As humans, sacrificing in the short term for long-term reward goes against our grain
Our brain works hard to come up with excuses for why we can’t save more.
These excuses try to distract and protect us from anxiety and shame, but they don’t serve us long term.
Saving money can be difficult at the best of times. But when everyday items such as electricity, groceries, and petrol prices go north, it pays to have some smart strategies up your sleeve to help you keep the saving momentum going.
Luckily, behavioural science can teach us a thing or two about how to find more success when it comes to saving. Whether you’re planning that long-awaited overseas trip, tackling some home renovations, or saving for retirement, try these ideas on for size.
Write down and share your savings goals
Our brains are programmed to prioritise original self-generated ideas. Through a neurological process called the ‘generation effect’, the things you write down become more important and encoded in your memory, making recall much easier.
Writing down your savings goals gives you the opportunity to reflect and be specific. How much do you want to save and by when? Where will the money come from? How often will you add to your savings and in what account will you keep them? What savings progress have you made?
Writing down the detail also leaves less room for ambiguity or uncertainty. Once it’s down on paper, you have a clear path forward. And, for some extra savings power, create accountability by sharing your progress with family or friends. Studies have shown* you’re more likely to achieve a goal if you tell others about it, rather than keeping it to yourself.
Add and remove friction to your spending and saving
‘Friction’ is a behavioural finance term that refers to things that slow us down during an experience, such as making a purchase. There’s a reason why you can shop online in one click and enjoy automatic renewal on your annual subscriptions; there’s no friction.
Removing friction (or barriers to buying) has become a fine art, and as a result, we can often spend more than we realise or become lazy about shopping around for a cheaper price or better quality.
If this sounds like you, it’s possible to find ways to add friction to your spending. Removing your saved payment details and deactivating one-click purchases is a good starting point. You could also regularly review any auto payments to make sure you’re not overspending.
The concept of friction can be just as useful when it comes to saving. Using this same principle, we can find ways to remove friction to help us save more. One of the best ways to do this can be to automate your savings so you never have to decide to save or take any action—it just happens. Doing this also means saving can become less painful because you don’t have to physically withdraw the money.
Make saving a part of everyday life
Behaviours become habits when they are repeated frequently and consistently^. And studies have found that those who use a cyclical savings method over a linear one save significantly more money#. A cyclical mindset towards saving means you view saving as a series of interconnected recurring experiences, rather than something you put off until later.
Anything you can do to bring saving into your regular routine, can potentially increase the amount you save. In addition to automating your savings, you could, for example, make a commitment to save your spare cash on the 1st of each month. Or, each time you buy lunch, add the same amount of money to your savings account. There are many ways to boost your savings, it’s all about being creative and finding what works for you.
Acknowledge the small wins
Setting lofty money goals is rarely sustainable. Instead, having bite-sized and achievable milestones and focusing on smaller wins can be a highly effective way of saving. The concept of small wins links back to the ‘progress principle’, introduced by Harvard Business School professor Teresa Amabile and developmental psychologist Steven Kramer. The more frequently we experience a sense of progress, the more likely we are to be productive in the long run.
Think about the ways you can create these small wins. For example, rather than set a quarterly savings goal, break it down to monthly or even weekly savings. And make sure you reward yourself once you hit your first milestone.
Narrow your focus
Studies have found that we are better at saving when we have just one saving goal, rather than multiple goals*^. Having just one goal means we don’t need to spend time prioritising one over another and it puts us in an action-oriented mindset, lessening the risk of procrastination.
If there are a number of things you want to save for, try and come up with a collective label to group these together. For example, you might group saving for a contingency fund and saving for a holiday under the label of ‘health and wellbeing’. Or you could group saving for a new car with home renovations under the label of ‘lifestyle upgrade’.
These are just some ideas, but if you’re looking to accelerate your savings efforts and need some help, get in touch with us today.
Contact Carrick Aland’s Wealth planning team on 1300 466 998 or visit carrickaland.com.au/wealth-planning/.
This report is prepared by Bridges Financial Services Pty Limited ABN 60 003 474 977 AFSL 240837 (Bridges). Bridges is an ASX Market Participant and part of the IOOF group of companies. This report is prepared by the IOOF Research team for: Bridges Financial Services Pty Limited ABN 60 003 474 977 AFSL 240837, Consultum Financial Advisers Pty Ltd ABN 65 006 373 995 AFSL 230323, Elders Financial Planning ABN 48 007 997 186 AFSL 224645, Financial Services Partners ABN 15 089 512 587 AFSL 237 590, Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 AFSL 244252, RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429, Shadforth Financial Group Ltd ABN 27 127 508 472 AFSL 318613 (‘Advice Licensees’). The Advice Licensees are part of the IOOF group comprising IOOF Holdings ABN 49 100 103 722 and its related bodies corporate (IOOF group). The Advice Licensees and/or their associated entities, directors and/or employees may have a material interest in, and may earn brokerage from, any securities or other financial products referred to in this document or may provide services to the company referred to in this report. The document is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of the Advice Licensees. The Advice Licensees and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that the firms or other such persons may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. The document is current as at the date of issue but may be superseded by future publications. You can confirm the currency of this document by checking the intranet site (links below). The information contained in this report is for the sole use of advisers and clients of AFSL entities authorised by the Advice Licensees. This report may be used on the express condition that you have obtained a copy of the Advice Licensees Financial Services Guide (FSG) from their respective website. Disclaimer: The information in this report is general advice only and does not take into account the financial circumstances, needs and objectives of any particular investor. Before acting on the advice contained in this document, you should assess your own circumstances or seek advice from a financial adviser. Where applicable, you should obtain and consider a copy of the Product Disclosure Statement, prospectus or other disclosure material relevant to the financial product before making a decision to acquire a financial product. It is important to note that investments may go up and down and past performance is not an indicator of future performance. The contents of this report should not be disclosed, in whole or in part, to any other party without the prior consent of the IOOF Research Team and Advice Licensees. To the extent permitted by the law, the IOOF Research team and Advice Licensees and their associated entities are not liable for any loss or damage arising from, or in relation to, the contents of this report. For information regarding any potential conflicts of interest and analyst holdings; IOOF Research Team’s coverage criteria, methodology and spread of ratings; and summary information about the qualifications and experience of the IOOF Research Team please visit https://www.ioof.com.au/adviser/investment_funds/ioof_advice_research_process.
