This post is from our regular contributor, Erin.
We talk a decent amount about establishing financial goals, and for good reason: goals are necessary to have! Without them, we wouldn’t have much motivation to improve our finances.
However, getting started can be rough. If you’re in a good financial situation right now, that probably wasn’t always the case.
Can you remember when you first started sorting through every bit of information on personal finance you could get your hands on?
I know I do – reading blogs was a large part of that. =)
However, it’s easy to get lost in all the information we find. As we hear so many times, personal finance is personal, which means everyone has their own way of doing things. Whether it’s paying off debt, saving, budgeting, or scoring deals – there are tons of ways to do each, and none are necessarily right or wrong.
The worst thing you can do is run away from all this knowledge and not make any changes. You just have to break information into tiny digestible pieces so you can work your way through it. That’s why I’m going to give you some advice on how to start small when it comes to making financial changes.
Starting Small with Saving
There are so many things we should be saving for in life, it can seem almost impossible to whittle it down into bite-sized chunks.
The first thing you should start with is an emergency fund. I’m sure you’ve all heard that before. Emergency funds are the best weapons against the uncertainty we face in life.
Emergency funds will help you out if you find yourself in a bind, and they should also prevent you from going into debt.
Most of the confusion comes from wondering how much to save. To that, I usually say whatever helps you sleep at night.
Many people will recommend at least 3 months of living expenses. If you’re self employed, you’ll want to save more. If you’re in an industry that’s crowded, or job prospects are low, go with 4-6 months.
Depending on your expenses, saving that much can be overwhelming.
What should you do? Break everything into chunks. For example, if you need to save $2,000, if you take 6 months to do it, you’ll only have to save $333 per month. That’s not nearly as daunting has saving $2,000, right?
Once you get into the habit of saving, you can always increase that amount. If you have to start lower, that’s fine, too.
I also need to mention the benefit of setting up automatic transfers from your checking to your savings account. That will make saving super easy, and it won’t overwhelm you since you won’t have to think about it.
If you need help on figuring out what else to save for, I wrote a post on how to figure out what your financial values are. Take a look at that, and your priorities will probably become much clearer!
How to Start Paying Off Debt
While I only have student loan debt to deal with, I’ve helped my parents work out a debt payoff plan.
They have about five or six different creditors they owe. It took them a while to sort it all out because it seemed so tedious at first.
Who really wants to list out all of their balances owed? Besides being tiring, it can be an emotional shock to total up all your debt.
But it’s necessary in order to pay off your debt efficiently.
If you’re overwhelmed with the process, take it one step at a time. First, commit to actually creating a list of your debt. Make columns for the name of the loan, the balance owed, the minimum payment required, the due date, and your interest rates.
The next day, come back and fill in 2-3 of your debts. Slowly build your list until it’s done.
Alternatively, there are several free services out there like Mint and ReadyForZero that will pull this information for you. You just have to connect your various accounts with them. After that, they’ll update automatically.
After you’ve gathered all the information, figure out how you want to pay off your debt. Use whatever method works best for you! The important thing is you start.
Once you become comfortable with that, you can figure out how much extra you want to pay. If you can’t start with much first, that’s fine. If making smaller payments throughout the month is easier than making one large payment, do that instead.
Eventually, you’ll get into the habit of focusing on paying it down, and you won’t have to think about it. If you have a large enough buffer in your checking account, set up automatic bill payments as well. Just check your account statements for accuracy.
Saving for Retirement a Little Bit at a Time
Retirement is one of the harder financial goals to focus on for many.
If you’re starting early, it may seem like retirement is so far away, you don’t have to worry about making contributions for a while.
However, you can’t really argue with compound interest.
Let’s look at an example. If you put $500 per month into your retirement account for 30 years, assuming an annual growth of 7%, you’ll end up with $574,376 (with an initial deposit of $1,000).
Hold up – $500 per month might seem like a lot to commit to right now, especially if you’re not making much.
Even if you invested $100 per month, you’ll still end up with $120,965 (under the same conditions). While that’s not enough to retire with, that’s still a better balance than $0!
Do the Best You Can With What You Have Now
There are a lot of financial experts who love throwing big numbers around because they sound better. But they might not be attainable for everyone, especially as a young adult just starting out in their career.
The key is to work with what you’ve got now. You’ll get further ahead by taking action now. Procrastination won’t get you anywhere.
Most people regret not getting serious about their finances sooner. When you’re young, time is on your side, and it’s best to use it wisely.
Don’t worry about making seemingly insignificant payments toward your debt or savings. They will add up. Don’t believe me?
If you have a 5 year loan totaling $5,647 with a minimum payment of $125.61 and interest rate of 12%, you’ll end up paying an extra $1,890 in interest.
By paying just $10 more per month ($135), you’ll pay $197 less in interest, plus you’ll have your loan paid off 5 months earlier. Doesn’t that sound better? Imagine what an extra $50 could do!
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Starting small is perfectly acceptable. Don’t compare your journey to others and let their progress discourage you. Focus on establishing good financial habits, and the rest will fall into place. You don’t have to get caught up in trying every tip under the sun.
Do what’s best for you and work with what you’ve got. Things will likely improve in a few years, and you’ll be glad you made the progress you did. It’ll make life much easier down the road!
Have you had to “start small” with your financial goals before? Do you think taking baby steps is beneficial?
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It can be overwhelming to list out the debts, but it’s also part of the motivation. I hate thinking about our 100k debt. But (before they were paid off last year), we had several small debts in the 2k range. 100k is not manageable. 2k is!! Start where you can make a difference!
