Let’s say you incur an unexpected wasteful expense – perhaps you forget to cancel a hotel reservation and have to pay a fee, or your car is towed because you didn’t pay attention to the signs (hypothetically ). It’s a frustrating experience, and one that most people would rather forget and move on from. However, I’ve found that that sort of unforced error can be a great motivator to make permanent changes to your financial habits. [This works even if you already have excellent financial habits and helps you squeeze that last bit of savings from your daily and weekly routines.]
Let’s work through the hotel example: you pay $700 more than you had to because you didn’t cancel and book someplace cheaper in time. If you’re like most people, unless your finances are completely wrecked by this* you’ll probably cut back on something for a couple of days and then return to your regular life. This is a mistake.
*(and they shouldn’t be – your cash cushion should be able to pay a few months rent, let alone a weekend in Jersey)(…hypothetically speaking).
Here’s what you do: Write the number 700 down in a place you keep notes and access regularly. I use a spreadsheet, though in the past I’ve used a dry-erase board. Notebooks, smartphones, anything you normally use works. 700 is your starting point. The goal is to get that number to zero by cutting your spending in small ways until the savings add up to 700. A couple of guidelines:
1. Don’t cut out big items. If you have another big trip planned, don’t cancel it to offset the first mistake. Your finances should enable you to live a good life, not hold you back.
2. Don’t go crazy with austerity. You can stay home eating Ramen for a few weeks and get the job done, but that’s not sustainable.
3. Look for new habits. Instead of big things, look for savings in places where you have been meaning to make a change, or where you can develop a permanent new habit. (It’s easier to make one change at a time, but don’t let me stop you from trying for more.)
Perhaps you get a $3 coffee every day on the way to work, or you get a couple of diet cokes at the vending machine, or you buy the $7.99 salad special at lunch, or you pay for an expensive garage instead of a cheaper one three blocks away. Start making coffee at home, buy a case of diet coke for your office, brown-bag your lunch, and park further away and walk a few minutes. Every time you do, note your savings and update your running total.
That seems straightforward, but it actually does a few things:
1. You feel better. You just do, when you get to erase a mistake.
2. You hold yourself accountable. It’s easy to feel you’ve “done enough” to offset the error. This way, you actually get your finances back where they need to be.
3. When it gets to zero, you can stop – but you don’t have to. If the process took long enough, your habit becomes part of your new routine. You’ll instinctively put on a pot of coffee in the morning, refresh your diet coke stash weekly, pack a sandwich with carrots nightly, and routinely park down the street.
It won’t always work – it’s not magic – but some of these habits will stick with you. If they don’t, don’t worry. You’ll make another mistake soon.