Starting your journey toward financial fitness can be overwhelming. If you take a gander at the Center for Financial Services and Innovation (CFSI)’s eight key indicators of financial health, which include spending less than your income, having sufficient living expenses in liquid savings, and planning ahead for expenses, it’s hard to know where to start.
Just like how becoming physically fit requires continual effort, discipline and a shift in habits, the effort required in one’s journey to financial health is a ton of work. When it comes to spending less than your income, where does one begin?
I say kick off your savings plan with the easy and big wins. Easy wins include changes that require very little effort, but can net major savings over time. Big wins include slashing costs on the three top spending categories: housing, transportation, and food. For instance, setting up a separate savings account for a specific goal, and auto-saving the amount each week. Another easy win is finding ways to reduce your utility bills and subscriptions.
Here’s why it’s best to focus on the easy and big wins:
You Get a Psychological Lift from the Get-Go
If you’re pushing a huge boulder up the mountain, you’ll want to enjoy a win early in the game. Other shifts to improve your money situation, such as forming better spending and saving habits, take a lot more work and willpower.
Saving $10 a week on gas by taking the commuter bus instead of driving to work a few times a week will net you $40 a month or $480 a year. Nixing a few digital subscriptions to online publications you no longer read could put $25 a month in your pocket, which tallies up to $300 a year. I use auto-saving for most of my goals, and I love checking my balances and seeing the number climb at a steady pace.
You Lighten Your Cognitive Load
A study by the Common Cents Lab on why people might struggle to save and manage money throughout each pay period reveals that a greater cognitive load posed a barrier. Needing to check your balance every day, and weighing all your spending options against each other can take a mental toll.
Let’s say you’re deciding on whether you should fork over a few bucks for a cup of coffee and a pastry at a coffee shop on your way to work. Financially speaking, it might only cost you a few bucks. But even the smallest transactions can send you spiraling down the rabbit hole of mental money math. If you’re trying to make the money sitting in your bank account last until the next payday, or save a bit of it, a litany of considerations might be running through your head.
You might need to gauge what bills you need to cover in the next week. What other unexpected costs might creep up? Can you ultimately afford spending this, or should you practice restraint so you can save some of that paycheck? All those questions require a ton of mental effort.
If you make the effort in saving with either big or easy wins, or do something simple like automate your savings, you’ll have less decision-making to do. You won’t have to wrestle with the constant stream of questions. Instead, you can feel okay spending that money, because you’re already doing other things to save.
Pointers on Scoring Easy Wins
Automation is your friend. Get acquainted early on. If there’s one thing you can do today that will help you in the long run, it’s automating your savings. Set this up on a money management app, or through your bank.
As for cutting the costs on your recurring bills and recurring subscriptions, look for subscriptions you no longer use or have little value to you. For the ones you do still use, can you negotiate for a discounted rate, or find a less-expensive alternative? What about swapping the membership to the luxury gym for a cheaper one at another gym? When looking for easy wins, be careful not to cut back so drastically that you feel deprived. If you do, you could suffer a bit of backlash—rebelling by overspending, or just plain feeling miserable.
Tips on Making Big Wins
As you might imagine, there’s only so much time you want to invest if you want to put into making your big wins. Saving on your grocery bill might come a little easier than major changes to your housing or means of transport.
As for what to focus on within the big wins, I say keep it fun. Are you a natural bargain hunter? Seek coupons and sales on your groceries. If you want to net significant savings and are willing to make more drastic cuts in your housing or transportation, look at the cons and pros. For instance, what are the trade-offs of getting a roomie or AirBnbing one of the rooms in your home, or in making the switch to a one-car household? Is the money you’ll potentially save worth the trade-offs?
As the journey to having a positive relationship with your money and developing strong financial fitness is long and hard, netting wins early on will keep the momentum building. Results are what keep us going. There’s no point in going to the trouble of cutting coupons, auto-saving each week and brown bagging it to work if you don’t see the money piling up in your bank account. And in turn, the freedom to spend that money on something meaningful or intentional. But you can’t flex until you have financial muscles.
I recently spent a fair amount of money on some pricey high-end cookware. It’s something thrifty me wouldn’t typically buy. But I could feel good about spending that money because I had been auto-saving toward a splurge fund. In turn, I could give myself full permission and freedom to make that larger-than-usual purchase.
Not only will your wallet thank you, but you’ll also enjoy a clearer headspace and feel good about your daily money decisions.
Jackie Lam is a personal finance writer. Her work has appeared in Investopedia, Magnify Money and The Bold Italic, and she’s been featured in Money, Kiplinger, Forbes and Woman’s Day. She runs Cheapsters.org, a blog to help freelancers and artists with their money, and to balance their passion projects and careers.