Accelerate your savings with the help of science
Written and accurate as at: May 12, 2022 Current Stats & Facts
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.
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.
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.
* https://scholar.dominican.edu/cgi/viewcontent.cgi?article=1265&context=news-releases
^ https://dornsife.usc.edu/assets/sites/545/docs/Wendy_Wood_Research_Articles/Habits/Neal.Wood.Quinn.2006_Habits_a_repeat_performance.pdf
# https://journals.sagepub.com/doi/abs/10.1177/0956797613512129
*^http://www-2.rotman.utoronto.ca/facbios/file/JMR%20saving%20final.pdf