You know you should save money. Whether it is for retirement, a new car, or just to build your emergency fund.
But how do you start if you don’t have a good savings track record?
These four tips can help you save more money. They are based, in part, on insights from research in psychology, behavioral science, and neuroscience. More can be found in Thinking Fast and Slow by Daniel Kahneman and Mind Over Money by Claudia Hammond.
Try Not to Fix Everything at Once
Recognize that its hard just to wipe the slate clean and turn over a new leaf. This is especially true for money habits. People become over optimistic about their ability to do better in the future and hence don’t succeed.
Its better to recognize that you are likely to repeat same patterns. Be realistic about your ability to do better in the future.
If you recognize that patterns are likely to repeat themselves then it is best to start small. Even if you save a small amount – say $20 every two weeks – it is a good start.
You could set the savings amount as the cost of one thing you could give up. Instead save that money and not buy the item you are foregoing. Start small and keep it simple.
Automate, automate, automate.
On your good days you know you need to save but its hard. The easiest way to save is to take the decision-making out of the process. Automate your savings.
It’s easy to set up retirement plan deductions from your paycheck. You never see the money. It goes directly to your retirement account.
You can also deposit your paycheck into two accounts – your main checking account and a savings account.
So automate your savings and remove the temptation to spend.
Put the Money Far Away
Empirical research shows that putting money far away can help you keep it saved. You are less likely to tap it if its more difficult to get.
Maybe it is the time you have to spend to get it that brings you back to your senses. Or it could just be the geographic distance. Either way, distance seems to matter.
This finding means that your savings account should not be at the same bank as your checking account.
Open a savings account at the other end of the country (or online) so it seems far away.
In sum, automating a small savings amount each month in an account far away will help you save money faster.