After being in the personal finance business for close to ten years I’ve been asked a lot of questions. But there’s one thing that comes up more often than anything else. People always ask how to start saving money, how to start investing money, or how to start paying off debt if they don’t have any money to start with. It’s a valid concern, especially when most people who are just getting started feel as if they are stretched thin and living paycheck to paycheck as it is. One of the problems is the sticker shock when it comes to the kinds of numbers that you need to achieve. If you sit down and talk to somebody about how much you need to retire, putting together a college fund, or even just trying to get out of debt, often times thinking about what it will take to reach the end goal seems insurmountable. Think about being able to save up $750,000 for retirement when there are times when it feels like you can’t pay your bills on time. It feels impossible, so usually that resorts to instantly feeling deflated and the willingness to admit that you’ll never be able to reach your financial goal and end up doing nothing. 
The Big Picture is Important
As difficult as it may seem, taking the time to examine the big picture and determining exactly what your end goals are is important so that you have something to shoot for. It’s one thing to just throw whatever money you can into an IRA, 529 plan, or toward credit card balances. But it’s another to actually have an idea of what you need to accomplish and putting a plan in place to actually reach that goal. So, take some time to identify what areas of your finances need the most work. Maybe it’s saving for retirement, maybe it’s just building up an emergency fund, or maybe it is saving and investing to become a millionaire. Whatever it is, come up with a goal so that you have something to work towards. Don’t be afraid if it’s a big number or seems impossible. We’re not trying to hit a home run right out of the gate, but instead make small progress over time.
The Power of Small
Once you’ve created a goal or two as something to work toward, you’re now faced with how to actually put that plan into motion. Obviously, if you have a lofty retirement goal you may have learned that it will take $600 a month to get there, yet you can’t seem to find a penny to spare at the end of the month. Don’t worry. Remember, we’re not trying to do it all at once, and starting small is more powerful than you may think. Even if money is tight and you cannot figure out how to save money fast, how difficult would it be to come up with $25 a week from somewhere? It may seem like a tall order if you are constantly scrambling at the end of the month, but the reality is most of the time you can adjust your day-to-day spending enough to come up with it, here are a few money saving tips for you to look at. Bring a lunch from home a day or two, skip the movies, etc. This isn’t to say you should be depriving yourself of things you enjoy, but it shows that if you’re serious about improving your finances you can make a few small sacrifices that make a big difference. Now, you’re probably thinking so what, 25 dollars a week won’t amount to anything and it isn’t even worth it. It’s true, it isn’t a boatload of money, but it’s still $1,300 a year. Now, think about if you were just starting up an emergency fund and you created an automatic $25 weekly deposit into a high-yield online savings account. After the first week or two you’ll completely forget about having 25 dollars less in your wallet each week. You won’t even notice it. Then guess what? A year from now you’ve got over $1,300 in the bank and it was a completely painless and automatic process. Now, let’s say you take the same 25 dollars a week and put it into your kid’s college fund. You thought college savings was going to be an afterthought and there was no way you could realistically save up anything to help them out. Guess what? Your 25 dollars a week, over the course of your child’s 18 years until it’s time for college, piles up to over $24,000 even if it never earned a penny of interest. If you put the money into a 529 plan and even managed a very modest 4 percent return, your kid would have about $35,000 for college. Sure, that isn’t going to buy a four year degree, but it will help. The real point here is that taking a seemingly insignificant amount of money each week or month actually amounts to something over time.
Increasing Contributions Over Time
The beauty of starting small is that when you start with an amount that seems almost insignificant, it’s kind of true because it has an insignificant effect on your finances. After you get into the habit of having this small amount of money going into whatever it is you’re saving for, you usually completely forget about the money. Sure, at the time coming up with 25 dollars a week may have seemed a bit tough, but after a few weeks of doing it your spending has naturally adjusted to this new available money. So, the real power is the ability to increase your contributions over time. Start with your small amount and then in a few months increase it by another 10 or 20 dollars. Again, you may notice it at first, but over time it’s out of sight and out of mind and you’re building wealth in the background with virtually no effort on your part. After a year or two of slowly, but regularly increasing your weekly or monthly contributions, you may be contributing much more than you ever thought you could. Maybe you’re able to put away $100 a week now instead of the initial $25. Suddenly, when you’re talking that kind of money, now you’re looking at building up a $250k retirement account or more. The bottom line is to not get discouraged by the numbers that it takes to reach your goals. It’s far too easy to think about how much you need to save for retirement, the money needed to pay off those credit cards early, or build an adequate emergency fund. When you do this, you may be like most people and throw your arms up and figure why even try since there seems to be no way to ever get there. Don’t feel defeated, and instead start small to take the first step in getting there. Understand that you won’t hit your goals overnight, but doing something, even if small, is still far better than doing nothing.
Now looking back at those initial questions: How to start saving money? How to start investing money? How to start paying off debt? or whatever other financial question you have that seems big and insurmountable, just keep in mind the power of starting small and things become easier to work through and accomplish.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
