No matter the details of our daily lives, most of what we think, feel and do as humans is determined by our habits – and getting in a financial rut is the most common habit, and one of the hardest to break. The impact of regular saving can help you achieve seismic change in your life in as little as just a few years. But can you transform your money habits to ones that boost your funds instead of burn them?
The psychology of saving
As human beings, we like to live in the moment. Evaluating long-term vs. short-term reward is more like a muscle than a natural skill – it needs building up and strengthening to ensure consistent pay-off. It’s easy to say to ourselves, “Oh well, I’m just not good with money”, like it’s genetically pre-determined, but how do we get good at anything? Practice! But as the (often impulsive) creatures we are, we get into the pattern of spending our money as it comes in, living month-to-month – or worse, getting ourselves in debt. Saving is boring, is the story we tell ourselves. Saving is the bad guy that stops us getting things we want (and when do we want it? NOW!).
“Spending above your means, spending instead of saving for retirement, spending in anticipation of becoming wealthy, makes you a slave to the paycheck, even with a stellar level of income,” says Sarah Stanley Fallaw, Director of Research for the Affluent Market Institute and co-author of a studyinto the spending habits of 600 American millionaires.
The rich old skinflint, beamed into the public consciousness in the form of Scrooge McDuck (and his namesake, Ebenezer), is a firm cliché, but one based on both fact and a useful message. Not the being grumpy and hating Christmas part, but the routine of spending little, investing well, and saving regularly. Stanley Fallaw’s report found, alongside evidence of billionaire Mark Zuckerberg shopping in discount stores, that most of the super-rich amassed their wealth by “living frugally — a habit they continue to practice even after becoming rich.”
“Spending above your means, spending instead of saving for retirement, spending in anticipation of becoming wealthy, makes you a slave to the paycheck, even with a stellar level of income,” says Sarah Stanley Fallaw, Director of Research for the Affluent Market Institute and co-author of a studyinto the spending habits of 600 American millionaires.
The rich old skinflint, beamed into the public consciousness in the form of Scrooge McDuck (and his namesake, Ebenezer), is a firm cliché, but one based on both fact and a useful message. Not the being grumpy and hating Christmas part, but the routine of spending little, investing well, and saving regularly. Stanley Fallaw’s report found, alongside evidence of billionaire Mark Zuckerberg shopping in discount stores, that most of the super-rich amassed their wealth by “living frugally — a habit they continue to practice even after becoming rich.”
Little changes, big impact
That’s not to say it’s too late, if you’re reading this as an embittered grown-up shaking a metaphorical fist at the youth of today. Whatever financial habits you’ve chosen so far, you still have the power to change them going forward to achieve the goals you’ve been dreaming of.
As you may have already noticed, rich people who drive sports cars, live in sought-after areas and buy designer clothes or luxury watches are not in the majority. So what are their secrets?
Good start. To breathe new life into your finances, there’s no point in buying lottery tickets, playing at the casino or relying on a windfall. Neither is there any point – you’ll be pleased to hear – in pining for that promotion to increase your income. If you restrict your expenses to less than your income, basic maths dictates that you’ll keep more money than you lose. See, school arithmetic wasn’t a total waste of time, was it?
The reward button for your brain’s dopamine centres needs to be the saving – watching that amount in your account grow and grow – rather than the spending. Instead of hammering that dopamine button by buying more and more items or experiences, turn the dream of financial freedom into your prize.
As you may have already noticed, rich people who drive sports cars, live in sought-after areas and buy designer clothes or luxury watches are not in the majority. So what are their secrets?
- Never buy new when you can buy second-hand
- Never buy an item if you can lease or rent it
- Never lease or rent an item if you can borrow it
Good start. To breathe new life into your finances, there’s no point in buying lottery tickets, playing at the casino or relying on a windfall. Neither is there any point – you’ll be pleased to hear – in pining for that promotion to increase your income. If you restrict your expenses to less than your income, basic maths dictates that you’ll keep more money than you lose. See, school arithmetic wasn’t a total waste of time, was it?
The reward button for your brain’s dopamine centres needs to be the saving – watching that amount in your account grow and grow – rather than the spending. Instead of hammering that dopamine button by buying more and more items or experiences, turn the dream of financial freedom into your prize.
How do you even start saving money?
In his bestseller “The Richest Man in Babylon”, George S. Clason wrote that the key to financial success is to pay yourself first. He recommends saving at least 10% of your income and putting it to one side before paying any bills or expenses. As an adaptable human, if you tell yourself that you need to live on 90% of your income, your brain will quickly shift gears to accommodate your slightly more modest lifestyle. If you’re in debt, or if the idea of saving 10% of your income seems terrifying right now, start by saving 1% then gradually increase this month by month. Go higher than 10% if you can! Thanks to the gradual change, you’ll barely notice the difference, but your savings will.
Lastly, ensure you make use of the technology at your fingertips. There are plenty of finance and budgeting apps to help you keep your money working for you, and not the other way around. Consider creating savings “pots” where the money only flows one way – in! This will allow you to regularly measure your progress until your goal is reached. Set up a standing order to automatically fill your “pot” and watch your money grow with minimal effort.
Lastly, ensure you make use of the technology at your fingertips. There are plenty of finance and budgeting apps to help you keep your money working for you, and not the other way around. Consider creating savings “pots” where the money only flows one way – in! This will allow you to regularly measure your progress until your goal is reached. Set up a standing order to automatically fill your “pot” and watch your money grow with minimal effort.
It’s a marathon – not a sprint
As you can see, simple habits – with some patience and self-restraint – can turn the tide on your money management. But even if the tips we’ve covered here seem a bit daunting at the moment, remember that just by reading this article, you’re investing in your financial future. Even thinking about your finances will greatly improve the decisions you make about them. Investing any time at all in managing your saving, spending and investing will inevitably lead to better decisions and better results. We believe in you – keep going!