Big Plans Succeed With Little Steps
Have you ever woken up one day and said to yourself ‘wow, I really have to get my act together…’. The next day it’s all green smoothies, two hours at the gym, open the credit card statements, and of course – calling your mother.
“While we forgot what it meant to build something slowly and quietly in the background, believe it or not, I think we are starting to remember again.”
It’s a knee jerk reaction. As such, you and I both know it won’t last. We over-estimate what we want to achieve in a week. But in a similar fashion, we can also under-estimate what we can achieve in a year.
I recently wrote an article on how a five year plan changed my life. It did quite well off the back of Linkedin (I’ll never understand Linkedin), but I think I know why. While we forgot what it meant to build something slowly and quietly in the background, believe it or not, I think we are starting to remember again.
What was once a long way to the top if you want to rock and roll was replaced with reality TV singing competitions. Napster came along in the nineties, the whole music industry went digital. And as Sanity and the Virgin mega-stores shut down, we called it a day on hard copy music . But then this happened… ‘Vinyl albums just outsold digital for the first time ever’
“Money it seems, is returning to its roots also.”
Instant gratification is rather gratifying, but so is something else. Anticipation. The buildup. The ability to appreciate what you’re holding in your hands. The process of buying an album was a part of the journey. Music is more than just listening, it’s experiencing the whole package.
Money it seems, is returning to its roots also.
Credit cards are instant cash. Savings take a little bit of time. But I can guarantee which one feels better to spend. I can guarantee which one is guilt free spending and which one isn’t. I can guarantee which one will keep you from reaching all your other goals, and which one simply plays it’s roll in being a part of your financial life.
“Even if you are disciplined enough to put money aside in an account – the fact that it is sitting there and you aren’t spending it is a mental drain.”
So how do you build up a treasure trove of cash?
Well with my work around understanding decision fatigue in regards to money, savings make for a strange situation. See, even if you are disciplined enough to put money aside in an account – the fact that it is sitting there and you aren’t spending it is a mental drain.
What a pain.
This comes from the research performed by American social psychologist Roy Baumeister. Basically unfulfilled satisfaction distracts you from your task and hand. This in turn reduces your performance in all areas of life. Put simply – if you save money in an account you have access to, it’s simple existence will demand you spend it. If you don’t, your brain will be distracted until you do.
Again, what a pain.
So how do we achieve two things:
Build up a guilt free amount of money to spend once a year on something big
Do so in a way in which we aren’t reminded of every time we look at our bank accounts.
Luckily, you’ve come to the right person - I do this for a living. You build up a savings accounts with regular deposits in a side account that you can’t spend with a card.
“Build regular deposits in an account you don’t have instant access to. By accumulating savings in account you don’t think about everyday, you avoid the decision fatigue associated with the constant desire to spend it.”
See my journey from sojourn savant to lifestyle finance expert took over five years of small regular improvements (plus another five years previously in accounting – but who’s counting). When I woke up on a beach in Southern France five years ago and decided I needed to get my act together, I didn’t make a large knee jerk reaction. I built success with little steps over a period of time.
From my professional experience of handling the cash flow of many young professionals over the years, I can say this applies to the personal finance space more than anything else.
And so like everything else, how do we reduce the barrier to entry? How do we make this easy on you? Simple - build regular deposits in an account you don’t have instant access to. By accumulating savings in account you don’t think about everyday, you avoid the decision fatigue associated with the constant desire to spend it.
“If you were to set in motion today a $10 a week regular deposit arrangement, next year for Christmas there will be around $500 waiting for you to spend.”
Great, so where can you find these types of accounts? Well, what about opening a new bank account with a new bank? That would work right? Why of course! I’m sure you’re a massive fan of the banks and can’t wait to open another account with another institution….
To save that hassle you could always open another bank account with your current provider. But then, we both know a simple transfer is 0.2 seconds away from spending. That’s going to defeat the whole purpose of cognitive minimalism. We want the money far enough away from you so you don’t have to think about it, but close enough to spend when the time is right. So what are you to do?
While Raiz is a financial literacy tool to help you engage with your money, it has a lesser known function called regular deposits. All this does is automatically move a set amount across each month into your account. If you were to set in motion today a $10 a week regular deposit arrangement, next year for Christmas there will be around $500 waiting for you to spend.
And in the meantime you’ll see the market go though it’s classic roller-coaster up and down. It will go up, it will go down. And withstanding any kind of cataclysmic wild events - it will only ever mean a couple of dollars up or down as investment amount is comfortably low. The benefit however is your investor intelligence will increase while simultaneously building a small portfolio in the background that doesn’t create decision fatigue.
Big plans succeed with little steps.
In this example, $10 a week put aside over 52 weeks would equal $520 if there were no movements in the market. Obviously this is a theoretical case study with the end result being above or below this amount. The case study mentioned above is not a suitable long term investment strategy as anything less than five years in the market is considered too short of a time frame to benefit from returns. Instead the case study above is simply to provide education around the benefit of consistently making small regular deposits into an investment account – the withdrawal after 52 weeks is not mandatory. Raiz cannot provide any certainty around how much money an investor would be able to withdraw in the event they followed the above case study as investment returns are unpredictable, and past performance does not provide insight into future performance.