

At least once a quarter, and ideally once a month, review your spending patterns and ask yourself if there are any recurring patterns of note. Take the time to capture any in your journal or virtual notebook, wherever you are keeping track of your failure stats. Again, writing it down is critical; it helps you truly internalize the information.

Step 3: Synthesize and cement lessons learned

Any time you identify a negative pattern in your finances, force yourself to get to the root of the problem. Perhaps you are chronically over your food budget because you’re trying to wing it without a weekly menu and turn to take-out and expensive prepared foods at the grocery store more than you realize. Maybe you are in the habit of going shopping with a friend who makes a lot more money than you do and feel compelled to keep up appearances, or worse, hit the stores when you’re feeling vulnerable and try cloak your lagging self-esteem in fancy badge brands.

The point of this step is to dig deep for the reasons behind your sabotaging behavior. As soon as you identify a pattern in step two, start a running tally of possible reasons why the pattern exists. Keep asking yourself why until you get to a satisfying answer. It will often be emotional in nature.

Once you’ve identified the root cause(s), take a few moments to capture your failure in the form of a complete sentence and then list each valuable lesson you have learned.

Step 4: Brainstorm “back on the bandwagon” tactics

The final step is to come up with a few tactics that you can employ to stay ahead of the negative pattern and/or to interrupt it and get yourself quickly back on track.

Do you track your financial failures or do you bury your head in the sand? If you do track, what are some of the best lessons you’ve learned from doing so? We’d love to hear.

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  • Mmbellian

    Its kind of a group effort here.  If I’m in line and following the budget my husband slides off the wagon. Then when he supposedly is being on track I fall off the wagon. We have been a combination of financial mess for about sixteen years and it finally caught up to us and exploded. I’m usually the one cleaning up the pieces and he is the one complaining his money is all gone. By the way we had five children who helped in our ultimate demise but people will always tell you, the children are not at fault. Statistics say it cost over $250,000 to raise a child from birth to 18 and most families are supporting their children until they are in their twenties. The government gives you such a small deduction it doesn’t help.

  • http://twitter.com/HomemakersDaily HomemakersDaily

    I have tracked my dieting failures but never my financial failures.  Tracking dieting failures was an extremely helpful tool.  Often I found that my calories were too high because of one mistake.  It was much easier to watch for those kinds of things and prevent them once I was aware.

    I never thought of applying that principal to my finances.  I am having a terrible time sticking to my budget.  I know some of the problems but I think this approach could be extremely helpful.  Very helpful article.

  • SarahButtonedUp

    Thank you so much for your honesty. It IS incredibly expensive to raise children. And it must be hard to be the one always picking up the pieces. Sending you a hug from here.

    The beauty to the approach that I talk about in this post is that it forces you to take responsibility for the choices you have made. When you ignore your behavior (kind of like that glazed over, numb I-know-there’s-bad-stuff-lurking-there-but-I’m-not-going-to-look-at-it feeling), you suppress your own power to do anything about it.

    I’d suggest that you and your husband have an intensive “retreat” just for the two of you (you can do this at home without spending a dime). Look back over your spending habits for the previous quarter (or half-year) and really interrogate what you did/why you did it. Search for patterns. Own your shortcomings. What were the triggers for your spending? Then spend as much time brainstorming ways to get out in front of those triggers next time so you don’t have the same, automatic response.

    Bottom line – you can pull yourselves back up from your bootstraps. You can make it a family affair to do that too. Nothing is impossible. But you have to be brutally honest about where you are and how you got there if you want that to happen.

    We have faith in you and your husband (and kids)! We’re cheering you on. Please keep us posted.

  • SarahButtonedUp

     @twitter-378131001:disqus  – I’m so glad it was helpful. XO

  • http://aboutone.com/ Tara from AboutOne

     Isn’t that such an interesting juxtaposition? I’m reading a book called Lost and Found: One Woman’s Story of Losing Her Money and Finding Her Life. It makes exactly the same comparison. For the author, the hard work of losing weight is just like the hard work of becoming financially responsible. It’s a good read.

  • KSamber

    I love the financial tracking site, mint.com. It helps by tracking my credit cards, checking, savings, and loans, plus sends reminders of bills and alerts me when I’ve spent more than my average. I can categorize all my purchases in place of those cryptic descriptions on bank statements. It does some shocking things with pie charts, too! It’s the biggest reality check of my week to sit down and see where all the money’s gone. Thankfully, it compares my averages with the rest of America, which reminds me that I’m not the only one! It’s a must for those of us that don’t use cash!