Using Kaizen to Improve Your Financial Wellbeing
Rev. Dr. Kitty Boitnott, NBCT, RScP
Heart-Centered Career Transition and Job Search Coach | Life Strategies and Stress Management Coaching
In this series on the concept of kaizen and its uses in your personal life, another area that you might use the kaizen concept for is your finances. As with fitness and health, small, steady changes in how you approach your money can make a big difference in your financial wellbeing over time.
Many of us wish we had more money than we have. If that is you, you may want to consider changes--tiny ones as in the kaizen method--that might benefit you over the long run. You can use the kaizen approach and make many small fixes that can add up over time.
Start by creating a budget.
As you approach the task of starting a budget, be sure to include everything you spend. Whether it's your rent or your daily coffee at the corner coffee shop, include it in your budget.
Of course, many people are more expert on how to build wealth over time than I am. I am not a financial expert at all. I am just offering how the kaizen concept might help you in managing your finances if that is an area that provides challenges for you.
Dave Ramsey is another well-known and respected financial adviser. He even talks about "baby steps" in his approach to financial freedom. Tony Robbins has written about money. And I am sure there are many others that you can follow for more information. This is just a starter and a way to show how you can use kaizen in lots of areas.
And don't overlook the need for a financial advisor who can help you create a long term plan that will help you figure out how to buy a house, finance your kids' college and create a comfortable retirement for you.
If you have already created a budget that you have managed to stick with for a while, you don't need this advice. But if you have trouble sticking with a budget and spend more than you make, keep reading.
Most people can create a budget, but it is often unrealistic.
The real trouble is that we don't plan for emergency expenses. And there are inevitably emergency expenses.
The water heater goes bad. The dryer dies. Appliances can be a significant source of an emergency expense.
You could also get sick and rack up big hospital bills. Or you could find yourself embroiled in a legal dispute over who caused the car accident you were in. I mean, let's face it, stuff you don't count on happening can happen.
A few weeks ago, one of my dogs got hold of my custom-made mouthguard. I called the dentist. I learned that a new mouthguard cost $680. Yikes! Luckily, when I got to the dentist, I took the damaged mouthguard with me, and he was able to repair it well enough that I can still use it. I lucked out.
But that isn't always the case.
I would have had the $680 if I had needed it because I do have an "emergency fund." But I was glad I didn't need to use it. At least not yet.
I did have to dip into my savings a few months ago. I made a "routine" trip to the car dealership for an oil change and tire rotation. That visit ended up in the purchase of new tires (the old ones were dry rotting) and some other manufacturer-recommended procedures. Almost $2000 later, I drove home with new tires and a sense that the car wouldn't be breaking down on me anytime soon, but I had to go into my emergency fund to help pay for all the work that was done.
Experts say that the majority of Americans don't have $400 on hand for an emergency expense, and if you are in that crowd, don't beat yourself up. You're in the majority!
But you can take steps to improve your situation. And believe it or not, it is possible to create a budget that you can stick with.
Monitor and Improve
When budgeting, do you base your numbers for each category on what you think you spend or what you actually spend?
Most people just pluck a number out of the air. But if you are going to come up with a budget that can actually work, you need to start tracking your spending. Then you will have a more realistic picture of your financial situation.
Once you have real numbers to work with, take a look at the entire budget and decide where you can realistically cut back just a little.
Might you eat out less? Could you cut out some areas of entertainment?
Some expenses like your rent or mortgage are fixed, and you are pretty much stuck with. But if you own your own home, you might refinance for a lower rate and a lower payment.
Then you could start saving the difference instead of spending it on something you may not need.
You want to enjoy the money you make.
After all, you work hard for every dime. So, it is not realistic to think that you aren't going to spend it on something frivolous occasionally.
But the kaizen concept calls for you to think of tiny changes you might make. How might you start saving $10 a week consistently? Where might you cut back on something that you wouldn't miss that much?
Small changes may have a significant impact.
Always Plan for the Unexpected
The problem with any budget is that it can't help you when you find yourself needing new tires, or the dog destroys your mouthguard.
The solution is to simply account for the "unexpected" expense that may pop up. Over time you can assess just how much you lose to "unexpected" losses and then take an average of that number.
Limit Your Cash Flow
One easy way to stop yourself overspending is to set up a separate account that you put money into but rarely if ever, take money from. Set up a regular deposit for that account, so you don't have it to spend. You also don't have to decide each month to put the money into that account. It is automatic. Try to forget you even have that account. It is for emergencies only.
Setting up an account like this is an example of "automation," which I covered last week as a part of kaizen.
You can also automate the transfer of money from one account to another. But remember that automation, while powerful, can also be dangerous if you make mistakes. That's why it's so important to hone the efficiency of your financial system BEFORE you set up automatic transfers.
Reward Yourself Occasionally
Have you ever noticed how you get better at budgeting when you're saving towards something you want? Mimic that effect all year long. Give yourself little rewards for budgeting well. Save up a little at a time for something you want. Consider the purchase of that item your reward when you have saved enough to buy it.
Use Budget Apps
Pro Tip: There are many apps that you can use when planning your budget. Apps can be helpful when trying to keep track of complicated spending across multiple accounts and cards. One good example is Emma. This app can show your spending across most major banks and creditors and break that down into useful categories (such as personal care, eating out, charity, business, etc.). It even includes PayPal. Truebill and Trim do the same, and there are many others you might like.
Apps like these show you where a lot of your money is being spent. Knowledge is power, especially when it comes to being clear about money.
The takehome is that kaizen is about making small, easy-to-implement changes in any activity or endeavor.
Using kaizen as you make small changes in your financial situation, you can make tiny improvements that can lead to big payoffs. You can save more money toward something you really want. You can pay off the debt that has been hanging over your head at long last.
The rewards are tangible. Many people dream of having financial freedom but feel that it is always out of their reach. You can have it if you are willing to do the work to make it so.
Until next time.
Well, it was so well received that I decided to make it an "evergreen" presentation, which means you can access it anytime instead of having to be in on the live presentation.
If you watch and have any questions, don't hesitate to reach out.