With no buffer for emergencies, people resort to pawnshops or payday loans. Both cost you dearly in interest and "convenience fees", as if it's convenient to be broke. Consider the grim truth of how much desperate measures can cost over the course of a year in an article by Maria LaMagna, FiClub suggests an easy way to stay ahead of trouble - get started now- it's as simple as putting $5 in a coffee can.
From personal experience, I found the reason I didn't have emergency or retirement savings was simply that I had never started saving, I’m a dreamer. I’ve attended all sorts of seminars that filled me with immense motivation. The problem was, how to start making good on my intentions? I’d struggled with this with my personal finances. I knew I wanted to change. I knew I wanted to save, cut back on spending, and build my retirement nest egg. The problem was: Where to Start? There is so much information available, so many experts offering advice, so many products and programs to choose from. I became a victim of analysis paralysis. I didn’t want to make a mistake by choosing the wrong strategy or investment. So, I took the easy way out – I didn’t start.This is clearly not the way act on your personal finance intentions! [see post on Implementation Intentions] It took me time to find the right way for me and that was to start small, don’t over-complicate things. Chances are, you’ve experienced this. If you’re like I was, not sure how to start – rest assured you already have. You’re reading this article!
1. Write down your plan – e.g. “save $5 per day in a coffee can.”
Writing your intention – you’ve made a stronger commitment than only thinking or speaking it.
2. Find the right amount to start with.
Not so small it's not going to matter, but not so large it will make you to give up.
3. Keep your trigger, in my case the coffee can, in plain sight.
You need this trigger to be at a place where you can’t avoid it. At least until the habit is formed.
Intention isn’t enough.
Starting small helps alleviate the concern of making a mistake. I started by taking the easiest path for me. I made a commitment that I was going to put aside $5 each day into a coffee can. I wrapped the can in white paper – with the words "$5 Everyday" written with a sharpie, cut a slot in the top and placed it on my kitchen counter. The placement of the can was vital. It needed to be in a place where I couldn’t avoid it. The words "$5 Everyday" was my reminder of the intention I had set.
“Psychology teaches us that habits are built through small daily changes and finance teaches that, through compounding, small changes can lead to major transformation over time. “
It was difficult for the first week – I wouldn’t have a $5 bill laying around – but I was determined to keep to this commitment. If I missed a day, I’d find $10 to make it up the next day. Sooner than I’d expected, I began looking forward to putting a $5 bill into the can. It was my personal win. I could actually visualize the can being full of $5 bills. What do we mean by a trigger? It's just a reminder, preferably visual, that you design into your environment so you act on a prior intention you had set. If you don't want to forget to take something to the post office tomorrow, put it by your front door so you see it on the way out.
The can was soon filled to the top and I took the money to my bank and opened a separate savings account for emergencies. It gave me peace of mind to know that I could deal with life's little nasty surprises. Some years have gone by since the coffee can and I've taken the idea of automatically saving to the next level where out of each paycheck I've set up direct deposit to split my pay to fund savings and retirement accounts, so I don't even have to see that coffee can in front of me. Triggers that have overstayed their usefulness can backfire too - maybe seeing that can full of cash day-after-day will bring on a spending binge, that's when it's time to take that money to the bank and keep it out of sight, out of mind.
My advice is for you to find whatever works for you to start saving. Make the amount large enough that it can make a difference, but not so large as to make it difficult to maintain. You’ll be pleasantly surprised with all you can do once you start.