Making good financial decisions is not all about big decisions, it is also about the small decisions that have a significant impact.
I had a term life policy which I had bought about 9 years ago. The prices of term life insurance have fallen drastically since that time and now I could buy the same insurance for a fourth of the cost. This took me about 8 hours of work, and saved me about a lakh a year. But I had dragged my feet for about a year before I got this done. Similarly, I had a mobile phone plan that was outdated and all I had to do was call the service provider to get a Rs 25,000 yearly savings by switching to newer plan while retaining the same services I had before. Again, I had dragged my feet on this for 18 months before I got this done. I would like to believe that I am not a sort of a person who would fritter away money, but then this feet dragging provides evidence to the contrary.
I know of people who have money sitting in PF accounts that are not paying interest as it has been over 3 years and it has become dormant. Some don’t move money to an account that pays higher interest, or continue to pay for endowment policies knowing fully well that this is not the best for them. I know for sure that all of these are smart and fairly prudent individuals.
How do we explain our propensity to drag our feet or making decisions that may not be most prudent? I guess one of the things is that the small monthly payments are not significant enough to spur us into action, another could be that these payments are on an “auto pilot” that is payments are debited directly to our bank accounts and hence they are easy to ignore.
One of the ways to spur ourselves into action is to look at this amount on a yearly basis and see if that is the kind of money we are ok to ignore. Usually small sums add up to a reasonable amount if we look at it on a yearly basis.
Review of small things may be difficult to do on daily basis. I believe this could be best done if we review these things once a year, and block out a dedicated time to take key ones to closure.
Should we go after every dime that we believe we are frittering away? I don’t think so. As each of these will take time. We need to assign a value to our time (say each hour is worth a certain amount), and go after the ones where the time spent has higher payoff. Let’s say someone who values her time at Rs 2000 an hour should not be spending 5 hours trying to save Rs 3000 a year.
Small amounts saved could end up becoming meaningful sums. If invested wisely they could end up being significant as the power of compounding will help multiply the amounts.
Let’s remember to count the small things and make small things count.