An Iterative Approach to Improving Your Finances (and Your Life)

My previous career (before “freelance writer”) was in software development. I worked in a research lab where I wrote custom software solutions for research scientists who wanted nice interfaces to do basic data mining tasks into a pretty large database of scientific information. This required me to not only know how to code, but to have a pretty robust understanding of the data and what kinds of questions the researchers were asking.

This was a big project, and I was pretty much the lone programmer working on it (there was also a “data farmer” who did a lot of the data collection and organization). The scale of the project was far beyond what I had ever learned about in computer science and software development classes, so one of the things I had to teach myself was software development strategies. How do you even manage a project like this?

One core component of the system I ended up using was known as the Deming cycle, or PDCA. PDCA is short for plan-do-check-adjust, and actually represented the constant cycle of how I worked. It was basically a four step cycle that I did again and again and again and again in the workplace.

Plan simply meant that I learned about a new feature that a researcher wanted (or I wanted to improve some internal aspect of the software to make it run faster or to make it easier to do other things). I’d sit down with the problem I wanted to fix, think about it, and come up with a solution described in general terms (not code, but written English or a diagram). This usually started with emails or meetings and ended with a bunch of diagrams and writing on a whiteboard. I would intentionally focus on small steps here – rather than promising some big transformative change, I would break up that big change into the smallest bits I could that would be evident to the people who were interested and then work on one bit at a time.

Do meant that I implemented that idea from the whiteboard. I’d sit down and actually write the code for it. This would be done on our “test” environment, where I could write new code and roll out adjustments without actually changing the main software that anyone was using.

Check meant that I’d go back to the researcher and ask whether or not this was the solution that they wanted. I’d point them to the test environment that had the changes that I thought they wanted and they’d use it and we’d talk about whether I nailed what they wanted or something different was needed.

Adjust meant that I worked on the tweaks they wanted (at which point I jumped back to “do” or possibly briefly to “plan”) or I moved the changes to the production server, at which point I moved back to “plan.”

My entire job centered around this cycle, and over time, it meant that the software that I had written got better and better, small step by small step. It moved from being a bunch of junk code that I wrote for the earliest demos to gradually being a well-commented and organized library of tools and functions behind a nice interface.

One good term for that kind of bit-by-bit improvement is iteration. Iteration simply means that you’re making small improvements to something over time by repeating a process, with each repetition of the process making the core thing you’re working on slightly better.

Over the course of a year, I went from nothing to a pile of functional but not-very-elegant code (think of something held together by duct tape), then over the next few years, I sculpted that rubbish into something pretty worthwhile. As far as I can tell from the outside, a lot of the code that I wrote seems to still be in use today. That was all accomplished with an iterative PDCA approach.

Great, so what does this have to do with personal finance?

The topic of PDCA came up again recently in a conversation I had with a relative who is in the computer programming field. As I was describing some of the ins and outs of my own home-brewed PDCA strategy, I began to realize that I actually use PDCA in a lot of aspects of my life today, including personal finance.

I’ll use a few very tangible non-financial examples to show what I mean.

Taekwondo As I mentioned before, my entire family practices taekwondo at a school that focuses on defense and balance and agility and general fitness. I really enjoy it, but I’m not very good at it. I’m using PDCA to get better at it.

Plan I go to class and notice something that I’m doing wrong or could be doing better, so I talk to a black belt about how I could improve it. They usually give me a handful of suggestions, like working on my strength or my balance or my flexibility, usually with specific suggestions about how to work on it outside of class. I plan to work on those suggestions daily at home until the next class.

Do I take that suggestion and work on it at home. It might be something like doing a lot of planks or holding a particular stance as if it were a yoga pose. I do it a bunch at home, as instructed.

Check I go back to class and do what I practiced at home with a black belt watching me. Theoretically, the practice helped raise my kicks or improve my balance a little bit, though the benefit is usually incremental.

Adjust They either point out room for additional improvement (at which point I go back to “do”) or note that I seem to have figured it out (at which point I go to “plan”).

Daily routine My daily routine pretty much follows this pattern, particularly on work-heavy days where the children are in school.

Plan I do this in the morning, where I write in my journal and come up with my objectives and tasks for the day. I’ll dump out a few pages of thoughts onto paper, extract some things I should be doing from those writings, and transfer them to my to-do list. I’ll also check over things left over from yesterday and new things that are due in the near future or are part of ongoing projects. This makes for a fat to-do list.

Do I spend a large chunk of the day just knocking stuff off of my to-do list. I want to take that fat to-do list and make it disappear – or at least make it very thin.

Check I go back through my to-do list and make sure I haven’t missed anything, particularly anything important. I also make sure that there aren’t any completed items that imply new things I need to do in the next day or two.

Adjust Usually, this involves me deleting things that weren’t really important and moving things that are really important to tomorrow’s to-do list, which brings me right back to “plan.”

Marriage I even take the same approach to our marriage, believe it or not, even though the approach might not always be a conscious one. In this case, what I’m really iterating is my understanding of Sarah’s “love language” – what exactly makes her feel loved and secure? Am I doing that consistently?

Plan I reflect regularly on the state of my marriage and try to look for instances where there are problems or where I might have been just taking something for granted. How can I fix that problem before it goes from minor to major? How can I show appreciation for something I may have been taking for granted?

Do I move forward on that idea. Maybe it’s something like writing Sarah a sweet note and slipping it into her work bag. Maybe it’s doing a few chores that she loathes. Whatever my idea is, it’s execution time.

