Are you finding yourself with every intention of saving money, but are having trouble getting into the habit? The reason may be hidden in the human mind, and Shlomo Bernartzi, professor of behavioral economics at UCLA, explains why it’s so hard for people to save money.
I’ll do it tomorrow
What happens when someone has to fill out a survey or a form? Many of the boxes will be left empty. This is because an act as simple as checking a box can be boring, tedious or a process that involves thinking, which is simply left for another time.
People postpone their decision to save money because they feel overwhelmed by the existing options or by the forms to get into a savings plan.
We want immediate results
We tend to fall into the bias of the present, where we think it’s cool to save and that we will do it, but right now there are purchases that you want (or need) before making it. Does this sound familiar? Saving implies modifying habits that bring us immediate pleasure (like those new clothes you buy each change of season or the coffee each morning) and it’s not easy to do it, especially if we don’t understand the benefits of delayed gratification.
Yes, I want to save money, but right now I need to buy omnomnom
We don’t like losing money
Mentally, emotionally and intuitively, people are afraid of losing their money in any circumstance. Savings are perceived as a loss because it’s money that must be subtracted as a monthly expense, and it cannot be spent in the immediate time being. That sensation of “having less” is what leads many to the issue of “saving some other time”.
In other words, we hate losing money. Our brains respond with dissatisfaction whether we lose $50 dollars or $500. Do you want to know more about money and your brain? In Dear Money we explain it to you.
Solutions:
We have already identified the three challenges of financial behavior to save money, now it’s time to know how to put a spin on them. Professor Bernartzi, along with his colleague Richard H. Thaler, designed the Save for Tomorrow, Tomorrow savings system, from which we can extract three ideas that you can implement in your life:
- Saving tomorrow: choose a saving date on your calendar, stick to it. Begin seeing the saving habit as the concept of paying yourself, and you will see how you begin to adopt the habit.
- Automate your savings: on that date, program a percentage of your salary to go directly into a separate savings account. You have no idea how much? Use the 50-30-20 rule. And that way you will get to save 20%.
- Increase your savings: when you get a raise, that is the time to increase your savings percentage, in this way you reduce the feeling of loss aversion because the savings are proportional to your income. Remember that a terrifying financial future is predicted for millennials, so more and more young people are responsible for creating their own savings and their own retirement.
Don’t stop learning about managing your finances. Listen to Shlomo Bernartzi’s talk and continue reading Dear Money, nothing like half an hour of mental exercise to stay financially fit.
Article translated by Rodolfo Schaefer
