Pinching pennies, tightening the purse strings, saving money -- in today's world of instant gratification and financial instability, saving up for the future can prove to be easier said than done for many people. However, it's not impossible. Murray State professor of psychology, Michael Bordieri, Ph.D., visits Sounds Good to discuss the psychology of saving money.
Setting money aside for the future can be difficult for many reasons. Many people live pay check to pay check, which can make saving any money at all next to impossible. Others have recurring medical costs, student loan debt, and countless other financial burdens that soak up money that could have potentially gone towards a savings account. Online shopping, credit cards, and lightning-fast shipping speeds provide a sense of immediate reward, something towards which humans are 'neurologically and evolutionarily sensitive,' according to Bordieri. Psychological studies have shown, however, that despite financial burdens and a propensity to choose immediate gratification, people can 'train' their minds to be more apt to saving.
One factor which contributes to the difficulty of choosing delayed gratification over immediate rewards, Bordieri explains, is the visible nature of the latter. To add a visual element to the former, Bordieri suggests utilizing apps and tech start ups that allow a user to visibly track their money each month and see financial goals being met (see NerdWallet's suggestions for the best money-saving apps here). Utilizing bank apps brings real-time account updates straight to your phone. By making savings accounts more visible, you can actually see the larger financial growth caused by seemingly small investments.
Another way to circumvent human nature's inclination for immediate reward is to set up automatic savings deposits. Scheduling monthly payments into a savings account, either through a direct deposit or a checking account, can allow saving to occur with little to no effort. If the money is deposited into a savings account before you see it, that money is less likely to burn a hole in your pocket. Automatic payments aren't the only way to ensure consistent saving, however. Engaging in an activity repetitively -- in this case, saving any amount of money, big or small, each month -- is more likely to build a strong habit, which encourages that behavior over longer periods of time.
"We know that change is difficult," Bordieri says. "It's easy to focus on big outcomes - 'I want to be a millionaire, I want thirty thousand dollars' - [but] that isn't one decision. It's a series of small, often daily decisions that lead to that point over time. It's easy to get things immediately. It's really difficult to save away. Sometimes financial planning [is considered] old, terrible, no fun, you never have any joy. But folks who are good savers can also be folks who treat themselves, buy something nice, go on vacation; all those things are possible, too."