An old friend of mine is in a dire financial condition. The last time I spoke to him, which was a few weeks ago, he couldn’t pay his rent.

Over the past several decades, he’s made terrible decision after terrible decision. It’s not that he’s made bad investments; it’s that he’s made no investments. He’s literally spent every dime he’s ever made. It’s always a race to the end of the month to see whether his funds will last or he’ll have to ask friends for cash.

It’s hard to find a worse example of how you should live your financial life.

People who are financially successful are often no smarter, luckier or more skillful than the rest of the population. What it usually comes down to is making disciplined decisions.

I’ve written before about how learning the true power of compounding changed my life. I had always been a good saver, but understanding what compounding could do for me helped me strengthen my saving and turned me into an investor.

I’m not exaggerating when I say it changed my life. From that day forward, I saved and invested hard, and it has made all the difference. It enabled me to send my kids to the schools of their dreams and has created a nice retirement nest egg for my wife and me.

Admittedly, discipline is not fun – at least at the beginning. No one likes denying themselves some of the things they want. But what is fun is looking at your financial statements and seeing your situation improving year after year.

Here are three quick but practical steps to making better financial decisions.

1. Live beneath your means.
Just because you can buy that house or car doesn’t mean you should.

Now, if it’s your dream house, go for it. You’ll likely be spending many years there, and houses are usually appreciating assets. But if it’s not your dream home, consider a cheaper alternative. Having a lower monthly payment on what is likely your biggest expense will add up to a lot more freedom down the road.

Cars, on the other hand, depreciate the minute you drive them off the lot. Having a lower-cost car can make a big difference in your finances now and in the future.

There are plenty of other ways to live beneath your means. That doesn’t mean you have to buy cheap, poorly made garbage or never treat yourself, but making smarter decisions and investing the extra cash today will reap big rewards tomorrow.

2. Invest regularly.
Whether it’s every paycheck, once a month or once a quarter, invest some of your cash – and do it regardless of what’s happening in the market or around the world.

This one takes a lot of discipline because there is always a reason to be concerned. The world is a bit of a mess right now, and prior to the current all-time highs, the market felt shaky for a long time.

Here’s a hack you can use: Decide today when you’re going to invest in the future, and mark the dates on your calendar so you get reminders. For example, you could plan to invest on the 15th of every month, on the first day of each quarter, or on your birthday and your family member’s birthdays.

If you invest regularly and ignore the news and analysts’ warnings about the market, you will do way better than you will if you invest only when you think the time is right. I guarantee it.

You will put more money to work – and your timing will be better – if you invest at regular intervals without regard for politics or market conditions.

3. Have a plan.
If you don’t feel comfortable choosing the investments yourself, work with a financial advisor, subscribe to an investing newsletter that has model portfolios or stick to an asset allocation model that uses index funds.

Lots of people want to invest but don’t know how to get started or are scared to lose money. And that’s understandable – investing does come with risk. But if you have a well-balanced and specific plan, you can greatly reduce those risks, and you will know that you’ll make money over the long term despite the occasional bear market.

Having your investments diversified in a variety of stocks, bonds and index funds will help you sleep better at night and help you decide where to invest when those calendar reminders pop up.

It’s also important that you teach your kids and grandkids these habits. The decades of putting these lessons to use will make a dramatic difference in their lives.

My friend and I went to the same school and took many of the same classes, but we’ve ended up in very different situations. One of the important differences in where we are financially is the decisions we’ve made – as well as our ability to stick to them.

— Marc Lichtenfeld

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Source: Wealthy Retirement