Have you ever tried making a large change?
How did it work? Were you satisfied with the results? Were you able to maintain the change?
Normally, you can make a large change, but only for a limited amount of time. It might be a few days, a week, a month if you are lucky. I’ve been there.
My Failure with Large Changes
Many years ago, my knee hurt from exercising. I saw a doctor, who helped me customize orthotics, gave me pages of exercises to help stretch, and talked about how if it did not help, we could explore surgery. I don’t know the medical definition of what I have, but I have really tight muscles in my legs. Stretching is important.
What did I do when I went home?
I consistently did the exercises for about a week. The next week I did some of them. The week after I stopped doing them. After that, I did it when my legs hurt as a temporary relief, but it was not fundamentally getting at the problem.
Fast forward to this past year and my legs were hurting again. I was running a few times a week, and my knee would have excruciating pain. “Where are those exercises?” I thought to myself. I could not find them.
A retired physical therapist family friend was kind enough to look at my walking and suggested two stretching exercises.
Let me repeat, they gave me two exercises.
Why? They knew they could have given me 10+ exercises, pages of exercises and what they help with, and the importance of stretches, but they didn’t because they knew from years of teaching, most people won’t do all of them. They picked the most important stretches and told me to do those consistently.
And, I did them. I did them the first couple days. I did them the following week. I did them the week after. I am still doing them months later.
I built them into a habit. They are a part of my normal routine where if I do not do them, the day feels off. By starting small and keeping it simple, I permanently changed my habits.
I was not trying to do 10+ exercises every day, trying to remember why each one was important, or trying to choose which ones I should do which day. It was small. It was simple. Two exercises, 5-10 minutes each day.
I am confident most people can handle adding two things to their day, particularly when it can be combined with another activity. With these stretches, I could listen to a podcast, music, read a book, talk to my partner, brush my teeth, etc. From that perspective, I didn’t really need to change anything, which made it easier.
And now my knee does not hurt.
I tell this story because the same can be said for money.
How to Change Your Money Habits
Are you trying to pay off debt? Slashing all your discretionary expenses tomorrow probably won’t be sustainable.
Are you trying to buy a home? Telling yourself you will build a down payment fund in a year is likely unrealistic.
Are you trying to reach financial independence sooner? Increasing your savings rate from 10% to 40% in a month will feel impossible.
Whatever you want to do, you want to set yourself up for success by starting small. Kudos to the people who can make drastic, life changing, large changes in an instant. That’s not me. From my experience, that is not most people.
Paying Off Debt
Let’s take the example of paying off debt. If you have $30,000 of debt at a 7% interest rate and you want to pay it off in five years, it’s important to first understand what you need to pay. In this example, the debt will be paid off in five years if you pay $594.04 a month.
You can calculate this by opening Google sheets and doing the following:
Now you can adjust the months to pay off to your desired timeframe. Want to pay it off in four years? You need to pay $718.39 per month.
Or, you can use a calculator online, like this one at Bankrate.
Once you know you need to pay $594.04 per month to pay off the debt, now you can determine how to do it. You can increase your income or you can eliminate something from your monthly spending. Both are viable solutions.
Most people only talk about decreasing expenses, but increasing your income through your current employment, part-time employment, or side hustles are reasonable, too.
For this example, let’s focus on the expenses and increasing savings. Perhaps you are already spending $400 towards this debt each month, which means you need to make adjustments where you have $194.04 per month.
Should you instantly cut $194.04 from other areas of your spending? As I discussed, this probably is not for most people.
I would try cutting $40 from your spending the first month. There is no magic number here – just something smaller than the total. I find many people could adjust $40 of spending in the first month. If it goes well, continue it for another month or two.
By that time, you probably do not feel like you have made much of a sacrifice. By month three, adjust another $40 of your spending. Do that for another couple months until it becomes a habit. The point is to not make too big of a cut. You want to trick yourself into not feeling it – not feeling like you are making a sacrifice.
Do that for another couple months and repeat until you can reach the $194.04 total. It will take 4-5 adjustments, possibly over the course of an entire year, which means in reality the debt payoff may take six years, but that is okay.
By making the small $40 adjustments, you are avoiding a large adjustment that is more challenging to keep.
Remember how I failed at my exercises? I added two exercises to my routine for months. Only then did I feel comfortable adding more because I knew it was a habit and if I failed at the new exercises, I would fall back on the original two.
Only you know what constitutes a small or large adjustment in your life. You will likely take time figuring it out. That is okay. Money is not easy. By breaking money adjustments down to smaller pieces, it makes the change easier to swallow. After all, nobody is trying to inhale an entire large pizza. It’s cut into pieces for a reason.
Buying a Home
What about buying a home?
You use the same concept. Determine how much you need for a down payment, how many years until you want to buy a home, and then how much you need to save per month.
Need $100k for a down payment in five years? You need to save $1,666.67 per month. In reality, you likely need more because homes will appreciate, but this is a rough estimate.
Now you can determine how you will save $1,667.67 per month. Again, I would start with small changes. Trying to save an extra $1,666.67 per month starting next month will likely lead to failure.
Instead, find a way to increase your income a little. Or, decrease your expenses. Then continue along those paths, increasing or decreasing a little more each month.
How about financial independence sooner?
You do the same thing. Determine what year you want to reach it, a reasonable rate of return, and how much you need to determine your monthly savings.
It will probably be the biggest number of any of your goals, which makes it that much more important to make small changes.
One of the most effective things you can do is pay yourself first. What I mean by that is to set aside the funds on the day you are paid – not at the end of the month thinking, “I’ll set aside what is leftover.” Most people spend what they earn.
If you set it aside at the beginning of the month, you don’t feel it. It’s like it never existed. It’s harder to spend.
You could try setting aside an extra $50 the first month and adding to it the following month. The key is to make small changes until you actually feel it. From there, then you will need to have a deeper conversation with yourself about priorities and if current spending needs to be reduced to reach your goal of financial independence sooner. If you want to understand budgeting better, you can read more about it here: Understanding Cash Flow.
I’ve found in my own life that making large changes is difficult. As with my stretching exercises, starting small allowed me to reach my smaller goals, which then allows me to build off and reach larger goals.
Money is no different. Start small and keep it simple.
What do you want to change?