Nudging Yourself

HOW CAN YOU GET yourself to sock away more money? Try these strategies:

• Commit now to saving later. Sign up for payroll deduction into your 401(k) plan. Also set up automatic investment plans, where money is plucked from your checking account every month and invested in a savings account or the mutual funds you choose. Once you have automated your regular savings, inertia kicks in and you’re likely to stick with it. Got a pay raise? Make sure you save part of your increased income by upping the sum you save automatically every month.
• Save all windfalls. Think about the extra money you sometimes receive, such as overtime pay, income from a second job, tax refunds, a year-end bonus and the occasional inheritance. These sums aren’t part of your regular paycheck, so you’re probably used to living without this money and thus it can be a painless source of extra savings.
• Round up the mortgage check. Do you usually pay $1,422 every month? Instead, make out the check for $1,500. Extra principal payments can allow you to pay off your mortgage years earlier.
• Turn debt payments into savings. Just finished paying off a student or car loan? Let’s say it was costing you $300 a month. Keep writing that check every month—but instead send it to your favorite mutual fund. You are used to living without the money, so this shouldn’t be any great sacrifice.
• Stash savings in accounts you consider off-limits. While folks will let themselves spend money that’s in their checking account, they are often reluctant to tap their savings and investment accounts. To take advantage of this mental accounting, get extra money out of your checking account and into an account you consider untouchable, like your brokerage account or your individual retirement account.
• Set a savings target for the months ahead—and then tell others about your goal. That may make you more tenacious, because we often behave better when we know others are watching. You might also think harder about why you’re investing and try to visualize how great it will be to realize your financial dreams. That may provide additional motivation.
• Write down everything you spend. This may make you more thoughtful about your spending.
• Create a time gap between deciding what to buy and actually buying it. This has two benefits. First, you’ll have a pleasurable stretch of anticipation before you make your purchases. Second, you will have a chance to consider whether they’re really worth the money. One tactic: Draw up a list of major purchases you want to make in the months ahead and then regularly review the list to see whether these items still seem so desirable.
• Remove temptation by, say, limiting how often you go to the shopping mall. What if that doesn’t work? If spending too much is a persistent problem, you might leave your credit cards at home, ask your credit card company to reduce your credit limit or even cut up your credit cards, and instead stick to paying cash. Spending seems more real when you have to hand over dollar bills.

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