Wednesday, May 28, 2008

Create Habits To Get The Desired Result

"Every system is perfectly designed to get the results it gets" - W. Edwards Deming

Mr. Deming is the quality control expert credited with helping make Japanese products achieve the high levels of product quality and consumer satisfaction. He always drove home the point that quality couldn't be managed and that it needed to be built into the manufacturing processes.

He was famous for demonstrating the point through a box of white beads with a specific percentage, say 8%, of defective red beads. Using a paddle designed to withdraw 100 beads, he would exhort the seminar participants to take out 5% or less defective beads. In most cases, the number of red beads would be above 5%, resulting in a chastising for the volunteer. Every so often, a volunteer would achieve 5% or less red beads and he would be "rewarded" for meeting criteria. For this situation, students of statistics know that 5% was a random occurrence and not likely to be repeated often. The only way to achieve 5% defects in the long term is to have a system with 5% or lower red beads in the box.

For me, designing a system that delivers the results that one wants can also be used in personal finance. In this case, the system is a habit. From my experience, habits are low effort and sustainable, while special actions require ongoing effort and attention. For example, to reduce spending I set aside a part of each paycheck for savings, and lived on a cash basis until the next paycheck. The habit allowed me to spend only so much, unless I dipped into savings, which happened on rare occasions. This habit change worked better for me than special actions such as tracking money spent, no spend days, or detailed budgeting.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

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