June 22, 2003

Incremental Gains
by Marcel Chartier

The concept of incremental gains, is the most important concept to gain for the average person who wants to improve their financial situation. We do not get from point A to point B by giant leaps, we get there by little steps that move us towards our goal. Generally, being human and all, we like the idea of the big leap, the lotto win, the big prize, the huge stock gain. But, if we wait for the big prize we may not get there because the probability of a "big win" is small. Small wins are very probable and are more likely to frequently occur.

When you are a smaller investor, or even just trying to save, looking for and finding small sources of income to put towards a goal is really the only way you will succeed. There are so many pressures and ways in front of us to spend money everyday, and the reason why we spend our money so freely is that businesses know that we minimize the impact of small amounts of cash. So buying that bigger burger deal at $4.99, and the latte at $2.99 seems like small change at the time, so we are more likely to spend. We are more likely to spend because to amount does not by itself seem to be significant. But, as we all know, it adds up. The amount I quoted above if bought everyday is $3277.70 a year.

So instead of waiting for the income tax refund, the Christmas bonus, or the lotto win, set aside the $8.98 a day to save or invest. You won't notice it, just as you won't notice the money for the burger meal and latte. And, at the end of a few years, you will have invested significant amounts. We will, and are quite able (and are enabled) to spend all the cash we have available to us. Reduce that available cash by a bit and you just have less to spend. Most of us will easily adjust, or not really notice, especially given enough time.

In my view the same goes for most things in life, success is gained incrementally not logarithmically.