Saving Small Amounts

Some financial blogs tell you not to sweat the small stuff.  Lock away the low effort, big wins.  E.g. make a big income and don’t spend too much on housing.  The rest will fall into place.

From a numbers POV, this is correct.  The number of decisions that impact 80% of your money is probably in the single digits.  However…

If we look at the problem from a behavioral POV, we can see that 50% of savings decisions are for small amounts.  For example, I just transferred $89.37 in proceeds from Lending Club into savings.  If my monthly savings is $5200, this is about 1.7% of my monthly goal.  Even if I blew all that money 5 times in a month, it wouldn’t even add up to 10% difference in my end goal.

But I think these small decisions train us for the big ones.  If I blow the $89.37, I’m training myself to blow the $6000 tax refund, and that tax refund makes a whole month of difference in completing my plan.  The small decisions impact the probability that we will make a decision properly waiting the interests of our future selves when the big decisions come along.  This doesn’t mean we should never spend any money to enjoy ourselves.  That we should never just go ahead and blow the $89.37.  We just shouldn’t be making that decision *most* of the time.  We want most our our savings decisions to go in the savings and investment direction.  We want to hit net worth goals before we activate consumption.


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