7 MIN READ
Kaizen Your Cash: 4 Ways to Turn Tiny Changes Into a Fatter Wallet
In recent polls, a third of Americans say they worry about money. You might include yourself in that group, but even if you’re doing fine, your financial situation probably isn’t perfect. So what can you do to improve it?
Apply Kaizen principles to your personal finances.
What is Kaizen? The Kaizen Institute says “Kaizen is the practice of continuous improvement.” Originally a business philosophy, it’s been applied to many other areas, including health care, school reform, and life in general.
And although you can find various explanations of Kaizen, they all agree with this basic proposition: If you continually make incremental improvements, you get big positive results.
For example, I took the Kaizen approach to improving our homes by continually making small improvements while we lived in them. Small changes, big results: Each of the three times we’ve moved in the last three years, we sold our homes at a nice profit.
That brings us to the point of this article: You can apply Kaizen to your personal finances to easily take small steps toward big goals. Here’s how…
1. Commit to the Process
To have continuous improvement, you don’t have to think about money all the time, but you do need to take regular action. Commit to those actions by scheduling them.
Put an annual financial tune-up on your calendar. When the day comes, review everything you’ve spent to recognize and reduce expenses that are not in line with your values. You can also find ways to increase your income and add new sources, and work on retirement and other goals.
In addition to this annual analysis and brainstorming session, you should schedule more frequent times to review your finances and plan actions.
My wife and I sit down together at the end of every month to see where we’re at and to plan changes. A weekly review might be even more useful.
If overhauling your financial situation sounds a bit intimidating, don’t worry. It isn’t so difficult when you apply the next Kaizen principle…
2. Make Many Small Changes
The Kaizen Institute says “One of the most notable features of Kaizen is that big results come from many small changes accumulated over time.”
This doesn’t mean you have to exclude big changes. However, there are advantages to small steps.
It definitely helps psychologically. For example, I could never create a “master plan” for the 20 ways I typically make money each year — it would be too overwhelming.
But I also don’t develop 20 new income sources each year. Many of my streams of income, like book royalties, website revenue and interest on real estate loans, were developed years ago, and keep flowing.
Instead, I keep taking small steps to add to what’s already working. I make an investment, open a better bank account, get a new cash-back credit card, add a freelance writing client, and so on.
If you set out to redesign your financial life this week, the scale of the task might overwhelm and de-motivate you.
But you could easily open one higher-interest savings account, and then next week call around for cheaper car insurance, and the week after that make another small change. That’s the Kaizen way.
Small changes are also easier to correct.
For example, quitting a job is a big change that could be a difficult mistake to undo. Instead you might take a few steps to make your job worth keeping and find a few ways to make more money at work. Maybe that won’t be enough, but if any of your small changes don’t work out, it’s easier to modify them.
So how powerful can small changes be? If, one by one, you found a dozen ways to spend less and make more money, within a year or two you might be able to quit your job or change your lifestyle in some other major way.
For a more specific example of what’s possible, let’s assume you make the following small changes this year:
- Find cheaper auto insurance; save $180/year
- Find a better cash-back credit card; make an extra $200/year
- Learn how to spend less on groceries; save $480/year
- Rent out a room through Airbnb a few weeks annually; make $700/year
- Implement a few ways to save on gasoline; save $180/year
- Collect a few bank and credit card bonuses; make $720/year
The money you’re saving and the extra income adds up to $2,460 per year, or $205 per month.
What happens if you put $205 into decent mutual funds every month? An investment calculator shows that, with a 7% return, you’ll have $35,264 after 10 years, and $509,351 if you keep this up for 40 years.
Six small changes could result in half a million dollars extra for your retirement! That’s the power of Kaizen.
OK, it’s technically seven changes; you also have to open that mutual fund account. And, of course, not every change will work out, which is why you have to apply the next Kaizen principle.
3. Analyze Your Results and Modify Your Efforts
“A Kaizen Warrior understands that change happens in cycles and that it’s impossible to improve without feedback,” explains the Kaizen Brotherhood. In other words, you need to pay attention to your results, and alter your course as necessary.
For example, suppose you try saving money with discounted gift cards, but the result is that you’re tempted into eating at restaurants more frequently, spending even more. You don’t have to give up on discounted gift cards, but you can modify your plan and buy only those valid at grocery stores and other non-restaurant retailers.
Kaizen emphasizes processes. Keep that in mind as you analyze your changes and modify your approach.
If you win a $100 on a lottery ticket or find a cheap pair of jeans, that’s great, but not necessarily repeatable. The regular processes by which you make, spend or invest money matter a lot more. Watch those.
For example, I make thousands annually collecting credit card bonuses and cash back (2016 profit: $2,278), plus bank bonuses (2016 profit: $2,219), but I started small. To get to this level I had to keep tweaking the process and watching to see what worked (mainly to discover which efforts were worth the time invested).
It may help to keep a written list of the changes you make, so you can regularly review them to see what kind of results you achieve.
4. Keep Improving
In what has been referred to as the “Kaizen improvement cycle,” the last step is to “Repeat the cycle by making another small, incremental improvement.” That’s how you get big results.
If those six small changes above can result in a half million dollars, just think what might happen if you keep making improvements.
Again, don’t get intimidated by those big goals. Remember, Kaizen is all about incremental changes. Make a small change today, another next week and so on.
And if finding new changes to implement becomes too much of a challenge, just do more of what has already worked, and do it better.
For example, I didn’t stop when we found a better bank account. Making 1.4% interest at Everbank was nice compared to Chase account’s 0.01% rate, but I kept looking, and found checking accounts that pay up to 5%.
You can apply Kaizen in this way to any area of your finances. If you successfully used a strategy to get a raise, try for another raise (if it’s been a while). If you found a few ways to reduce your utility bills, add a few more.
Make a small change, monitor the results and change course as necessary. Then repeat this simple process again and again. That’s the Kaizen way to improve your financial life.
Steve Gillman is the author of “101 Weird Ways to Make Money” and creator of EveryWayToMakeMoney.com. He's been a repo-man, walking stick carver, search engine evaluator, house flipper, tram driver, process server, mock juror, and roulette croupier, but of more than 100 ways he has made money, writing is his favorite (so far).
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