Get the big things right, don’t worry about the rest
Following on from Wednesday’s post about budgeting, this is something I picked up from Ramit Sethi, the guy who wrote I will Teach you to be Rich (and runs the website of the same name).
One of the best ways to approach personal finance is to look for the big wins. These are things where you can save a lot of money with just one or two decisions. Things like your home, your transportation, insurance, etc.
Contrast this with the small stuff that we deal with every day, that won’t make much of a difference: do I buy a coffee, go to the cinema, get a bento for lunch?
You could spend huge amounts of time and stress on trying to minimise your everyday spending and reduce your expenses that way, or you could spend a couple of hours thinking about the big stuff and then relax.
Trying to save a couple of hundred yen by denying yourself something you enjoy every day is probably less sustainable (and definitely less fun) than finding a cheaper home and saving tens of thousands of yen every month automatically. Or getting rid of a car and saving 30-40,000+ yen a month. Or finding a cheaper mobile phone plan.
It’s basically applying the Pareto Principle (the 80:20 rule) to personal finance. This basically says that a small amount of targeted work can get you most of the benefits, and going beyond that involves more and more work for fewer and fewer rewards.
Of course the best thing to do would be to figure out your big wins, then optimize the day to day as well, but most people probably don’t need to do that.
How about you? Have you sorted out your 20%?