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In one chapter, James talks about the difference between systems and goals:
“Goals are about the results you want to achieve. Systems are about the processes that lead to those results.
- If you’re a coach, your goal might be to win a championship. Your system is the way you recruit players, manage your assistant coaches, and conduct practice.
- If you’re an entrepreneur, your goal might be to build a million-dollar business. Your system is how you test product ideas, hire employees, and run marketing campaigns.
- If you’re a musician, your goal might be to play a new piece. Your system is how often you practice, how you break down and tackle difficult measures, and your method for receiving feedback from your instructor.
Now for the interesting question: If you completely ignored your goals and focused only on your system, would you still succeed? For example, if you were a basketball coach and you ignored your goal to win a championship and focused only on what your team does at practice each day, would you still get results?
I think you would.”
The equivalent thought experiment in personal finance might be:
If you’re an individual and you ignored your goal to accumulate $1 million and focused only on growing the gap between your income and your expenses, would you still get results?
I think you would.
The Metrics That Matter
One of my first financial goals was to hit a net worth of $100k. I recently surpassed this number a couple months ago not because I wanted to, but simply because the systems I had in place naturally lead to a higher net worth. Specifically, I:
- Consistently saved 60% or more of my income each month
- Shared an apartment with a roommate for a year and had a monthly rent of only $611
- Drove a fairly cheap Honda Civic
- Tracked my monthly spending
- Invested consistently in low-cost total market index funds
- Picked up a side hustle of blogging and stats tutoring to boost my income
- Increased my data science skill set to jump from a $52k/year to $80k/year job
By focusing most of my energy on these processes that were within my control, my net worth naturally increased each month.
The road to a higher net worth was bumpy, though. Some months my net worth jumped up by $7,000 or more while other months it only increased by $2,000:
Since most of my portfolio is invested in stocks, market fluctuations can have a noticeable impact on my net worth growth from month to month. I can set a goal for myself to increase my net worth by $5,000 each month, but ultimately I can’t control how the stock market will behave.
This is why I find it more important to track the gap between my income and my expenses each month, rather than my net worth.
I keep an Excel spreadsheet where I log my total spending and total income each month. I know that as long as the gap between these two numbers stays wide enough, my net worth will naturally grow.
James Clear goes on to explain the fallacy of focusing on goals, instead of systems:
“Goals create an either-or conflict: either you achieve your goal and are successful or you fail and you are a disappointment. You mentally box yourself into a narrow version of happiness. This is misguided. It is unlikely that your actually path through life will match the exact journey you had in mind when you set out. It makes no sense to restrict your satisfaction to one scenario when there are many paths to success.
A systems-first mentality provides the antidote. When you fall in love with the process rather than the product, you don’t have to wait to give yourself permission to be happy. You can be satisfied anytime your system is running. And a system can be successful in many different forms, not just the one you first envision.”
I love that line: “You can be satisfied anytime your system is running.” For me, I am satisfied during any month when I’m able to save 60% or more of my income. I’m satisfied when I don’t spend excessively on shit I don’t need and when I’m able to boost my side hustle income through blogging and stats tutoring.
I still track and share my net worth each month, but I recognize that the most important metric is the gap between my income and spending because it’s the one metric that I completely control.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free, has no trading or maintenance fees, and even allows him to set up automated target-allocated investments.
His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.
His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.
His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.