Recent surveys show that around one-third of Americans worry about finances. You might be among them, or perhaps you’re managing fine but not flawlessly. So what steps can you take to make things better?
Adopt Kaizen techniques for your personal money management.
What exactly is Kaizen? The Kaizen Institute explains that “Kaizen is the practice of continuous improvement.” Initially a management philosophy, it’s been adapted to many other fields, including health care, educational reform, and everyday life.
While definitions vary, they all share a core idea: small, steady enhancements accumulate into substantial outcomes.
For instance, I used Kaizen when improving the homes we lived in by continually making modest upgrades. Small tweaks produced significant rewards: each of the three houses we’ve sold in the past three years fetched a healthy profit.
That’s the essence of this piece: Kaizen can be applied to your finances so you can steadily take tiny steps toward large ambitions. Here’s how to do it…
1. Commit to the Routine
Continuous improvement doesn’t require constant attention to money, but it does require regular action. Make those actions habitual by penciling them into your schedule.
Put anannual financial checkupon your calendar. When it arrives, review what you’ve been spending to spot and cut expenses that don’t align with your priorities. Use that time to explore ways to boost your income, diversify revenue streams, and advance retirement or other objectives.
Besides this yearly review and brainstorming session, plan shorter, more frequent times to assess your money situation and decide on small moves.
My spouse and I meet at the end of each month to go over our finances and plan adjustments. A weekly review might be even more effective.
If the idea of revamping your finances feels overwhelming, don’t fret. It becomes manageable when you embrace the next Kaizen idea…
2. Favor Numerous Small Adjustments
The Kaizen Institute notes that “major outcomes arise from many small modifications accumulated over time.”
This doesn’t precludesubstantialchanges, but small actions have clear benefits.
They’re easier on your mindset. For example, I could never draft a “grand plan” covering the two dozen ways I typically generate income annually — that would be too daunting.
Nor do I create 20 new revenue streams each year. Many of my income sources, such as book royalties, website earnings and interest from property loans, were established years ago and continue to produce.
Instead, I continually take modest steps to expand what already works. I make an investment, switch to a better savings account, get a higher-reward credit card, add a freelance client, and so forth.
If you attempt to overhaul your financial life in one week, the task could overwhelm and sap motivation.
But you could easily open a higher-yield savings account this week, then compare car insurance rates next week, and the following week implement another small tweak. That’s Kaizen in action.
Small moves are also simpler to reverse.
Quitting your job, for instance, is a major shift that may be hard to undo. Instead, you might try a few adjustments to make your current job more rewarding and explore ways to earn more at work. If some small steps fail, they’re much easier to change.
How potent can small changes be? If you identify a dozen ways to cut costs and increase income one at a time, within a year or two you could be in a position to leave your job or dramatically alter your lifestyle.
As an example, suppose you make these modest changes this year:
- Switch to cheaper auto insurance; save $180/year
- Pick a better cash-back card; earn an extra $200/year
- Learn to cut grocery costs; save $480/year
- Rent a room on Airbnb for a few weeks annually; earn $700/year
- Use strategies to reduce gas spending; save $180/year
- Claim a few bank and card sign-up bonuses; earn $720/year
The combined savings and additional earnings total $2,460 per year, or $205 per month.
What if you invest $205 monthly into solid mutual funds? An investment calculator indicates that at a 7% return you’d have $35,264 after 10 years, and $509,351 after 40 years.
Six modest steps could produce half a million dollars more for retirement! That’s Kaizen’s impact.
Well, it’s technically seven steps — you also need to open that investment account. And, naturally, not every change will be successful, which leads to the next Kaizen rule.
3. Review Results and Adjust
“A Kaizen Warrior recognizes that change occurs in cycles and that improvement is impossible without feedback,” says the Kaizen Brotherhood. In short, monitor outcomes and tweak your plan as needed.
For instance, you might try saving with discounted gift cards, only to find you end up dining out more and spending extra. You don’t have to abandon discounted gift cards altogether, but you could refine your strategy to buy only those usable at grocery stores and other non-restaurant shops.
Kaizen stressesprocesses. Keep that front of mind when you evaluate your tweaks and refine your strategy.
Winning $100 in the lottery or discovering a discounted pair of jeans is nice, but not a reliable method. The repeated processes by which you earn, spend and invest matter much more. Focus on those.
For example, I generate thousands annually from credit card bonuses and cash back (2016 profit: $2,278) and bank bonuses (2016 profit: $2,219), but I started with small steps. To reach that level I continuously refined the approach and monitored what delivered the best return on time.
Keeping a written record of the changes you implement can help, so you can periodically review what’s working and what isn’t.
4. Continue to Refine
In what’s called the “Kaizen improvement cycle,” the final step is to “repeat the cycle by making another small, incremental improvement.” That’s how meaningful gains are achieved.
If those six modest adjustments can yield half a million dollars, imagine the result if youkeep making enhancements.
Again, don’t be intimidated by lofty targets. Kaizen is about incremental steps. Make a small change today, another next week, and so on.
If finding new tweaks becomes difficult, simply amplify what already worked and refine it further.
For instance, I didn’t stop after switching to a better bank account. Earning 1.4% at Everbank was far better than Chase’s 0.01%, but I kept searching and found checking options that pay up to 5%.
You can apply Kaizen to any piece of your finances. If a tactic led to a raise, try again after some time. If you lowered utility bills, look for more savings opportunities.
Make a small change, observe the outcomes, and pivot when necessary. Then repeat this simple routine over and over. That’s the Kaizen method for improving your financial life.
Alex Mercer is the author of “101 Unusual Ways to Make Money” and founder of EveryWayToMakeMoney.com. He’s worked as a repo agent, walking stick carver, search engine reviewer, house renovator, tram operator, process server, mock juror, and roulette dealer. Out of more than 100 ways he’s earned money, writing remains his favorite (so far).
