Hi there, this is Matt Ramey at MoneyByRamey.com. Today, I’m going to speak about gamifying your financial life and how that can help you in your journey towards Financial Freedom.
In my financial life, I have undertaken the process of gamifying aspects without even being consciously aware of it. Being someone that has grown up playing video games, I was taught that there is a goal (win the game), you keep battling until you achieve that goal (fail yet try again), and that you keep track of ‘markers’ along your path (save points and progress markers).
It only seems like a natural extension to apply this mindset in my own personal affairs. It is no surprise then that the process happens rather unconsciously and automatically in every aspect of my life. It is habit to set a goal, keep track of metrics, and turn it into something that I strive towards in a gamified model.
I’m not sure how other ‘non-video game’ people tend to view their goal achievement – perhaps much in the same way. I just know that with each ticker symbol that goes up in my dividend portfolio or each new passive income stream I begin and grow, I feel like the superhero of my own story.
All those hours spent playing various games such as Zelda, Heroes 2, and Starcraft – the list could go on and on – taught me the values of hard work, achievement-based goal setting, teamwork, and many more life skills.
Let’s take a look at what skills I learned and how I gamify my financial life today.
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How I Gamify My Financial Life
To ‘gamify’ your financial life essentially means to turn it into a journey in which you actively track progress towards that which you seek. You want to set yearly, monthly, and even daily goals in your journey towards Financial Freedom.
The general idea is to see your financial path as a ‘game’ in which you are the superhero. Now, this doesn’t mean that you haphazardly make financial decisions because it’s all a game. Rather, it means you realize that in this journey, you are only allowed one life.
So what are the elements of gamifying your financial life?
1. Track and Celebrate Progress
First and foremost in my gamification model is to track and see progress. Without actively knowing where I am at, I cannot see if I am making progress in where I am going.
Therefore, it is essential to set up metrics to know how far I’ve come and how much further I have to go.
2. Set Up a Regular Budgeting Process
When I was in college, I learned the importance of setting and maintaining a realistic budget. In my first personal finance book, Simple Budgeting, I go over my story of how I ended up having a late fee due to not having a budgeting process in place. The experience was so maddening – losing money unnecessarily – that from that time forward, I decided to never have that happen again.
Little did I know that in setting up my budget, I ended up laying the groundwork for achieving my financial dreams. One thing that I began doing in my budgeting process without even realizing it is game of hide my financial life.
By setting aside time for a budgeting day, I track each week where I happen to be at and peg that towards which direction I want to go.
So what are some of the budget metrics that I track in my budget?
In addition to keeping track of my overall financial picture, I will keep track of financial ratios as well. I find that this helps me to understand what the higher level numbers mean.
For instance, I might have $100,000 in current assets, which seems pretty awesome, but if this is against $200,000 in current liabilities, this is not that great of a situation to be in.
FYI – for all the non-accounts, an asset or current liability are those debts that are due in less than a year. For my simple budgeters, we consider an asset or debt to be current if it is due within the next 30 days.
You can see why having current liabilities greater than current assets is a precarious position to be in.
Here are some ratios that I actively track in my own financial life:
Current Assets / Current Liabilities
- The Meaning: amount of liquid assets to liquid debts. Anything above 1x is ideal.
- My Goal: Greater than 10x.
Cash / Current Liabilities
- The Meaning: the amount of cold, hard, cash to liquid debts. Anything above 1x times is ideal. This is because if you hold too much cash, you are most likely losing value because of inflationary pressures.
- My Goal: Greater than 10x.
Debt / Equity
- The Meaning: the total amount of debt owed relative to net worth. Anything below 1x is ideal.
- My Goal: 0x (debt-free!). (I currently have achieved a debt-free lifestyle by selling my house!)
The next financial metric that I track is my overall net worth. While it is important to see this number increasing, it is not the end-all, be-all of my financial picture. This is because I know that I am not my net worth.
Since I do a good amount of dividend investing, I recognize that my net worth has the propensity to fluctuate wildly. It might be up big on one day, only to be down big the next day. These market fluctuations do not bother me.
As JP Morgan famously said when asked what the market will do, “it will fluctuate.”
With that being said, I do like to see the general trend of my net worth going up, so I find that it is important to keep track of this metric.
If I see forward progress being made, however small, then I take time to celebrate the improvements.
If I feel like I am stagnating or declining, then I take stock and search for the reasons why this is the case.
Do I need to make more money? Do I need to roll back expenses? What needs to happen in order to right the ship?
So long as I track the metrics, the questions will be easy to answer. Rather than haphazardly reacting to my current situation, I find that I plan out months in advance.
I track my cash, how long it will allow me to last at my current expenditures level, and then create a plan of how to much income I need to make that sets a great profit margin and comfortable lifestyle.
I find that this method has really helped push me forward in my financial life and has allowed me to plan much better. For instance, if I am in a situation where my net worth is going down and my cash is dwindling, I know that it is time for a change. I can begin aggressively planning to ‘right the ship’ and put myself into a place where I need to be.
3. Set Up Annual Dividend Income
The last, and most important metric that I track, is annual dividend income (ADI). I say this is the most important metric because it is the pinnacle of my dividend investing strategy.
In keeping track of the ADI, I have one, single measurement to gauge my overall retirement picture. I’m not as concerned about percentage gains or losses; rather my focus is on how much ADI my stocks are kicking off per year and how I can keep growing this number.
For me, in tracking my annual dividend income, investing has become simpler. While the due diligence and stock analysis piece can be the most challenging part of the endeavor, once a stock is picked, it is on autopilot through a Dividend Reinvestment Plan (DRIP).
I like this as part of gamifying my own financial life, as it gives me one metric that I strive after. The end goal of this dividend investing strategy are stocks that kick off $50,000 in ADI per year. You can join me on the journey by live tracking my dividend portfolio here and by subscribing to our Live Free and Div Hard email newsletter!
Gamify Your Financial Life Today
You can begin to gamify your own financial life. Simply look for ways in your everyday journey. Feel free to copy my method of gamification models, or set your own.
Rather than large, long-term goals, you can begin to set smaller, daily goals that will help you begin to gamify. Here are some ideas:
- Limited spending for the day/week. Set a target of $0 spending for a particular day or perhaps $50/week.
- Set to earn a particular amount of income per day, week, or month. Maybe start with the goal of earning an extra $50 from a side hustle, or $250/week. Or perhaps you want to see if you can earn $500/day. As you get started, you will begin to see that number growing more and more as you journey upward and onward!
- Begin a new income stream. Take on a side hustle, build your passive income, write a book, etc. The idea is to try something, see how it works, and adapt.
There are many, many ways to begin gamifying your financial life. The idea is to get started and begin today!
“The secret of getting ahead is getting started.” – Mark Twain