2665: Why the Small Things Matter by Andrew of Dollar After Dollar on Excessive Spending

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[00:01:00] This is Optimal Finance Daily, Episode 2665

[00:01:04] Why The Small Things Matter?

[00:01:06] Buy Andrew of dollarafterdollar.com

[00:01:09] and I'm your host and personal finance enthusiast, Diania Merriam.

[00:01:13] Now let's get right to today's post as we optimize your life.

[00:01:17] Why The Small Things Matter?

[00:01:21] Buy Andrew of dollarafterdollar.com

[00:01:25] In the 1980s, a few researchers came up with a proposed idea that they thought would help reduce crime in the US.

[00:01:33] They called the theory, broken windows.

[00:01:37] The idea was fairly simple. A broken window is a sign of a community that has been neglected.

[00:01:43] In turn, a community that has been neglected is more likely to have an increase in crime rate.

[00:01:49] The hypothesis was if police could fix the small problems, such as broken windows,

[00:01:54] the big ones would disappear.

[00:01:57] This idea came from a research experiment in 1969,

[00:02:01] where a psychologist abandoned two cars on the street,

[00:02:04] one in a very poor crime-filled neighborhood in New York,

[00:02:08] the other in an upscale neighborhood in Southern California.

[00:02:12] Within ten minutes of leaving the car in the poor neighborhood,

[00:02:15] people began taking things of value such as parts.

[00:02:18] Shortly thereafter, people began to vandalize the car and eventually smash the windows.

[00:02:24] Yet for more than a week, the Southern California vehicle remained untouched.

[00:02:29] The psychologist then went and smashed the California windows himself.

[00:02:34] Once the windows were smashed, the car was fair game for criminals.

[00:02:38] The same events transpired that went on in New York.

[00:02:41] It was stripped to pieces and completely destroyed.

[00:02:44] This led to a theory.

[00:02:46] Once disorder begins, things can get out of control.

[00:02:50] With the way my weird brain works, this experiment reminded me of money.

[00:02:54] You see many of us, including yours truly, have habits that have formed with money.

[00:03:00] These habits may be small but can affect the overall big financial picture.

[00:03:05] As I've said many times, money is about 80% psychological and every choice we make has another alternative.

[00:03:13] If you're not getting what you intend out of your money, it's time to fix the broken windows.

[00:03:18] I work with a lot of people looking to boost their financial situation

[00:03:22] by setting up budgets or investments.

[00:03:25] I love doing this because I can extend a helping hand to someone who cannot figure out where they went wrong.

[00:03:31] What I find is many people have a few small issues that are leading to much bigger problems.

[00:03:38] Most people know there's one vice that they want to focus on.

[00:03:42] I spend too much on groceries, if I just spent less I could save money.

[00:03:46] I need to stop going out so much with friends.

[00:03:49] I spend $200 every weekend.

[00:03:52] I buy too much clothing, much of it I don't even wear.

[00:03:55] These are our financial broken windows.

[00:03:58] The issues that seem like they're small but if fixed will be a huge benefit to us.

[00:04:03] If your broken window is not letting you save money for your future, it needs to be fixed immediately.

[00:04:09] Don't wait until you're older and it will work itself out.

[00:04:13] Time is the most valuable financial asset we have.

[00:04:16] When it comes to saving and investing, you need to start as young as possible.

[00:04:21] The problem with these small issues is they give us a psychological excuse that we don't have to be disciplined when our money is not working in our favor.

[00:04:30] If you let your brain slip up in one category, it can carry over into another.

[00:04:35] I see people doing this in other areas of life.

[00:04:38] I'll just have one cupcake, turns into, I blew my diet for the day, I'll eat whatever I want, then eat clean tomorrow.

[00:04:46] Most of the time you keep up the same habit and it never gets resolved.

[00:04:50] The same goes for your finances.

[00:04:53] I already spent too much on restaurants, what would one more meal hurt?

[00:04:57] Nip this in the bud because it can grow to a larger problem.

[00:05:01] Many people will tell you not to sweat the small stuff when it comes to money and worry about the big things such as growing your income.

[00:05:09] I could not agree more, but because psychology plays such a big role, your small bad habits will grow into larger issues.

[00:05:17] Take spending for example.

[00:05:19] If you begin to over spend every month, you have now accumulated a small chunk of debt.

[00:05:25] That debt grows larger and larger over time until you realize you have a major problem.

[00:05:31] For someone starting out, if they don't sweat the basics, they will never make it to the big leagues.

[00:05:37] How do I fix my broken windows?

[00:05:40] If you're someone who does not keep a budget, then start here.

[00:05:44] This will give you an idea of who, what, where your broken windows are in your finances.

[00:05:49] Once you begin budgeting for a few months, they'll be very easy to see the broken windows and put a stop to them before they get worse.

[00:05:57] Sometimes, the windows are not broken.

[00:06:00] If you already keep a budget and notice you over spend in a specific category regularly, then you may need to raise the amount you contribute to that category.

[00:06:09] Your budget shows what you truly value.

[00:06:12] This is especially true if you've tried many times in the past to spend less on the category but have failed.

[00:06:18] Just move some money over from another category.

[00:06:22] When I started tracking my money, my goal was to save as much as I possibly could.

[00:06:27] So naturally, I did not add enough money in just about every category.

[00:06:31] In turn, I realized I do value eating at restaurants or buying new kicks.

[00:06:36] I adjusted where my values were and the stress melted away.

[00:06:40] If I have to retire one year later in order to be happy for the next 20 years, I'll take the latter any day of the week.

[00:06:48] So if you find you have some of these issues, see if you can fix it before it gets worse.

[00:06:53] The last thing you want is the things you enjoy to become stressful every month.

[00:06:58] Nobody gets it right the first time. Adjust your priorities, enjoy your life and repeat.

[00:07:08] You just listen to the post titled Why the Small Things Matter by Andrew of DollarAfterDollar.com

[00:07:15] and I'll be right back with my commentary.

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[00:09:04] This article reminded me of my tendency around all or nothing thinking.

[00:09:09] Logically, I know that answering one email is better than answering no emails.

[00:09:14] But if I don't have enough time to get to inbox zero, then I won't bother.

[00:09:18] All or nothing thinking is rooted in perfectionism, something I've personally been battling for many years.

[00:09:25] This is why if you deviate from your budget slightly, you'd rather throw out the whole spreadsheet than dust yourself off and keep going.

[00:09:33] This is why when you miss one day at the gym, it turns into one or two weeks.

[00:09:38] It's on a logical exercise. Perfectionism is driven by emotion, and I feel it requires mental jujitsu to overcome it.

[00:09:47] The way I do this is by lowering my expectations.

[00:09:51] I used to feel like I was letting myself off the hook when I lowered my expectations, or I would do it half-heartedly.

[00:09:59] I'd tell myself it was okay to just answer one email, but I didn't really feel that was true.

[00:10:06] Now I see it as a way to trick myself into any form of forward movement.

[00:10:11] When I have ten things on my to-do list on a day that I'm completely exhausted, I used to procrastinate on all of it.

[00:10:18] That was all or nothing thinking at work.

[00:10:21] These days, I look at the list and ask myself, what is the one thing I could get done? And I reschedule everything else.

[00:10:29] I truly let myself feel satisfied with getting that one thing done, and that puts me in the headspace to rest well and try again the next day.

[00:10:39] But that will do it for today, have a great day and weekend, and I'll be back here tomorrow, where your optimal life awaits.