If you read many personal finance blogs, you’ll find 9,846,342 articles that recommend you “automate” your savings into a litany of sub-accounts.
(That means you transfer a small amount each month – say, $50 towards your trip to Hawaii – into an online piggy bank earmarked for that purpose.)
Advice often becomes cliché because it’s true. Savings automation is popular because it’s solid. It works.
But it’s not the ONLY method. I prefer a different tactic, one that accommodates my characteristic enthusiasm and restlessness.
I call it the “One Til It’s Done” strategy, and it’s simple: I save for ONE thing at a time. When it’s done, I move onto the next. (Self-explanatory, huh?)
What Double-Digit Debt Taught Me About Piggy Banks
The inspiration came from learning about debt-payoff strategies.
The two most popular debt-repayment tactics share a central premise: people with multiple debt loads should concentrate their efforts on attacking one debt at a time.
A person with a car payment, a Visa balance and a MasterCard balance, for instance, should annihilate one debt before ambushing the next.
(There are dissenting views on which debt to pick first. One strategy believes that a person should tackle the smallest balance. The other method says a person should target the highest-interest load. Regardless of which tactic suits your style, both techniques are based on the same underlying principle: people should decimate one debt before regrouping their forces to attack the next. Focus on one ‘til it’s done.)
That makes sense. Our brains are finite. Humans possess what I call “limited mental bandwidth.” If we overload our minds with data, we’ll slow to the pace of a 1990’s-era dial-up connection. We’ll get distracted. We’ll forget things. We’ll drop our signal.
It’s easier to focus on one goal. We’ll make huge strides, quickly. We’ll feel jazzed. That enthusiasm triggers us to push harder. Now we’re in a positive-reinforcement loop.
Effort fuels results. Results fuel bigger effort.
Defeating high-interest debt is an audacious goal. Yet thousands of people succeed – and many do it in record time.
So why shouldn’t their tactics work for people who are trying to pursue other bold goals?
How Much Do You Want It?
Here’s an added bonus: the One Til It’s Done savings strategy is litmus test for your dreams. If you’re not passionate about something, you’ll lack the enthusiasm to stockpile your cash for it.
For example: at this point in my life, I don’t want to go to grad school (despite the fact that some people tell me I “should.”)
Maybe I could be talked into attending. I’m easily swayed.
If I have to put my money where my mouth is, though, I’ll never get excited about saving money for it. I might stash a painless $50 or $75 a month into a textbook sub-savings account, but I’ll never be passionate enough to dedicate 30 or 40 or 50 percent of my income towards it. Gee, I must not really want it.
One Til It’s Done, in other words, forces people to prioritize. It helps you decide which dreams are really yours.
Update: The 2012 Investing Challenge, Month 10
In my early twenties, the only thing I wanted from life was a chance to travel the world. I was obsessed with this dream. I could taste it.
So – without articulating this philosophy – I shoveled every cent into a travel fund. I wasn’t attempting a personal finance tactic. I was simply aligning my money with my priorities. At that time, my top priority was to travel. It made sense that every spare dollar would be dedicated to that cause.
Now, 27 countries later, I’m satisfied with my globetrotting forays. I’m ready to focus on something else I’m passionate about: creating financial freedom.
Earlier this year, my partner Will and I decided to undertake an ambitious project: we’ll dedicate 2012 to living on his income and investing the entirety of mine. (New readers: discover our 2012 Investing Challenge here.)
It’s now the first week of November. Ten months down. Two to go.
We’ve maxed out my Roth IRA, we paid cash for a $17,021 renovation of one of our income-producing rental units, paid cash for a $10,000 renovation on another rental house, and I put some money into this website. And of course, I paid quarterly taxes. (I can’t ever seem to escape that expense.)
I see this as One Til It’s Done in action. All our money went towards one goal (invest for financial freedom). We diversified our investments into index funds, real estate and a micro-business. But the goal is unified.
So what’s next on the agenda?
With only two months left to go in 2012, I realize Will hasn’t contributed a dime to his own Roth IRA. Oops.
The deadline to make IRA contributions isn’t until Tax Day, 2013. But I’d rather just get it over with.
Yesterday I dumped $1,700 into Will’s Roth IRA. Once I shift some money around, I’ll max out the rest ($5,000 total) within the next two weeks.
Done. Finished. Finito. See how cognitively simple that was? My limited mental bandwidth can check this item off the list.
After that, my checking balance will hover near zero (which is fine, because we’re living on Will’s income). I’ll need to figure out how to invest any income I receive during the final two months of the year.
Regardless of what I do, I’m following the One Til It’s Done strategy. That meta-goal is set: I want financial freedom.
So I live frugally. Invest. Repeat until I attain freedom. Or at least until New Year’s Eve.
Thanks to Bruce Berrien for today’s photo.