Personal Finance Game Changer AKA the Nudge Strategy

Personal Finance Game Changer AKA the Nudge Strategy

I wish total revamps of our priorities and budgets were the actual game changers. The reality is, most of us make incremental changes in our lives and typically (hopefully) make progress…

s   l   o   w   l   y   .

Slow is boring, but then again, slow makes it possible for the dedicated and committed to get far ahead. Personal finance doesn’t require us to be brilliant mathematicians as much as it requires us to have perseverance.

These incremental strategies, that help us make small improvements, are what I mean when I say we have nudge strategies that help us shift our behavior over time.

What Nudge Strategy Have You Seen Work Most Effective?

 

In my life, I feel the mental shift where talking about money is concerned, not as a resource, but as a tool to empower us has been effective. I’ve seen people’s eyes light up differently when they realize money can provide options such as security and freedom instead of thinking of money only as a tool to buy depreciating assets or luxury experiences.

I need to match the point above with a 2nd, practical nudge.

After all, personal finance is 80% mental, but the last 20% is what keeps money in the bank.

The nudge I use, is explained in my 10% to 11% post where I talk about how that one extra percent results in 2 EXTRA years of financial freedom.

Saving an extra 1% becomes much more exciting after we connect the fact that it can provide us two more years of financial independence.

What we can do with that amount of time liberates us and creates a new excitement. So, while the change is small and slow on the surface, our deeper sense of living can become fired up to find that next Nudge Strategy.

Which small piece of financial advice have you seen successfully adopted the most? What small behavioral tip are you likely (if any) to hand out to friends or strangers? What nudge strategy has worked recently in your life?

-Matt
Master Distiller

P.S. My 1% article was picked up on a few sites over the past week – so thanks to new readers who are stopping by. As fate would have it, I had this, “Nudge Strategy,” article lined up to go which follows along nicely from that prior post.

8 comments… add one
  • Vicki@Make Smarter Decisions Nov 14, 2016, 4:59 am

    The one “nudge” strategy we used was putting our raises into our investments each year. We had learned to live on “enough” without the raises so we never missed them. Even with inflation, we just cut back a little here and there and never noticed the change. Others went out and spent the increase or even slightly inflated their lifestyles. That doesn’t move you further along toward your goals!

  • Liz@ChiefMomOfficer Nov 14, 2016, 5:50 am

    Back when I was first starting to ramp up my 401k contributions, I used the “nudge” strategy of putting half my raises into the 401k. So if I got a 4% raise, I’d put 2% into my 401k. That way I would still feel like I got a raise and I wouldn’t miss the half raise I didn’t see. I did that until I was able to get to the federal maximum. It’s one of those things where you probably won’t notice the difference over one year but it adds up hugely over the long run.

  • The Green Swan Nov 14, 2016, 7:32 am

    The one nudge we use is the automatic investment in our 401ks. And while we haven’t set automatic increases to our contributions for each year, we have made a conscious choice to try and ratchet that up as high as we could each year until we cap it out.

    The nudge strategy definitely helps and I’d even recommend the book “Nudge” by Cass Sunstein. It is a very interesting read!

  • Mrs. Picky Pincher Nov 14, 2016, 9:23 am

    I completely agree that slowly changing my attitude towards money has been the best little “nudge.” I can do all kinds of things to cut my budget and save money, but unless I change myself first, I’m just going to fall off the bandwagon and revert to spendy-ness.

  • Financial Panther Nov 14, 2016, 10:15 am

    I’ve been “nudging” myself along as well to get more saved into retirement, and I’ve always advocated that people push their paychecks a bit. A lot of us get pretty used to the number we see on our paychecks, but you really have to think, does adding 1 percent to your 401k really change your paycheck that much. What about 2%, 3%, etc. It’s surprising how fast you can get used to your paycheck once you give yourself a little extra push.

  • Jay Nov 14, 2016, 8:59 pm

    Nudge is such a great book! The work of Richard Thaler and Daniel Kahneman in behavioural economics and finance is absolutely fascinating. And as you said, these supposedly small changes compound like crazy to create big outcomes.

  • Michael Nov 15, 2016, 2:34 pm

    When it comes to money, I like automation in every form – automating savings into retirement account, automating savings into after tax accounts are huge time savers. One thing I have been challenging myself to do is start Digit Savings. I eventually signed up about a few weeks back and I am impressed with the savings results so far.

  • Jax Nov 16, 2016, 6:05 pm

    As soon as I was hired for my first full time job, I upped my monthly IRA contributions from $50 to $458. I did this before I even saw my first paycheck so I wouldn’t get used to having the extra money. I’ve since moved into a position that pays slightly less, but I have kept my monthly contributions the same. My new employer offers a matching contribution to a retirement account so again I set that up before I even saw my first paycheck. I nudge my contributions up slightly every year to make it just enough for me to have to give second thoughts to “extras”.

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