Saving Money: The Long Tail

Many people, when they think about saving money and far too few of us think about it at all think only in terms of big amounts. They think about how much of their bonus they’ll carve out for a savings deposit, or they think about putting a whole months wage into an account. The idea that you have to Go Big or Go Home when it comes to savings is tempting, especially if you’re one of the majority who does not have much savings to speak of. Starting from zero tends to inspire big plans.

The problem with the Go Big or Go Home approach, however, is the fact that life tends to get in the way, and concentrating on big deposits means there’s a single point of failure for the plan. A vet bill, house repair, or other unexpected expense can often derail even the best intentions towards saving some money when it’s all focussed on a single large amount. The other problem is the fact that these large amounts are often very far off in the future, and just about anything can happen in the intervening time that might cause you to change your plans for that money, or simply forget the sense of urgency that caused you to make the plan in the first place.

Another approach is less satisfying, because it feels small and slow. Because it is small and slow, but also surprisingly effective: The Long Tail Approach.

In the Long Tail Approach to saving money, you set up regular but very small micro-deposits. The exact amount is up to you, of course, but a good guideline would be to take the larger deposits you might have planned on and divide them up into weekly instalments. Keep the amount of the weekly deposits small round down a bit. What you want is an amount small enough to be unnoticeable to you on a weekly basis. Under this scheme there’s no such thing as too small, at least at first. Once you have a deposit set up that you don’t even notice leaving your checking account, you’re on your way.

What will happen is simple: It will add up. Not quickly, and not dramatically, but slowly and methodically. And because the amount of each deposit is small, you won’t be tempted to cancel it because you need a new television, or because the car needs a new tyre. The deposits will be small enough to be unnoticed, and thus will add up. Even ridiculously small amounts, deposited fifty or a hundred times a year, will yield some traction in your savings account. Especially when you consider the big goose egg you’ve managed to save before this.

Once you’ve gotten used to the procedure and built up a good start, increase the amount. Not by a lot again, the goal is to keep it painless. Find your sweet spot, the level of weekly deposits that doesn’t bother you. If you hit a point where you are missing your deposit, bring it back down again. Once it sticks in your head the whole scheme can fall apart.

Then, patience. If you can successfully forget what you’re doing, you’ll be absolutely amazed when you finally remember and see what all those micro-deposits have accomplished. And in the mean time, if you do manage to put your whole bonus into the bank it’ll be even better!

Mark Quigley is an expert in finance and is the owner and director of Darcey Quigley, an independently owned commercial debt recoverycompany in Scotland.