I think many have to start out small and know we did. It can be easy to let the “small” number hold you back from even starting – whether it’s paying off debt, saving for retirement or anything else. I’ve found that by simply starting and developing that discipline is the biggest key of all. Then, once you have more you’re able to allocate more towards whatever goal it is more naturally.
I think too often, people discount the power of small beginnings.
Great article Erin!! I feel like I tend to get really overwhelmed with everything from my car loan, to student loans, needing to save money, and more. But you’re right, starting small and just doing what you can is important.
I think starting small is great advice. Often times, I hear people say how overwhelmed they are and that how small extra payments to debt won’t even put a dent in it or how small savings contributions wouldn’t add up, but it’s not true. In the beginning, it may seem that way but it really builds up. Right out of school, I started saving a small amount since I wasn’t making much and the account was pretty puny but after awhile…compounding works its magic if you invest it.
Setting attainable goals makes much more sense. Don’t aim for the stars or you’ll just be disappointed when you don’t reach them.
This is great advice!! When I started my business, I had big goals and wanted to achieve them all overnight, but every journey has to start with small steps and each step is an important part of the whole process. Looking back on the last year and a half, I can’t believe how much I have accomplished but that’s because each day added up to something big.
indebtedmom Thanks for sharing your experience with it, Kirsten! While it can be a little time-consuming to list everything out, having your debt broken down like that definitely does make it seem more manageable.
FrugalRules Yes, exactly – getting the habit down is often the hardest part. You just have to commit yourself to it by easing in. Things tend to fall in place after that!
brokeandbeau I think so too, Stefanie. We have a tendency to get caught up in the bigger numbers and making as much progress as possible. We don’t think starting small will equal success. Not true!
KerstinStokes Thanks! It can be really overwhelming when you have a lot of debt and savings goals, but prioritizing and figuring out what you can tackle first will help.
Andrew LivingRichCheaply Little amounts definitely add up, whether it’s from spending, saving, or paying off debt. Any bit helps, really. Even if you think it’s not moving the needle enough, over the course of a year or more, it will.
barrychoi Very true! I have been guilty of setting lofty goals before. It depends on your personality, but I know I don’t do well when I can’t reach my goals because I was unrealistic.
blonde_finance It can be really hard to start small, especially when you’re launching a business. I admit that patience isn’t exactly my forte, so that’s usually half my problem. =) If people can focus on putting in the effort every day, even in just a small way, it will pay off.
Erin @ Journey to Saving indebtedmom Victoria and I are taking a similar approach with some of our higher-interest student loan debt. We plan on knocking out some of the smaller loans and, in turn, freeing up cash flow. I think the combination of knocking out loans and seeing a small increase in cash flow will motivate us to pay down even more loans.
DC @ Young Adult Money indebtedmom That sounds like a good plan – having an increase in cash flow has definitely been motivating for us! That’s one of the best aspects of paying off debt, especially when you already know what you want to do with the money once it’s free.
You’re right about it all feeling overwhelming to start with. I’ve just quit my relatively well paid job to go self employed, which means….very little income for now. It’s fine, because I can live off my money, and I’m still saving a percentage of my income, however it’s clearly not a lot right now!
I also see a lot of articles talking about joint incomes. I get it, most people who are looking at sorting out their finances are in a relationship, planning for the future etc. And then I’m sat there with my single income, going….yep. I still want a secure financial future!
I know, though, that the situation I’m in is temporary, and I’ll be able to save more in the future, which gives me hope!
Thanks for sharing, it’s nice to hear from someone who clearly knows what it’s like to live on less money.
AdventuresReece You just described where I was last year, except…I didn’t have what I would consider a well-paying job. =) It took me around 6 months to really ramp up my income, but the wait was painful. I know it seems like a long ways off, but you’ll be there in no time!
I also think there’s something to be said and learned from doing it on a single income. It’s much more empowering to know you can take care of yourself, be your own boss, and still be financially okay. And I’d argue it’s also more appealing to any potential partners down the road!
Starting small is key. I find so many people want to start big because they want to see an immediate improvement, growth or whatever. But that rarely happens. Small changes may have a minimal impact initially but over the long haul, they can payoff greatly. Plus they also become a new habit and/or mindset, which is equally as important.
I have to always remember to start small, as I’m someone who feels easily overwhelmed. Then I curl up into an emotional fetal position and nothing gets done.
I’m getting better at breaking things up into steps, which has really helped. And when we were incredibly broke, I still decided to put $100 a month into retirement. I just had our bank transfer $25 a week from our main account into our secondary. We didn’t really miss it, and then the $100 wasn’t a surprise expense.
For me starting small was the only way. At the time I didn’t have much to begin with. Eventually you will gain some leverage. Once you get to that it gets much easier.
ShannonRyan Yes, establishing good financial habits is crucial, and that can really only be done over a period of time. “Quick wins” aren’t going to teach you important lessons that will stick with you and continue to influence how you manage your money.
AbigailP I’m totally like that when I get overwhelmed with work!
I’m a huge fan of setting up automatic transfers – even for small amounts such as $20-$40 a week. You’re right that most people aren’t going to miss it or feel the sting.
Jason @ The Butler Journal It’s so important for people to realize that starting small is better than not starting at all. I remember getting my first part-time job and making minimum wage. Yet, by the end of it, I had $3,000 saved up!
Starting small is the key to consistence, and consistence is the key to saving! That being said, it’s still important to remind myself to not get ahead of myself and try to stick to a realistic long-term savings plan
Anum Well said – consistency is definitely key for financial success (and any success in general).
Yeah I’d agree that starting small as it looks like a few people is vital. The power of compounding growth is definitely under-rated. While I must admit it is sort of frustrating and slow at the start, having faith in the process and understanding why you want to get to where you want to be is pretty important as well..
Also important to have some fun I’d say! :)