Oct 27, 2008

The Power of Snowflaking

Let me tell you the story about a snowflake. Jimmy was it's name and it was very small. One day it decided to snow and Jimmy came into existence along with many other snowflakes formed around the same time. They looked at one another and thought "My, aren't you a nice snowflake" however some of them looked at each other and thought "Wow, you're bigger than I am". Jimmy looked at everyone and thought that they were all bigger than him.

The larger snowflakes tended to keep to themselves, since they were bigger than the others. They weren't very nice either. So in the end, the smaller snowflakes - including Jimmy - decided to gather together so they could become larger and more powerful than the bigger ones.

After a short while, they all fell to the floor only to be gathered up together by the children playing. Jimmy got swept off his feet by a young child with huge mittens. Firstly, they were gathered into a snowball, then rolled into a head and finally into a huge torso. Right in the middle, next to the middle button, Jimmy lay looking out and feeling safe. This snowman was eventually so big, the relative size of all the individual snowflakes didn't matter and the snowman itself was greater than it's individual parts. Jimmy knew that those bigger snowflakes wouldn't worry him now., safe in the knowledge of being with all the other snowflakes.

And that is what the power of snowflaking is.

So, yes, thanks, but what is it?

just a moment!  Snow Crystal
Photo: elifayse

Snowflaking is a term used in the personal finance field. It is pretty easy to understand and also very powerful. It's also very easy to do.

It is a technique to help you pay down debt or increase your savings. Essentially what you do is, at every opportunity you have for scraping aside money into a separate savings account or a current debt, you do it. It doesn't matter how big or small the snowflake is, it all adds up to that snowball effect and before you know it, you're looking at a whole heap of snowflakes. Once these start adding up, these snowflakes become snowballs and by then the momentum has started.

You can start in a variety of ways but as always, the most important thing is to start. That's the hardest step. Once you've started you'll find more reasons to snowflake.

Many people clip coupons to save money at the supermarket. If they receive $1 off a tube of toothpaste, then they will snowflake that dollar into whichever debt or fund they choose. Others will see that cycling to work one day a week is a bus fare saving which also gets siphoned off somewhere else (not into other expenses of course). If you manage to get a bonus from work, that gets scraped elsewhere and yet others see a pay-rise as a permanent snowflake (but then you're more into savings schemes).

Any Excuse Will Do

I have noticed something about snowflaking and it is this. If you practice the technique then no matter what you do throughout each month, you'll find any excuse to snowflake that money off elsewhere. Take these examples as interesting reasons to snowflake rather than as a guide. Yes, I have actually seen people use these so you can see, it really is for whatever reason you decide:

  • shift over the cost of that coffee you didn't have
  • move aside what you saved in the supermarket
  • was your lunch ultimately frugal, siphon off what you didn't spend
  • did you find a dollar in the street, put it in your savings
  • pay off some more debt with that money you were given in your garage sale
  • transfer the extra you received in your paycheck this month
  • cast aside what you used to spend before you gave up your bad habits!

My example this month is that I have been online selling some of my old DVDs that I no longer watch. Every time I get a sale, I've been shifting that money over into my emergency fund. The thing is, instead of moving the sale amount minus the commission, I have moved the whole thing and considered the commission an expense for the month.

And I have another confession. Over the years I have gathered a number of booklets of stamps which I always lose and then end up buying another booklet, only to lose that and never use the all. Whilst simplifying my life I have found all of these booklets again and stashed them in an envelope near to where my jiffy bags are. So instead of taking off the cost of postage (which is added on at each auction) I have also been moving that over to my Emergency Fund.

And finally, just so it didn't feel left out, I have done the same for the jiffy bags I had to buy and consider that a monthly expense too.

It turns out that within a month, I am now about $118 richer in my Emergency Fund due to the addition of those four things (DVD, commission, stamp, packaging) all being siphoned off. If I had only shifted the profit, I'd be looking at a much lower $90 (but still better than just spending it).

Compound Interest Strikes Again

And that is when the magic happens. Okay, that $118 isn't going to make a big difference now but in the future, with all the other snowflakes I cast aside from my expenses, that'll start to begin growing exponentially making my money work even harder for me. Once you start, you won't be able to stop and your debt or savings will move in the right directions faster than you thought possible.

So come on. Help Jimmy out and make sure he finds his rightful home amongst all the other snowflakes. After all, if you don't, he'll just end up melting and then you won't know where he's gone. Put him aside safely and watch as he helps build your snowflakes into your snowballs.

Why not give it a go and let me know how you get on. What other things will you snowflake?

1 comment:

Ms. Liz said...

I use this habit all the time, but I never knew what to call it! I love the term, thanks for expanding my vocab.