The Psychology Of Money And How To Save It
When we asked our community recently what they’d most like to read about, the resounding answer was for advice on how to save and manage their money. So we listened.
The more we researched, the more opportunities revealed themselves. We realised the volume of hints and tips we were gathering would never fit into one article.
And so we bring to you a series on how to save money. We’ll show you ways to save money at home and how to save when shopping (contradictory as that sounds). We’ll also discuss how to save money in an ethical way that saves the environment at the same time. We’ll have a look at how you can save money but still enjoy an active and social lifestyle. But before we approach any of these we need to understand our approach to saving money. How we perceive its influence in our lives, how confident we are to take control of it to do what’s necessary to save it. I’m talking about …
The Psychology of Saving
Perhaps you’re an ardent saver just looking for ways to put aside an extra penny. You’ll likely be familiar with the sentiments of this article. If your spending habits are what got you into financial hot water in the first place, no amount of money saving tips will be effective until you adjust the thinking that underpins your money spending .
Or perhaps you’re used to making sound financial decisions, and now you’d like to buy a house. But the idea of a deposit of $50 000 or more is so intimidating that you don’t really get down to it. An example of effective saving psychology is to break down the amount into smaller milestones, with celebration markers along the way. Take the first step such as opening a savings account. Then the next step, and the next, and with each action your ‘saving muscles’ strengthen, your savings balance grows, and you WILL own that home.
Do You Really Need That?
The next time you reach for your purse or wallet take a moment to examine your motives. Are you collecting out of habit (‘I just can’t resist a gorgeous scarf!’) or is there a sense of entitlement to the purchase (‘I need my Monday morning cup of coffee’)?
If your saving mechanisms are to work you’re going to need to control your spending, and to exercise self discipline when it’s needed. Which means not waiting for the denial of a purchase to feel right, but doing it because you know it’s right.
Learn To Say No … And Mean It!
How often do you find yourself in a situation where you feel obliged to spend? Where you’re not comfortable with the decision but can’t quite bring yourself to say no? Being able to decline with confidence is critical for your financial health.
Salespeople are trained to make it as difficult as possible for you to say no to buying their product. A respectful but firm ‘No thank you’ is all that’s needed to keep your financial plans on track.
There are other circumstances where it can be difficult to say no, such as when you’re out for a meal with friends. We’ll cover that in our article on ‘Lifestyle money saving tips’.
Cash Is King
We’ve heard it before because it’s true – when you hand over real dollars it feels more like you’re spending your hard earned money! It’s so easy to hand over a debit card, but the tactile experience of keeping cash in an envelope system and taking it out to spend it can make budgeting attempts far more effective. There’s nothing that brings home the need to be frugal as a rapidly emptying envelope.
Failure Is Feedback
We’re all human and mistakes happen when you get caught in the moment and make a purchase that you later regret. When you ‘fall off the money wagon’, it’s important that you let it go and just get back on track. It’s often when you’ve spent beyond your budget’s constraints that you feel as you’ve ‘messed up’, you may as well enjoy the experience fully. And you’ll go on to spend even more and derail your financial plans to where it can take a month or more to catch up.
Stop. Regroup. Make the budgetary adjustments required and get right back on track. Embrace your past experiences so that the memories of financial mistakes work for you. Allow them to help you make better decisions in the future, while leaving poor decisions in the past.
The ‘Air Basket’ aka. The 30-Day Rule
The greatest danger to any budget is often the need for instant gratification. Some families have a rule that any expenditure over a certain amount was placed into an ‘air basket’ (an imaginary shopping basket). They’d then go home and have a good think about whether it was worthwhile or not. Only when they were absolutely certain that it was important to them and worth the money, would they return to buy the item.