Nickels and Dimes

In 1966, American economist Alfred Khan published an essay that explores the "tyranny of small decisions." In the essay, Khan described how a series of small, rational decisions can collectively lead to an outcome that is far from optimal. For example, small decisions on what you spend can lead to significant debt. While there are ‘binge’ spenders, a majority of people in debt got there by making multiple, small decisions. The $4 coffee, the $10 on iTunes, the extra drinks during a night out or impulse purchase at Wal-Mart all add up – especially if they are all the same day.

Fortunately, we all have the ability to turn the ‘tyranny of small decisions’ into the ‘liberation of small choices.’ In one of my recent classes, a participant stated that the most important lesson she received from the course was that achieving your financial goals is mostly a series of $10 and $20 decisions. I could not have said it better. A family that is $500 over budget may feel like it’s impossible to cut $500 from their spending. But, when they walk through each line item and cut $10 to $20, getting to $500 seems well within reason (and does not require a radical change in lifestyle).

Take the time to find your nickel and dime changes. By doing so, you will find yourself saving more than you ever thought possible and truly getting on the path to financial freedom.Have you made nickel and dime decisions?

Have you experienced the liberation of small choices?