I’ve noticed a trend in the last year that makes me think there is something magical happening. The trend is towards greater responsibility for one’s financial destiny. My newer clients aren’t playing the victim card of living in an expensive area. Instead, they are making decisions to lower spending and setting savings goals, which they are actually achieving. No whining about not taking a week-long trip to Hawaii or lamenting about not be able to afford a second home in Tahoe. These folks are serious about not wasting time or money on things that don’t matter to them. Don’t get me wrong. They still travel and buy new clothes, but they do it within a spending plan and with forethought.

When it comes to “the Joneses”, they have blinders up and are focused on their family and their goals. The result of this focus is a calmness about money and a clarity that provides confidence in their plan. How did they find their magical powers? Here are a few steps that I have identified that are consistent across clients over the last year.

Step 1: Clarity

Most of these folks ripped off the band aid. They looked at an unfiltered view of a year’s worth of spending, searched for areas of waste and reduction, and figured out how much they saved that year. Usually I hear phrases like, “Really? I don’t feel like we eat out that much or buy so much stuff.” Every once in a while, they are surprised the damage wasn’t worse.

With this hindsight, they set a spending plan for the next year with specific savings goals.

Step 2: Accountability

Being accountable to the plan and goals isn’t as hard as it seems, but it takes a little bit of effort and time. Find a system that works for you, be it Mint.com, a spreadsheet or the back of a napkin. Schedule a time for accountability once per month. If you miss one, get back on track the next month. If you miss two months, it’s kind of like a gym membership you do not use… you’re going to get out of shape and not reach your goals.

Step 3: Understanding the Magical Powers of Finance

When asked to name the greatest invention in human history, Albert Einstein simply replied “compound interest.” Urban legend says he called compounding the 8th wonder of the world.

Compound interest is your money making you money. You earn interest on the money you deposit or invest, and on the interest you have already earned – so you earn interest on interest. An online savings account paying monthly interest is an example of an account that earns compound interest. The same goes for your investment and retirement accounts if you select “reinvest capital gains and dividends”. So, if you have $100,000 in a retirement account earning an average market return of 7%, in 20 years you will have ~$387,000.

Another magic trick is “The Rule of 72”. This rule can tell you how many years it will take to double your money. To find the number of years to double your money, divide 72 by the interest rate (or rate of return) on the investment. Using the same example above, if your retirement accounts total $100,000 and you are earning the market average rate of return (e.g. 7%), your money should double in 10 years 4 months.

The key here is to get some money in those accounts! If you don’t have anything saved, it can’t grow.

The reward for clarity and accountability is watching the magical powers of finance work for your benefit. However, the coolest thing that I have noticed is that these folks are using their magical powers to get more magical powers. Instead of buying more house, now that they have more money, they decide to pay off debt or invest in something else. They keep their needs and wants in check and are working hard to avoid lifestyle creep. While this will pay off in retirement, I see the benefits on their lives today. They don’t feel deprived, they feel empowered.