How Small Actions Can Help You Control Your Finances
Last year I wanted to write a book. It seemed like an impossible task. But I thought, “If I can write a long blog post, I can definitely write one chapter,” so I went through it one chapter at a time. Before I figured it out, I finished it all. Small actions made all the difference, and our finances work the same way.
For example, saving five bucks here and there isn’t that much. What’s the point in saving, you ask, if you can only save five dollars? Over time, this money accumulates, but that’s not even the point. Most importantly, when you see five dollars turn into $ 500 or even $ 100, you begin to feel some control over your money. This is when your financial life really changes.
Make choices that motivate you
When you save five dollars, you are making the decision to save five dollars. This decision is key not only in terms of money.
Neuroscience researcher Alex Korb is exploring the links between happiness, control, and decision making. In his book The Upward Spiral, Korb explains that a “good enough” solution activates the dorsolateral prefrontal region of the brain, which can make you feel in control. He’s writing:
When we try to make a decision, we tend to focus on the relative disadvantages of each option, which often makes each decision less attractive. We also usually do not have enough information to be sure of a too complex decision. Striving for the best, instead of producing good enough results, brings too much emotional ventromedial prefrontal activity into the decision-making process. In contrast, recognizing what is good enough activates more dorsolateral prefrontal regions well enough, which helps you feel better.
Simply put, worrying too much about making the right decision can lead to unpleasant consequences and stress. On the other hand, you feel empowered when you make a decision without worrying about whether it is the best one.
This is why small actions strike so hard.
If you save five dollars and it doesn’t work – who cares? Just five bucks. You don’t have to make an innovative, monumental decision. This is one small random choice that develops a sense of control. When you feel in control of your finances, you tend to make better long-term decisions .
Make the choice meaningful
Control also motivates you to keep making progress . In his new book Smarter, Faster, Better, author Charles Duhigg says that choice and control “fires up the parts of our brain that are motivated.” He adds that the main thing is to associate the choice with something meaningful. “If you can associate something difficult with a choice that you care about, it will make the task easier,” writes Duhigg. “Turn routine work into a meaningful decision and you’ll be self-motivated.”
Going back to the $ 5 example, you’ll be much more motivated if you associate this tiny action with something meaningful , like traveling more or getting out of debt, so you have more flexibility to find a better job. If your goal, for example, is to pay off a debt, you can take on one of the following tasks:
- Set up direct student loan payment and get interest discount
- Use your tax refund to pay off most of your debt
- Negotiate the best interest rate on your credit card to pay off your card faster
And if you want to save more money or earn more, you can set up automatic savings transfers, increase your savings by just one percent annually, or sell something online . These are relatively small tasks: posting something on eBay, updating a 401 (k) form. However, after completing the task, you are busy with your money and are facilitating changes. When that choice supports something that matters to you, you are motivated to make long-term financial progress.
Make long-term goals more actionable
Likewise, when you have a long-term financial goal, small actions make it more relevant. One of the main reasons we find it so difficult to save money is because we think of ourselves as strangers in the future .
Hal Hershfield, professor of marketing at the University of California, Los Angeles, is studying this concept. He actually came up with a visual scale to gauge how connected people are with their future selves. Vox briefly explained his research :
Hershfield also confirmed this with brain imaging. When people are on an fMRI scanner, their rostral anterior cingulate cortex, which usually exhibits high levels of activity when people think about themselves, calms down when people are told to think about themselves 10 years from now. In fact, our brain activity when we think about ourselves in the future looks remarkably similar to what happens when participants are asked to think about other people in general.
In a way, saving for a long-term purpose is like giving money to a stranger. Other research, such as a 2013 study published by the Psychological Science Association , shows that people do save more when they focus on the present rather than the future. Small goals make long-term goals more relevant, making it easier to take action. This is why the snowball method , despite the mathematical calculations, is the most effective way to pay off debt in the long term.
Get motivated by your progress
When using the debt snowball method, you usually pay your smallest debts first. You might think that it would be wiser to tackle your debts at the highest interest rate, regardless of the balance, and it is – on paper. In fact, money management has a lot to do with behavioral concepts like motivation, which is why research shows that people are more likely to stick to debt goals using the snowball method. It’s better to use a method that works than to fail constantly, which means you’ll pay more over time.
The reason the snowball method remains the same is because you see yourself making progress and that progress motivates you. What once seemed impossible now seems doable. In The Principle of Progress, researchers Teresa Amabille and Stephen Kramer explain:
… of all the positive developments affecting the inner work life, progress in meaningful work is the strongest; Of all negative events, the strongest is the opposite of progress — failure at work. We see this as a fundamental management principle: promoting progress is the most effective way for managers to influence the internal work life.
It seems obvious, but in other words, nothing makes us move on like progress . And small steps help facilitate that progress. They can have a big impact on your finances due to concepts such as control, progress, and motivation .
In fact, the entire Lifehacker Money Challenge is based on the idea of small wins for big progress. Every month you get a new challenge. It’s fun, of course, but the overall goal is to motivate you and make you feel like you’re in control. This is the Goldilocks effect : our tendency to motivate ourselves with tasks that are challenging but still doable.
Yes, small actions add up over time. More importantly, they influence your attitude towards money right now and give you a much needed sense of control. Ultimately, this is what changes your financial situation the most: the feeling that you can actually do something about it, even if it is something minor.