Psychological Tricks to Help You Save Money
You know what you have to do, the question is how to do it.
This isn’t a question about your intelligence or willpower. It’s about social and environmental cues. So, how do you bridge the gap between intention and action?
Firstly, harness the power of pre-commitment. Think about your present self and your future self. Oftentimes, we forget that our futureself is dependent on the actions we take now, in the present day. It’s important to realise that your future self is the same as your current self. One of the best times to save is when you first get paid, or receive a tax refund of some form.
There was a study carried out where people in one group were asked how much they’d like to save of their wage when they were to receive it. Another group were asked how much they’d like to save, immediately after having been paid. The difference between the two groups was significant. Those that had yet to be paid, were happy to save about 27%. In the other group, they were only willing to put 17% aside.
Take a moment and think about the ways you can sign up your future self for something you know might be a little hard today. The trick is to have a pre-made binding contract. Have a look at apps that track your spending, and saving.
Secondly, use transition moments to your advantage. This is called the ‘Fresh Start effect’ in Psychology - where your motivation to act increases. The Fresh Start is defined as any time your past performance metric is dissociated from your current and future performance metric. The typical time for this to happen is by use of dates - for example a new year or a new season.
Research says that people are better at tackling their goals when they start on so-called temporal landmarks. They’re usually accompanied by some instance of failure and so become a type of psychological resetting. Although such performance resets don’t always work in one’s favour, there are some things which can be done to maximise the use of a fresh start.
Make sure to track goal performance, know where you stand and stay committed. Unlike intuition or feelings, performance metrics can’t lie. Give yourself limits or boundaries - and simple. This will make the whole process a lot easier. Know how much money you are going to put into your savings after being paid.
Part of a Fresh Start, is to go all out. So don’t shy away from thinking big! Envision keeping on track and the success, or savings, which will roll in over time. Maintain the good momentum by framing your progress and having visual exposure to your progress. This will ensure to remind you of how well you are doing.
Third and finally, manage small, frequent purchases. Ration your actions.
Look at your spending triggers. Often they are emotionally and psychologically related. The biggest spend which people regret is that on food. Look to see how you can remove temptations, manage moods, potential peer pressure and your lifestyle. A good idea is to set goals, and limit yourself. For example, if you’re forced to only buy three lunches a week - and homemake the other two - you’ll begin to ration how and where you spend your money.
As human beings, we can be irrational when we come to saving, buying etc. But we can also predict how we are going to act - so let’s change our environments and implement action plans to help our future selves.