I like to think of my financial life as a merry-go-round. My children used to love to ride on merry-go-rounds at the playground and I would push them on it for what seemed like hours. The process is simple and familiar. The kids would get on the merry-go-round and I’d stand on the outside of it. Once they were seated and holding onto a bar, I’d start to push. At first, pushing that merry-go-round was really hard. I’d have to throw my weight into it in order to get the merry-go-round spinning.
However, as I pushed and the merry-go-round picked up speed, the easier it became. I’d eventually just give it a good shove, let go, and stand there, occasionally reaching forward and giving the merry-go-round a mild shove. It would keep spinning without much additional effort from me.
My financial life has been a lot like pushing that merry-go-round. The initial effort was incredible. I made a ton of changes to my life, yet it felt like the actual change in my financial state was ever so slow. It took months to start paying off debts, months of sustained effort to keep my spending as low as possible and find ways to earn more. However, once that “merry-go-round” of financial progress started spinning, it felt like it took less and less effort to keep speeding it up and very little effort to keep it going. Once a few debts were paid off, I had plenty of money available to start moving toward other goals, such as owning our own home and saving significant amounts for retirement.
The truth about turning around your financial life is that it gets easier as you go. At first, it feels like the changes are endless and very difficult, but as time passes, not only do the changes feel easier, the impact of those changes begins to multiply.
8 things to remember at the beginning of financial changes
1. The initial change is difficult
Up to the point in your adult life where you decided to take charge of your finances and become a more financially responsible person, you had a set of behaviors and habits all throughout your life that took spending on some level for granted.
Maybe your grocery shopping routines did little to focus on the price of what you were buying. Maybe you just ate out all the time and didn’t really consider the cost of it. Perhaps you engaged in a lot of retail therapy. Maybe you always bought the newest smartphone without thinking about what it was really giving you. Maybe you had a routine of buying a grande at Starbucks every day. All of those behaviors — and a lot more — define normal everyday life for you. Getting a grip on your financial life means addressing all of those behaviors through a new lens. You’re now considering their financial impacts, and you’re seeing how a lot of those familiar behaviors are really costing you.
The problem is that changing lots of your habits and behaviors at once is pretty hard at best. It can feel like everything is changing, everything is harder than it used to be, and that you no longer have familiar routines to fall back on to make things feel good and normal and safe. At first, there’s a “honeymoon” effect where everything feels new and interesting and exciting, but that wears off pretty quickly and you’re left with a life where you’ve disrupted a lot of things. There’s a strong desire to give up and roll back lots of those changes.
Give it time.
2. After the initial change, it becomes easier
Before our financial turnaround, Sarah and I used to eat at restaurants or get takeout most evenings. We’d make a meal at home occasionally, but it was mostly a fun novelty. After our turnaround, we realized how much that pattern of constantly eating out and getting takeout was costing us, so we moved to making almost all of our meals at home from mostly basic ingredients. It was hard. We faced a steep learning curve in the kitchen, it felt like a ton of work, and some of our early results were less than appetizing.
We kept at it, though. We began to master a few simple meals that we both liked and made those frequently. We tried lots of things. We picked up lots of kitchen skills, both in terms of food preparation and cleanup. After a while, we reached a point where we could both easily make a pretty good meal and we could get things cleaned up very efficiently, too. There are times where it feels like more work to deal with a restaurant than it is to just make something at home.
Before our financial turnaround, our practice for shopping for food and household supplies was to buy the name brand version of everything and, if there were options, pick the one that seemed to be the best. We rarely used a list and found ourselves going to the store frequently. After our turnaround, we realized that such store practices were pretty bad for our wallet. We started making meal plans and using a grocery list. We started buying mostly store brand products and bought a lot of nonperishable items in bulk. We slowed down to shopping once a week or once every 10 days. It was hard. All of our grocery instincts were out of whack and it made trips to the grocery store feel like a ton of work whereas before they felt easy.
However, we began to figure out new routines that really worked. We got used to buying the store brands and buying many items in bulk. The routine of a meal plan and grocery list got faster and faster until the whole system is far faster than our old shopping strategies. I wouldn’t go back to our old system now even if it was as cheap as our new one.
This happened over and over throughout all areas of our life. We’d see how the habits and routines we were using were financially disastrous. We’d start modifying them and find that change was difficult and uncomfortable. We stuck with most of those changes and found that, over time, they became a lot more routine, eventually becoming our new habits.
It’s worth noting that there isn’t an “end” to this process, it’s a constant evolution. However, the flood of changes gradually slows to a trickle and they mostly become tweaks.
3. Focus on building new habits, not being perfect
My advice for anyone struggling with this aspect of changing their finances is to focus on making some behaviors permanent — the ones that are particularly obvious “wins” — and not worry about being “perfect” in your frugality. Your goal should be to adopt a smaller number of financially sensible changes that also bring and keep the joy in your life and make those changes permanent rather than attempting tons of changes, many of which won’t work out and ending everything in frustration.
Over time, the changes you make will become natural and feel like the way you should do things. When you reach that point, that’s when it’s time to consider more changes. It is far more important to modify some of your behavior in a good way permanently than to temporarily adopt lots of changes and then reject them.