Check I watch and see how Sarah reacts to it. I don’t just assume that it’s the perfect thing or even a wholly positive thing. Maybe it’s meaningful or maybe it isn’t. It’s all about honing in on her “love language.”

Adjust If this worked well, I incorporate it into how I speak Sarah’s love language. If it didn’t, back to the drawing board. In either case, it’s back to “plan.”

As you can see, I take an iterative approach to almost everything I do in life. Sometimes it results in seemingly transformative change. Sometimes it results in really minor changes that will barely be noticed. Always, however, it results in either some sort of improvement on how things were or, at the very least, a realization that the way I was doing things was actually the best way.

You can adopt this same iterative approach to your finances as you slowly migrate toward your own financial best practices. Here are a few ways you can use an iterative PDCA approach with your own personal finances.

Monthly budgeting Many people view a monthly budget as being a static document, something you set up once and follow as if it were law. Unfortunately, that’s a route to failure, because your initial efforts at budgeting are likely to be a poor reflection of your actual spending. An iterative approach is much better, where you use the PDCA cycle to constantly improve your budget.

Plan by making an estimate of how much you actually spend in each budget category using the data you already have. What have you spent in each category in recent months? Use that as your initial budget, with some gentle cutbacks in a few areas.

Do your best to live by that budget for a month. Try to keep your spending reined in to match what you budgeted in each area. Pace yourself by keeping spending low early in the month so you don’t “hit the wall” halfway through.

Check to make sure that you’re not going over your budgetary restrictions and that those restrictions make sense. Did you come up with a realistic target for your food spending for the month? Your entertainment spending? Your clothing spending? How about household supplies?

Adjust your budget for the next month based on what you observed when you checked the outcome of your budget for the prior month, and then go right back into “plan” and “do.”

Investing also follows this pattern quite well. It starts with a clear investment plan, which you implement, check, and adjust regularly. Here’s how that works.

Plan by figuring what your goals are, how you plan on reaching those goals, and what you can do step by step along the way to get there. How aggressive will your investments be? Think through the options carefully.

Do this by simply putting the plan into action. Set up an automatic investment plan to pull money out of your paycheck or your checking account regularly and invest automatically according to the plan you set up.

Check your investments once in a while to make sure that you’re matching your asset allocation and that the investment is behaving as desired.

Adjust if you notice that your asset allocation is starting to slip or you’re unhappy with your investment performance. In general, this is done by altering your contributions rather than moving investments around, so you head back to the “plan” part and adjust your plan accordingly, then move on through the cycle from there.

Meal planning uses this iterative approach really well, too. Doing a bit of meal planning can save you a ton of money going forward. This cycle focuses heavily on the “plan” section, with checking and adjusting mostly serving to help you create a better plan for future cycles.

Plan by figuring out what meals you want to have over the next week. You can do this by looking at what you have on hand, what’s on sale at the grocery store, and which days leave you with some breathing room to cook and which days do not.

Do by going to the store, buying the groceries on your list, taking them home, preparing meals throughout the week according to your plan, and enjoying them (hopefully).

Check to ensure that you actually followed your plan. Did you make the meals you planned? Did you have all of the ingredients? Did you enjoy the meals? Did it save money compared to eating out? Could you have saved more money? Are you meshing things well with your calendar? Are you doing meal prep days?

Adjust your meal planning strategy going forward by integrating new meals into your regular roster, dropping meals that weren’t a hit, and trying new techniques to make sure you’re not just re-buying food you already have. This cycles right back to the meal “plan” for the next week.

Routine spending also falls under this umbrella. Almost every single thing you spend money on can be iteratively adjusted until the spending is actually meaningful or it’s dropped from your routines.

Plan by considering what you’re actually going to spend money on today (or this week, or whatever time period you’re considering). Decide what purchases and expenses are actually meaningful and which aren’t, and choose to drop the ones that aren’t.

Do it! Stick to those spending ideas! Simply don’t spend money on the things that you’ve decided aren’t meaningful. Save your spending for the things you decided are meaningful and worthwhile.

Check and make sure that the things you spent money on over the last week were actually meaningful and worthwhile. Were they? Did you not buy things that you now regret skipping over?

Adjust your expectations for spending accordingly. If there were things you missed out on that actually matter to you, bump up that spending. If you spent money on things that were unimportant, downgrade or delete that spending. Then, cycle right back to the “planning” for the next week.

The thing to remember is that an iterative approach to things in your life means that you’re going to gradually inch toward the best way of doing things for you. You might start off with someone else’s ideas or models, but eventually, you’ll adjust them until they fit you like a glove.

In general, iteration is a process that doesn’t end. As long as you’re doing something and you want it to be better, this type of iterative process will continue helping you refine it. Over time, however, the refinements will be smaller and smaller and will become merely reactions to the other changes going on in your life.

The thing to remember here is that the core of iteration – particularly this type of iteration – is reflecting on your life and then translating that reflection into a small amount of change that you actually execute. This isn’t about radical transformation in a week or a month (though your first approach or two might be radical). Iteration is powerful in that it takes a routine that somewhat works and nudges it into something that’s nearly perfect for you and your specific requirements.

For me, iteration is incredibly powerful and it has resulted in some powerful changes in my life. I notice that when I use an iterative approach on specific areas of my life for a long period, that part of my life winds up in a much better “default state” than before, where my routine is simply better.

The thing is, there’s only so many iterative processes you can really handle at once. Use this kind of process on just a few specific things in your life and buff them to a shine, then move onto other areas. Don’t try to tackle everything at once or else you’ll be spending all of your time planning and checking with little time for actually doing. “Do” is the key; “plan” and “check” and “adjust” are the refinements of “do.”

Good luck!

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