3716: Take the One Percent Challenge from Afford Anything on Saving Money

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[00:00:59] This is Optimal Finance Daily. Take the 1% Challenge by Paula Pant of AffordAnything.com. And I'm your host and narrator, Justin Malek, reading to you every day with permission from the authors. So with that, let's get right to it as we optimize your life. Take the 1% Challenge by Paula Pant of AffordAnything.com.

[00:01:26] Pop quiz. You're buying airline tickets to visit grandma for the holidays. She lives on the other side of the nation, too far away to drive. You've budgeted $400 for holiday travel, but you can't find airfare for less than $575. What do you do? Option A, tell grandma she'll have to spend Christmas alone.

[00:01:47] Or option B, spend it. You'll claw the money from somewhere else, maybe cutting back on restaurants or skipping your spring vacation. This is just a hunch, but I'm willing to bet that most people pick option B. Next question. Your adorable kitten or puppy needs an emergency life-saving procedure. It'll cost $400. You don't have a dime in savings. What do you do?

[00:02:16] Option A, kill the kitten. Or option B, spend it. You'll figure out some way to come up with the money before the end of the month, even if it means mowing lawns, shoveling snow, teaching guitar, picking up freelance work, or selling the junk that's piled up in your garage. I'm certain you've picked option B. In fact, some of you are probably offended that this is even a question. Who would choose option A?

[00:02:43] What's the common thread between these two scenarios? Ruthless prioritization. If something is important enough, you grit your teeth, furrow your eyebrows, and find a way to make it happen. It's during these moments that you realize, I really can afford anything. Not everything, but anything. But what if you can avoid these financially stressful situations altogether?

[00:03:10] What if you save ruthlessly in advance so that when emergencies crop up, you're completely chilled out? Yank your savings from the top. Go wild with the rest. I'm a massive advocate of the easiest, laziest, most awesome budget hack. Yank your savings from the top and go wild with the rest. Here's how it works. You get paid. Yippee! Then you instantly pull your savings from the top,

[00:03:40] set up automatic transfers into a combination of savings, investment, and retirement accounts, and force yourself to live on whatever is left over. No tracking pennies, no scrutinizing receipts, no brain power whatsoever. Which is why I like it. Hey-ho! Health and fitness bloggers advocate various types of diets. Paleo, primal, vegan, raw food, wheat belly, whatever.

[00:04:08] Based on the idea that if you're eating the right foods, like vegetables, you don't need to bother tracking calories. You won't gain belly fat by binging on broccoli and Brussels sprouts. And counting calories is a chore that has low long-term adherence. In other words, if you want to give yourself the best chance of success, make a plan that's as easy as possible. Take a minimalist approach. Swallow, as Tim Ferriss says, the minimum effective dose.

[00:04:38] The smallest dose needed to gain results. This budgeting hack is the equivalent of not counting calories. It's impossible to overspend if you've pulled your savings off the top first. And since those savings are tucked away somewhere safe, you can run wild with the rest of your money guilt-free. It's the anti-budget. The budget for people who hate budgets. But I can't save in other limiting beliefs.

[00:05:08] Every time I advocate this budget hack, someone emails me to say, I don't earn enough to start saving. I need every dollar. Fascinating. You're telling me that your take-home pay is $2,772 per month and your expenses are exactly $2,772 per month? That's a mathematical impossibility. Actually, it's a mathematical improbability. Whatever. Whatever.

[00:05:37] I can't save is a limiting belief. A false belief you acquire through negative influences. Once you adopt and internalize this belief, it becomes true until you let go of the belief. For example, I'm bad at running. I was the slowest runner in fourth grade, so I still believe I'm a terrible runner. And because of that ridiculous limiting belief, I avoid running, creating a self-fulfilling prophecy.

[00:06:05] I'm bad at sports. Same thing. I'm bad at computers. I'm probably good with computers, but I keep believing I stink because I didn't learn DOS commands in the 1990s. Likewise, I can't save is a mental block, not a logistical one. If you lack confidence in your ability to be resourceful, committed, and creative, you might adopt the belief that you can't save. This is a psychological barrier,

[00:06:35] not a mathematical one. The best way to break this barrier is by proving to yourself that you have this innate ability. And the most effective way to do this is one step at a time, or in this case, 1% at a time. Here's my challenge to you. Starting today, save an additional 1% of your earnings. If you normally save nothing, save 1%. If you already save 5% of your paycheck,

[00:07:05] save 6%. If you currently save 10%, save 11%. I don't know how much I currently save. Don't worry about that. Just save 1% more. Do you know what you earn? Then figure out the value of 1% and shovel that much more to the side. Set up an automatic transfer that directly puts that money into a high-interest savings account. Adjust to this lifestyle for a month. You'll hardly feel a difference.

[00:07:35] Okay, ready for the next step? During month two, increase your savings by another 1%. In month three, add an additional 1%. Within a year, you'll be saving an extra 12% of your paycheck. Taking the plunge from 0% to 12% overnight is tough. Taking baby steps 1% per month makes it much easier. What if I don't know how much I earn?

[00:08:04] As an entrepreneur, I have no clue what I'll earn next year. My income fluctuates every month, sometimes quite dramatically. Don't worry, just pick a number. You can use the amount you earned last year, the amount you think you'll earn this year, or some other number entirely. Don't get too caught up in making it perfect. Just pick a number and get started. Done is better than perfect.

[00:08:34] You just listened to the post titled, Take the 1% Challenge by Paula Pant of affordanything.com. I'll be right back with my commentary. I spend my day reading, recording, and keeping information organized. So the idea of having useful details right in my line of sight caught my attention. Rayneo IO smart glasses use the Firefly Nano optical engine with an ultra transparent display so you can see information without blocking your view.

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[00:09:33] so you can stay more present instead of constantly reaching for your phone. If that sounds useful to you, check out the Rayneo IO smart glasses at r-a-y-n-e-o dot com slash OFD. This episode is brought to you by PayPal. You know how a mom's bag has everything? Sunscreen? Snacks? A stapler? The new PayPal app is like that, but for your money.

[00:10:01] Shop, pay, manage your account, and earn rewards all in one place. And with purchase protection on eligible items, biometric security, and pass keys, you're protected at every step. Download the new PayPal app to get started. See paypal.com slash protection terms. Thank you to Paula. Two things really jump out at me here. The first is that I can't save belief. She's right that for a lot of us, it's not actually a math problem.

[00:10:29] It's a story we've told ourselves so many times, it starts to feel like a fact. And the second is just how powerful 1% is. 1% of your paycheck is small enough that you really won't feel it disappear, but do it again next month, and the month after, and a year from now, you're saving 12% more than you are today. What's great about this approach is that it works with our human nature instead of against it.

[00:10:59] Most budgeting fails because it asks for willpower every single day. And as we talk about over on Optimal Living Daily, willpower runs out. But pulling your savings off the top and automating it means you only have to make the decision once. The money is gone before you can even spend it, and you get to enjoy the rest guilt-free. So if budgeting has always felt overwhelming, maybe don't try to fix everything at once.

[00:11:29] Just find 1% this month, set up the automatic transfer today, and let it do the work for you. So thank you to Paula for this one, and thank you for being here every day. It means a lot. Have a great rest of your day, and I'll see you tomorrow, where your optimal life awaits.