Most people focus on the big changes. They go big on everything all at once instead of starting small and growing slowly
The easiest place to see where people fail is when trying to lose weight. Most people just go cold turkey. They stop eating unhealthy food for every single meal and never eat any deserts.
And then they give up only a few days in because it’s way too hard.
But even for those who manage to make progress on diets and lose a lot of weight, they often end up gaining it back.
Over half of people who lose weight on a diet, gain back what they lost within just three years.
It’s because rapid changes aren’t sustainable and it’s the same way with your finances.
You might decide you want to get out of debt. In order to save more money, you stop eating out, going to movies with friends, shopping, and ordering stuff online all at the same time. You might keep this up for a few days or even a week or two, but it’s not sustainable and you’ll eventually give up.
After a short period of time, you’ll slowly slip back into your old ways and right back into debt.
In order to make a real change in your finances, you need to start focusing on the small wins.
Why Small Wins Matter
Teresa Amabile and Steven Kramer sorted through thousands of diary entries that led to a publication in the Harvard Business Review called The Power of Small Wins.
During their research, they discovered that progress is the single most effective motivating force behind human actions.
Of all the things that can boost emotions, motivation, and perceptions during a workday, the single most important is making progress in meaningful work.
These small wins get the ball rolling and help you build momentum. According to their research, it’s all about making some kind of progress whether big or small. And when you complete something small it affirms your faith in your own success and gives you the motivation to move forward to the next step.
The thing about momentum is that it constantly builds on itself. So while those wins seem really small at first, they quickly begin to scale and you find yourself accomplishing bigger and bigger things every day.
When we start really big we bite off more than we can chew. We get discouraged, defeated, and eventually give up. But with small wins, we’re constantly re-affirming the idea that our success really is possible.
The Debt Snowball
One of the most popular strategies for eliminating debt is called the debt snowball. This method has been made wildly popular by Dave Ramsey and it works extremely well even though it doesn’t make sense financially or mathematically.
The debt snowball works by having you pay the minimum monthly payment for all of your debts and then trying to pay off as quickly as possible the debt with the lowest balance.
This is weird because if you were trying to eliminate debt and save the most money you would typically want to try and pay off the debt with the highest interest rate regardless of the balance.
Let’s say you have a credit card with a $10,000 balance at 15%, a student loan with a balance of $1,500 at 7%, and a car loan with a balance of $4,000 at 8%.
In order to save the most money, you would want to focus on paying off the credit card first because the interest rate is so high. But $10,000 is a lot of money and that’s going to take you a long time to pay off.
On the other hand, the student loan only has a balance of $1,500. Even though it has the lowest interest rate, the debt snowball would have you focus on paying that off first.
Because you’ll pay off that student loan in no time. And that will be so exciting and create a huge emotional win that you’ll be even more excited and motivated to attack the car loan next.
If you were just trying to knock out the $10,000 credit card bill you’re very likely to get discouraged because it will take so long to feel like you’re making progress.
The debt snowball is absolutely the best way to attack your debt because you start seeing progress almost immediately. And that progress gives you the strength to keep going.
It’s simple human psychology. By focusing on small wins, you’re able to build momentum that carries you through to the long term goal.
Start Small In Saving
Just like when attacking debt, it’s important to start small with savings as well.
Don’t try to save an absurd amount the first week you start. This is totally unsustainable and there’s no chance of you sticking to it over the long term.
Start by just saving 1% of your income.
If you make $3,000 a month, that’s $30.
It’s only $1 per day.
This is a reasonable goal that you can actually accomplish. At the end of the month, $30 may not seem like a lot, but it’s $30 more than you saved last month.
For the next month focus on upping your savings by one more percent. So now you’re trying to save $60 instead of $30.
Continue doing this every single month by adding 1%.
At the end of a year, you will be saving 12% of your income, which is more than double the national average of 5.4%.
Again, this whole principle is built on the power of small wins.
Start Small With Changing Habits
Just like the other areas we’ve discussed, when you’re trying to form new habits or break old ones, it’s important to start small.
If you’re currently eating out with people from work four days per week and want to stop, don’t try and stop going immediately.
Just start by going only 3 days per week for a few weeks. Then drop that down to two. And after a while, you’ll be able to easily drop it down to one day per week.
It’s the same way for forming new habits.
If your goal is to get up in the morning and work out, read, get ready for your day, and eat a good breakfast, it’s going to be hard to start doing all of those things if you don’t currently do any.
Instead, start by getting up just 15 minutes earlier and doing a few push ups and sit ups. After doing that for a week or two, you’ll be able to increase that by another 15 minutes.
Now you have time to do some light reading and your push up routine. Eventually, you’ll be able to get up an hour earlier than you used to and get all of those things done.
But it doesn’t happen overnight, it all starts very very small.
Keep Track and Celebrate
If you want to be successful long term, you will need to do more than just focusing on small wins. You need to track them.
That may be keeping a daily journal. This could be computer software, a smartphone app, or a whiteboard in your room. Or if could mean having a wall chart with a thermometer like you had in kindergarten.
It doesn’t matter how. It just matters that you do it.
Write down your small wins and celebrate them.
Think back to how exciting it was when your teacher got to fill up more of the wall thermometer when your class raised money for the school fund-raiser.
There’s something extremely motivating about seeing your visual progress. And although it may sound lame, it’s extremely important to your success.
Personally, I keep a printout of my top goals for the year on my desk right beside my computer so that I always keep them in mind. And the homepage on my desktop browser shows my visual progress towards my current goals. So every time I open a new browser window or tab, I get to visually see how I’m doing.
To further prove my point, check out what Greg McKeown wrote in his book Essentialism
When we start small and reward progress, we end up achieving more than when we set big, lofty, and often impossible goals. And as a bonus, the act of positively reinforcing our successes allows us to reap more enjoyment and satisfaction out of the process.
By keeping track and celebrating the small wins, we continue to set ourselves up for future success.
Start Small With Keeping Track
Don’t try and write a whole page journal entry on the first day. Just write one sentence about a small win you recently experienced.
Then come back the next day and write one more.
The key to long term success with your money is focusing on and celebrating these small wins every single day. Whether it’s getting out of debt, saving for a vacation, making more money, or cutting bad habits, it’s all about making incremental progress.
After all, it’s that small progress that is the single most motivating thing.
So stop worrying about the end goal and how you’re going to get there. Start focusing on the next small step that’s right in front of you.