New readers: welcome! This is a blog on personal finance and personal entrepreneurship for college students, recent college grads, and everyone else. I’ve been writing for over 2 years and I have over 400 articles in my archive. After you read the post below, here’s a list of popular iwillteachyoutoberich posts and my RSS feed.
When I was studying social influence and persuasion in college, I learned about social psychologists’ and medical practitioners’ attempts to effect behavioral change for good things like washing hands, eating healthier, staying in touch with family, etc–and how hard it really is. “But Ramit,” you might say, “if someone’s going to die, you just give someone their medication and they’ll take it! If they don’t, they’re stupid!” Ah, I might reply, I see we have brought the wit and grace of Shakespeare to the debate today. Jackass. But in truth, getting people to change their behavior–whether it’s going to vote, clicking a button to buy something, or taking life-saving medication–is far more complicated than just giving someone the appropriate information and trusting them to do it (“information influence is the least effective form of influence,” we learned over and over). So I’m interested when I hear of people attempting to change their own behaviors.
Last year, a friend of mine who was entering college started getting really into fitness. I think was due to his laudable goal of “getting some girls.” Kudos, sir. Anyway, he started working out more than I would have expected: in the morning, running during the day, then working out again at night. I told him how ridiculous I found that. Do you know people who get so into their idea du jour that they go completely overboard and burn out? For me, I would rather do less, but make it sustainable. The problem is, that’s rarely sexy. Instead, if you’re working out for 5 hours a day, you can point at your effort (often just to yourself) and say, ‘Look, I’m doing it!’ But would you rather feel satisfied at your efforts, or would you rather get results through a methodical process?
This idea of sustainble change is core to personal finance. Sometimes I get emails from people who say things like, “Ramit! I read your entire site and I started managing my money! Before, I was spending $500 a week! Now I’m saving $495 of it and putting it into a bank account!”
I read this and just sigh. While you might expect me to get really excited about someone contributing $495/month to their savings, I’ve come to realize that when someone goes from one extreme to another, the behavioral change rarely lasts.
In my experience, this is true in personal finance, fitness, studying, and a bunch of other areas. When I make a change, I almost always make the most incremental change of all and work iteratively from there. This is why I just shake my head when I see personal-finance pundits giving families advice to go from a 0% savings rate to a 25% savings rate (“you can do it!!!”). Giving that kind of advice to someone is not useful if their habits have been set for years. That’s why you find articles like 8 lottery winners who lost their millions. Habits don’t change overnight, and if they do, chances are it won’t be sustainable.
For example, if I started keeping a budget and discovered I was spending $6,000/month, I’d do two things: First, make a plan for getting my budget down to something reasonable. Second, I’d immediately cut 10%. 10% isn’t too high or too low, but is does add up to something concrete. Then, a month later, I’d say ‘Hey, this isn’t so bad’ and cut another 10% off. And so on, according to my own plan.
The other way to do it is to look at your $6,000/month, freak out, and cut half your spending. Then, you’re suddenly in a completely different spending behavior without the means to cope. How long do you think your ambitious budget will last?
How many friends do you hear saying, “I’m not going to drink for a month” or “I’m going to study for 4 hours a day”? For me, the next month isn’t really important, and I don’t understand the point of short-term things like that. A month from now, okay, you only spent 50% of what you normally do.
And…now what? If you can reasonably expect that you’ll bounce right back to your normal spending, what did you really learn? “I can do it!” you might say. Well, I’m glad, but I’d rather have people cut their spending by 10% for 30 years instead of 50% for one month.
A ghetto graph I drew this morning
Right on. So when you’re deciding what to change about your personal finances, eating habits, exercise plan, or whatever…try making the smallest change today. Something you won’t even notice. And follow your own plan for gradually increasing it. In this way, time is your friend because each month gets better than the one before it, instead of the other way around.
Update: My old title (“How to make a sustainable change by being less ambitious”) sucked, so I changed it.
Update: Also see a related article, The Best Decision vs. The Financially Smart One
Do you know your actual earning potential?
Get started with the Earning Potential quiz. Get a custom report based on your unique strengths, and discover how to start making extra money — in as little as an hour.
Takes 3 min