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Set smaller goals: impress friends, get girls, lose weight

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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.

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If you had a life-threatening illness, would you take your medication? “Of course,” you might say. Not the average patient, though: Even when facing death, a surprisingly high percentage of patients don’t take the medication prescribed to save their lives. This is called patient compliance and last night, I was thinking about it in terms of behavioral change.

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.

Sustainable personal finance

A ghetto graph I drew this morning

Did you know that 95% of diets fail? As Randi Cardonick, a nutritionist at the Penn Health for Women, notes, “If 95 percent of all diets fail, we have to assume it’s the diet that’s failing, not the dieter.”

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

Update: If you’re a new reader, here’s a list of popular iwillteachyoutoberich posts and my RSS feed.

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52 Comments

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  1. excellent post! I was just talking with my finanical advisor the other day and I told him I wanted to contribute an extra $150 to my IRA each month. He asked why and I said, I finished paying off my car over a year ago, and those payments were $250/mo, so I have this “extra” money I should probably move over to my IRA.

    Then he asked me if I’d become used to the extra $250/mo and I said of course. He advised that instead of going for $150/mo, why don’t I ease into it at $75/mo at first. His reasoning was that since I was used to the extra cash, the $150/mo would seem like too much at first and that I might not stick to it.

    long story long, I took his advice.

  2. This is an excellent piece!

    Like much of your writing, this piece focuses on empowering people to take control of their lives, instead of living forever as fearful mindless drones. I think that if people reading it can take this one piece of advice to heart it will do more for them than all the financial acumen in the world.

    On a personal note, last year, I became eligible for my company’s 401k and immediately started contributing the maximum that they would match. At first, this cut to my disposable income was noticeable, but not for long. Now I’ve just added about the same amount (dollars) of monthly savings in post-tax money, and it doesn’t even hurt as much as the original start to my savings.

    In short, baby steps work!

    Thanks for the site and all, enjoyed your recent e-book.

  3. Right on, Ramit.

    I dropped 30 lbs. about 2 years ago and have kept it off largely due to one thing that I do that you won’t see in many diets: I give my self one day a week where I can eat anything I want. Having that one day where you can backslide just a bit (don’t over do it!) makes the next 6 a lot easier.

    Same with personal finance. No, you don’t need the shiny new car. But go ahead and get that cool little mp3 player it if makes you happy.

    Moderation in all things…Slow and steady wins the race…And lots of other cliches. 🙂

  4. Nice article! I have a list of goals for this year including personal & financial goals. I am going to go through my goals just to check if I am not setting unreasonable goals & to take it “Slow and steady”

  5. A Kathy Sierra you’re not (in regards to your graph) :), but I really liked the article.

    So, if “information influence is the least effective form of influence”, what’s the next best step? Maybe a possible next article?

  6. This is fantastic advice. The changes that I have been successful with both in life and financially have been those that have been gradual. I have an auto-direct debit from my paycheck to a savings account and my Roth IRA. I adjusted my lifestyle and dont notice this money missing. When I tried to move an additional $380 a paycheck to another savings account, I found that it was too drastic a change and I had to take it back out immediately to settle my credit card bill for that month. Had I started doing $50 or $100 a check and slowly increased it, I probably would have been OK.

  7. Habits! Habits! Habits! Habits!

    Ramit, over at I Will Teach You to Be Rich has written a fantastic post on how setting smaller goals and creating habits helps you become more financially independent. His article is right on target with regards to what the One Year Exit Plan is all about. Check it out!

  8. I love your graph.

  9. It’s funny how human psychology is–I’m glad you’re offering some of it.

  10. I’m just looking around your site for the first time and it looks like you are generally offering some pretty sound advice. But tell me: are you actually rich yourself? Because if you haven’t actually managed this then I must take some of your advice with a grain of salt.

    I can recall all sorts of things that I read on the Motley Fool years ago that made sense at the time but since then I have found are not really great rules. And in fact the very nice people who wrote those articles were not rich themselves and turned out to be terrible at picking stocks. Otherwise I expect that they wouldn’t have had the day job writing for the Motley Fool. So could you perhaps consider adding something to your collection of introductory posts which establishes your bonafides?

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