Small steps to saving big

Rather than radically re-shift your spending, try incremental change to push your spending habits in the right direction.

One of my New Year’s resolutions was to reduce my hobby and entertainment spending by 50%. Each month, I budget a certain amount to spend on my hobbies and other entertainment sources, with any “leftovers” rolling over into the next month. My goal for 2010 was to spend an annual amount that equaled half of what I spent in 2009.

I knew this would be a bit difficult, mostly because I like to buy books (that’s where the majority of my “entertainment” money goes). So, I decided to make the change a bit progressive to see how it worked.

The first thing I did was calculate the amount I could spend each month in 2010, which was easy enough – take my total from 2009 (somewhere around $3,000), divide it in half, then divide it by twelve, leaving me to shoot at an average of $125 a month.

Rather than radically re-shift my spending right off the bat, I decided to try incremental change to push my spending habits in the right direction.

So, in January, for example, I set a target of 75% of a typical month from 2009, capping my spending at $180. In February, I dropped it to 70% – $165. Each month thereafter, I’ve dropped it another 5%, leaving May at 55% of my spending from an average month in 2009. In June, I’ll be at 50% and I’ll stay there for a couple of months, then start dropping further, ending with November and December at 35%. For the year, the total adds up to 50% of my spending for 2009.

Making the changes small and incremental has, at least so far, made it much easier. Each month, I’m pushed just a little more to use the library instead of the bookstore. I’m pushed just a bit more to eat out less. I’m pushed just a smidge more to hold off on buying a new board game, holding off a month or two. I’m pushed to conserve money for things later in the year that I intend to do.

This idea of “incremental change” works well for other personal goals.

For example, I’m slowly increasing the amount I walk each day (on average). One week, for example, I’ll set an average of two miles a day. The next week, I’ll raise that average to 2.1 miles.

Now, how do I work through that average? Some days, I’ll walk three and a half miles. Other days, I won’t take a walk or I’ll take a walk for just a mile (sometimes with my son and daughter over at the park).

The key, though, is that I meet my average for the week and that the average is slowly going up. I keep track of the data carefully using a pedometer so that I’m sure I’m meeting my goals.

Another example is moving my diet towards a vegetarian diet. To do this, I’m including meat in fewer and fewer of my meals gradually over time, replacing the meat with protein-heavy vegetables like beans.

This type of “gradual change” can be used for almost any personal finance goal.

Paying off debt matches this tactic very well. Slowly ratchet up your debt repayment over time, adding a little bit more to your payment each month and figuring out how to live on what’s left.

Saving for a goal works in a very similar way. Ratchet up your savings a little bit at a time by changing your automatic savings plan to transfer a little bit more each time.

Working through your financial to-do list can be handled by doing one thing today, then two things tomorrow, then three the day after that… and the next thing you know, it’s done.

The next time you’re trying to adopt a new habit in your life or make a significant change to how you do things, consider working to it gradually instead of cold turkey. It can really work.

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