Last year, I wanted to write a book. It seemed like an impossible task. But I figured, "if I can write a long blog post, I can surely write one chapter," so I took it one chapter at a time. Before I knew it, I finished the whole thing. Small actions made all the difference and our finances work the same way.
For example, saving five bucks here and there doesn't feel like much. What's the point in saving, you might ask, if you can only save five bucks? Over time, that money adds up, but that isn't even what matters. What matters most is that, when you see five dollars turn into $500, or even $100, you start to feel a trace of control over your money. That's when your financial life really turns around.
Make Choices That Motivate You
When you save five bucks, you make the decision to save five bucks. More than the money itself, that decision is key.
Neuroscience researcher Alex Corb studies the link between happiness, control and decision-making. In his book, The Upward Spiral, Corb explains that a "good enough" decision activates the brain's dorsolateral prefrontal area, which can make you feel a sense of control. He writes:
When trying to make a decision, we tend to focus on the relative drawbacks of each option, which often makes every decision seem less appealing. Nor do we usually have enough information to feel confident in the decision the world just too complex. Trying for the best, instead of good enough, brings too much emotional ventromedial prefrontal activity into the decision-making process. In contrast, recognising that good enough is good enough activates more dorsolateral prefrontal areas which helps you feel more in control.
In simple terms, worrying too much about making the right decision can backfire and stress you out. On the other hand, you feel empowered when you make a decision without worrying whether it's the best.
That's precisely why small actions pack such a punch.
If you save five bucks and it doesn't work — who cares? It's just five bucks. You don't have to make some groundbreaking, monumental decision. It's one small, casual choice that cultivates 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 choices and control "trigger parts of our brains where motivation resides". He adds that the key is to tie the choice to something meaningful. "If you can link something hard to a choice you care about it makes the task easier," Duhigg writes. "Make a chore into a meaningful decision and self-motivation will emerge."
Going back to the $5 example, you'll be a lot more motivated if you link that tiny action to something meaningful, like a goal to travel more or get out of debt so you have more flexibility to look for a better job. If your goal is to pay down debt, for example, you might take on one of the following tasks:
- Use your tax refund to pay off a big chunk of debt
- Negotiate a better credit card interest rate to pay off the card faster
And if you want to save more money or earn more, you might set up an automatic savings transfer, increase your savings by just one per cent more each year or sell something online. These are relatively small tasks, like listing something on eBay. When you complete the task, though, you're engaged with your money and you facilitate change. When the choice supports something meaningful to you, you're motivated to make long-term financial progress.
Make Long-Term Goals More Actionable
Similarly, when you have a long-term financial goal, small actions make the goal more present. One of the main reasons it's so hard for us to save money is that we think of our future selves as strangers.
Hal Hershfield, a marketing professor at UCLA, studies this concept. He actually came up with a visual scale to gauge how connected people feel with their future selves. Vox explained his research in a nutshell:
Hershfield has also confirmed this with brain imaging. When people are in an fMRI scanner, their rostral anterior cingulate cortex brain region — which usually shows a high level of activity when people think about themselves — quiets down when people are told to think about themselves in 10 years. In fact, our brain activity when thinking about our future selves looks surprisingly similar to what happens when participants are asked to think about other people altogether.
In a way, saving for a long-term goal feels like giving money to a stranger. Other research, like this 2013 study published by the Association for Psychological Science, finds that people do save more when they focus on the present rather than the future. Small goals make long-term goals more present, which makes it easier to take action. This is why the Snowball Method, despite the maths, is the most effective way to pay off debt in the long-term.
Get Motivated by the Progress You Make
With the Debt Snowball Method, you generally pay your smallest debts first. You'd think it would make more sense to tackle your highest interest rate debts, regardless of the balance, and it does — on paper. In reality, money management has everything to do with behavioural concepts like motivation, which is why research shows people are more likely to stick to a debt goal with the Snowball Method. It's better to use a method that works than consistently fail at one that means you'll pay more over time.
The reason the Snowball Method sticks is that you see yourself make progress, and you're motivated by that progress. What once felt impossible now seems doable. In The Progress Principle, researchers Teresa Amabile and Steven Kramer explain:
...of all the positive events that influence inner work life, the single most powerful is progress in meaningful work; of all the negative events, the single most powerful is the opposite of progress — setbacks in the work. We consider this to be a fundamental management principle: facilitating progress is the most effective way for managers to influence inner work life.
It sounds obvious, but in other words, nothing makes us want to keep going quite like experiencing progress. And small actions help facilitate that progress. They can have a big impact on your finances because of concepts like control, progress and motivation.
In fact, the whole Lifehacker Money Challenge is based on the idea of small wins for big progress. Each month, you get a different challenge. It's fun, sure, but the overall goal is to motivate you and make you feel in control. It's the Goldilocks Effect: Our tendency to feel motivated by tasks that are challenging but still doable.
Yes, small actions add up over time. More importantly, though, they impact your attitude toward money right now and give you a much-needed sense of control. Ultimately, that's what transforms your financial situation more than anything: Feeling like you can actually do something about it, even if it's something small.