Today I want to talk about the power of incremental change. So let’s start with a definition: incremental changes are small additions or subtractions of things that occur in regular amounts over time.
To give a silly example, if you normally ate one potato chip with lunch, and added one extra chip each day, by the end of a year you’d be scarfing down entire bags of chips. One chip + one more chip per day eventually equals a whole lot of chips.
But incremental change can do more than overload you with salty snacks. It can change your life. Especially when it comes to money.
It’s really common to be in a situation and just feel completely overwhelmed.
For example, when I was in my early 30s I was newly divorced with a small child.
I was deeply in debt, and had just seen my already-low retirement investments cut in half twice. (Once from stock market losses where the stocks actually went to zero, and once from having to give half of what was left to my ex in the divorce. He had no retirement savings prior to that.)
Then I lost my job.
It was overwhelming to say the least. But I credit a series of small changes for much of my complete financial turnaround.
If you’d told me then that one day I’d be in great shape financially, I could not have imagined how.
But those incremental changes got me to where I am today.
Where Incremental Changes Can Help in Personal Finance
There are two big areas where they can really help money-wise:
- Increasing Savings & Investments
- Paying Down Debt
The basic concept is simple: you make a small, nearly-unnoticeable change with your money.
Maybe you set up auto-savings of 1% of your paycheck, or send an extra 1% to debt per check. 1% is very small!
Then as soon as you’ve adjusted to that (usually 1-3 months later), you increase it by another 1%. Eventually, you’re saving the amount you want without stressing yourself out in the process.
(If you want a detailed example, take a look at how I used the 1% rule to painlessly save up 5 figures.)
Why It’s Powerful
That painless part is key. It works because you don’t have to disrupt your life with major, unsustainable changes. You just have to do a small thing, repeated over time.
It’s also much easier to make a small change than to overcome a huge obstacle in one go.
But even mountains are worn down over time. Wearing away at things works.
Things to Watch Out For
That said, there are a few things to watch out for when you’re making an incremental change with your money.
First, you have to trust the process. It works if you stick with it and give it time!
Second, you have to focus on the right things.
Suppose you get paid twice a month and your net pay is $1631. 1% of that — which you put toward debt or savings/investments — is $16.31 or $32.62 a month. Of course that’s not very much in the big scheme of things. But that is exactly the point.
Focus on how you can find ways to live with out that amount of money, until you adjust to not having it. Then add another 1% and repeat.
Do not focus on how it’s going to take you forever to save up $x or pay down $y at that rate. You won’t be at that rate forever! In fact, you’ll probably be setting aside more than you thought possible before long, without even noticing.
If $32.62 a month (or whatever your 1% ends up being) feels like a lot to you and causes struggles, it’s ok to go down to an even smaller amount to start with.
Remember that it’s not about the amount or percentage. It’s about the incremental, ongoing changes that add up over time.
Make your changes small enough, and they will be doable. Do them often and long enough, and you’ll change your life.