For example, one change you might really focus on is eating more at home coupled with better grocery store habits. Make this your big focus for a while and try to adopt grocery and meal routines that really save money and feel like good choices even if they don’t feel quite natural. Work to make your new habits routine by repeating them over and over, very consciously at first and then gradually seeing them as your normal routine. Once that’s just how you do things, move onto other areas of your life.
4. Paying off debt will drain your checking account, but not for long
One huge frustration for our financial turnaround early on was recognizing how much of our money was going out the door just to make minimum payments on debts (on top of rent and utilities and other basic bills). So much of our money was just gone, right off the top each month, and it felt like there was so little left behind that it would really be hard to ever make much progress.
It can feel like it takes forever to simply pay off that first credit card when you can only afford to make a somewhat larger payment than the minimum each month. The bills just keep coming and coming, even as it feels like the effort is relentless.
When you get that first debt paid off, it feels incredibly powerful, but that’s just the first step in the journey. What you quickly realize is that the money that you were using for minimum payments on that debt is now freed up to be applied to other debts.
Let’s say you were able to scrounge up $200 a month for extra debt payments, and you then pay off a student loan with a minimum payment of $100. When you move onto your next debt, you now have $300 a month you can apply to extra debt payments. That next debt is going to go away that much faster. If it has a minimum payment of $100, as soon as it’s gone, you’ll now have $400 a month you can use as an extra debt payment.
That feeling of your progress growing over time is called a debt snowball, and it’s really powerful. What’s even more powerful is when you consider what will happen when all of that debt is gone and you suddenly have no minimum payments at all and no money that needs to be put aside for extra payments.
5. Focus on getting a few debts paid off quickly
I strongly encourage people to set up a debt repayment plan right off the bat and stick to that plan. The first step or two of that plan will be quite difficult because you won’t have a ton of breathing room with which to tackle the debts, but with every single debt you pay off, it will get easier and easier.
One good way to tackle this problem is to try to “boost” that first debt payoff by making a lot of short-term moves that will put money in your pocket, then applying that money directly to that first debt.
For example, you might go through your closets, find a bunch of items that you no longer use that might sell for something, then hit eBay and local marketplaces to sell those items off. Take that cash and immediately apply it to a big extra debt payment on the first debt on your plan. You may even be able to pay it off immediately, meaning you already have more breathing room and more to throw at your next debt.
[Related: 6 Ways to Make a Bigger Dent in Your Debt]
6. Retirement savings seems slow at first
When I first started contributing to retirement savings, the entire process felt incredibly slow. I contributed something around $4,500 in my first year and received a similar amount in matching funds in my 403(b), but that $9,000 balance only earned about $400 in return. How am I supposed to build up my retirement on that?
The next year was an improvement. That $9,400 sat in my account all year long, growing on its own, and I added another $9,600 over the course of the year. That year, I earned about $2,200 in returns – a lot better, but still far from a runaway train. The truth is that it took many years before it felt like my retirement savings was going anywhere worthwhile. It took more than a decade for the returns of a year to exceed my contributions for that year.
Those first few years were so slow. It felt like things would never get better. But if you give it time, your patience will be rewarded in your later years.
The most powerful thing you can do when it comes to retirement savings is to keep chugging along and not worry too much about the balance on any given day. As your financial situation improves with better behaviors and freedom from debt, gradually bump up those contributions. The key is to just not think about it. Contribute as much as you reasonably can, then just stay out of the way.
Every single year that you do this (excepting the occasional year where the stock market declines significantly), your returns will gradually look better and better. You’ll see returns not just from that year’s contributions, but from all of the contributions from all of the past years, plus returns on all of the earlier returns that you chose to reinvest. It grows and builds on itself, and gradually it will feel like that merry-go-round from the start, with it growing so quickly that the growth each year dwarfs your own contributions.
That’s what you’re aiming for. That’s when the magic happens. That’s when you know you’re headed straight for a great retirement.
7. Pay off high-interest debts before saving for retirement
The first thing you should do in your financial plan is to get rid of all of your high-interest debts — anything over about 7%. Those things are the biggest deterrent to your financial progress. Then, take some of that “extra debt payment” money you were using each month and use it instead to start saving for a big goal like retirement. If you have a workplace plan, sign up for that; if you don’t, start your own Roth IRA.
The trick is to just put all of it out of sight and out of mind until you start to get close to retirement. It’s just money that goes out of your paycheck, a gift to your future self. Don’t think about it and don’t worry about it. If things are going well for you, bump it up a little. When retirement starts to seem like an appealing option for you, then take a look at it and start making decisions. What you’ll find is that it has become a runaway train, growing and growing and growing far beyond your contributions.
8. Financial success is a lot of little steps
Real financial progress feels like such tiny steps at the beginning. You’re making changes in your life to save $20 a week. You’re slowly paying down a debt. You’re making only small contributions to your savings. Month after month, it feels like you’re actually doing very little.
The thing is, all of those little steps start to add up. The little behavior changes feel more natural, so you make more of them. The small extra debt payments result in some paid-off debts, so you can make bigger extra debt payments. Your contributions to savings result in some investment growth and you keep adding to the pile.
It requires patience. It requires an understanding that your little steps right now are going to grow into giant leaps later, but it won’t happen overnight. You have to take the long view with all of this to build the life you want.
You’re up for the challenge.
- Don’t Freak Out — Your Retirement Fund Is Probably Fine
- Should You Save For Retirement Before Paying Off Debts?
- The Easy Path to Retirement