Think Small. It Could Have Big Rewards.

Big ideas and significant accomplishments tend to get the headlines, but to actually get things done, you might need to think small.

That means setting realistic goals that you have a good shot at accomplishing, whether we’re talking about exercise, diet, or managing your money.

According to many financial advisors and psychologists, the idea is to establish good habits by winning some small battles. Once you’ve done that, you can start to set some bigger goals. On the other hand, if your goals are vague or overly ambitious, you may be setting yourself up for failure, which might discourage you from trying again. The concept is to establish long-term money habits that will continue to pay rewards over and over again.

Set Goals

When setting financial goals, try to be specific. Instead of saving for the often-elusive goal of “financial security,” identify a short- or medium-term goal. Of course, we all need to have that rainy-day fund of 3-to-6 months’ worth of living expenses set aside. After that’s done, aim to pay down or pay off one debt (credit card, student loan, auto loan), or save for something you want, such as a vacation or new big-screen TV. To save for something new, you’ll also want to have a particular dollar amount in mind, say $2,500 for one week in Florida. Once you have that dollar goal, you can figure out how much you need to save. Let’s say you want to go at the end of the winter, about six months from now. If you set aside $100 a week, you can start your list of what to pack!  ($100 a week x 26 weeks = $2,600.)

Make that $100 a week payment automatic. It can feel less painful to have the funds moved automatically out of each paycheck. You are also more likely to stick with the plan if you don’t have to do anything. And make this a priority budget item, right behind your rent, utilities, and other essentials. The idea is to pay yourself first before you have the opportunity to spend the money on something else that’s probably not as important.  Once you’ve established a savings goal or multiple goals, you can then do the math on how much you need to set aside each month and how long it will take to get there.

Use Separate Accounts

If possible, when you set up your automatic payments, transfer the money into a new savings account. Don’t co-mingle these funds with the checking or savings account you use to pay for your rent and food or with that rainy-day fund. Setting up a separate account allows you to monitor your progress easily and helps you avoid invading one bucket of money needed for something else. Unfortunately, with interest rates as low as they are right now, your savings won’t earn much interest, but don’t let that deter you.

Of course, many of these ideas are for people who are early in their careers and just learning the importance of budgeting, saving, and spending. But the concept of thinking small and setting specific goals with specific buckets of money can work at any stage of life – whether you are setting aside money for your kid’s college fund, paying off your mortgage, or planning for retirement.

Plan to Make Some Sacrifices

Obviously, setting aside money and reaching these goals can be easier said than done, and it probably won’t happen without making some sacrifices. Yes, cutting that daily Starbucks Coffee Frappuccino habit down to two days a week can save you $20 a week. That’s a start, and you can probably find other ways to squeeze a few dollars here and there out of each paycheck.

Here are some other small things you can do that can add up over time:

  • If you use cash, drop your change into a piggy bank each day. 
  • Don’t buy bottled water or soda; bring your own instead. (It’s also better for the environment).
  • Unsubscribe to services that you rarely or never use but continue to pay for month after month.  How many streaming services do you really need?
  • If possible, pay your credit card bills in full each month. Those fees and penalties can offset all of the other good things you’re doing.
  • Avoid impulse buying by using the 24-hour rule, especially for online purchases. Wait a day before hitting the “buy now” button to determine if you really want or need that item.
  • If you get a raise or a bonus, put 10-20% of it into your various savings buckets.

For more tips on how to manage your money, read 7 Tips to Help You Manage Your Money.

When you do reach a savings goal, celebrate! It may be a bottle of champagne or just a dance around the living room but acknowledge your success. Once you achieve one goal, the next one seems more attainable. You develop the habit of putting your money to work for you.

Transfer Small ‘Wins’ Into Bigger Goals

Eventually, you can start to think about bigger or longer-term goals, such as buying a home or saving for retirement, which may be far, far in the future. But starting now can make a huge difference, and your future self will look back and appreciate your current wisdom and planning. If you start saving for retirement at age 25 instead of 35, you could double the size of your age 65 nest egg.  And if you’ve missed out on that opportunity, starting now – at any age – will be far better than waiting another decade. The 401(k) millionaire is very real. And if you work for a company that matches some or all of your retirement plan contributions, take full advantage. It’s free money.  Take it!

The idea behind all of these suggestions is to establish a healthy behavioral relationship with your money. You may hit some bumps along the road, but that’s okay. Don’t let a setback here or there deter you. Taking small steps can help you make big financial gains over the long run.

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