Do you struggle with impulsive spending or find saving money a chore?
These small behavioural changes could help.
Whether it’s our approach to saving and spending or our willingness to take on debt, psychology plays a big part in determining our relationship with money.
Fortunately, there are plenty of ways you can shift gears mentally to get a better handle on your finances. Let’s take a look at just a few below.
Set up barriers to minimise overspending
New banking technologies have reduced managing and spending your money to just a few taps of the finger or a wave of a card.
While this has certainly made things more convenient, it has also eliminated many of the barriers that often kept us from overspending. For some people, the solution might involve introducing some new barriers.
For example, if you struggle with impulsive spending, consider quarantining your savings by keeping them with another financial institution. You could even go a step further and refrain from activating your account’s card or downloading the app — that way, your money will only be accessible via online banking. The idea here is to create enough extra work for yourself so that you won’t be tempted to dip into your savings too often.
Think of your mortgage as a savings account
It’s easy to think of your mortgage as a drain on your finances, but it might be helpful to think of it as a kind of savings account instead. Every time you chip away at the loan principal you contribute to the equity you have in your home, and this equity will be accessible if you decide to sell down the track.
And by making repayments above the minimum amount set by your lender, you can potentially save on interest and shave years off the life of your loan. This can be more advantageous than keeping your money in an interest-earning account since financial institutions tend to charge higher rates on mortgages than they pay out to savers. And unlike the money you would earn from a savings account, you won’t have to pay tax on the interest you save.
One way to trick yourself into paying down your loan faster is to switch from monthly to fortnightly repayments. If you then pay half your monthly repayment amount each month, you’ll be contributing an extra month’s worth of repayments each year at minimal cost to your budget.
Put your savings on autopilot
Willing yourself to save more can be an uphill battle, but you can make things a whole lot easier by outsourcing part or all of the job to technology. Automating your finances can help reduce your mental load and ensure you’re consistently setting aside enough money for a rainy day. Here are just a few possible ways to go about it:
- Set up direct transfers to your savings: Arrange to have your salary deposited directly into your savings account and draw on it as needed to cover your budgeted expenses. This way your money is constantly working to earn you interest (or save interest if you’re using a mortgage offset account).
- Automate your bill payments: If you haven’t done so already, think about setting up automatic payments for utilities and any other bills, so you can avoid the stress and fees that come with late payments.
Consider micro-investing or round-up apps: These days, there are a number of apps that round up the card purchases you make to the nearest dollar and either invest the difference or put it towards your savings.
Put 24 hours between you and expensive purchases
Most of us have made impulse purchases that we later regretted, either because it blew out our budget or clarity set in and we realised we didn’t even want or need the item in the first place. It’s in these situations that we fall victim to something called the present bias. When deciding between splurging our money and saving or investing it, we often choose the former because it’s so immediately rewarding — even if the sheen of whatever we bought wears off pretty quickly.
Next time something expensive catches your eye, commit to waiting 24 hours before you actually buy it. If after 24 hours you still want it, then chances are it’ll bring some benefit to your life and may be worth the hit to your savings. But if the excitement around purchasing that item has subsided, then that can often be a good sign that you should give it a miss.
Cultivating habits like these might take a while, but it can get easier to stay motivated once you start seeing progress and your financial position improves. Stick with it and don’t forget to celebrate those small financial wins along the way.
Contact Carrick Aland’s award-winning Wealth Planning team on 1300 466 998 or visit carrickaland.com.au/wealth-planning/.
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