Saving More

HOW CAN WE GET ourselves to spend less and save more? The money guide’s chapter on saving money includes a host of tips. Those tips fall into three broad categories.

1. Make spending painful. Some of us find it easy to control our spending—but many folks don’t. If you’re in the latter camp, what steps should you take? You could try creating and following a monthly budget. But like our efforts to eat less and exercise more, we often end up cheating on our budget—and soon we’re back to our old, unfortunate habits.

What’s the alternative? We might resort to sterner measures. Those could include leaving the credit and debit cards at home, and instead only paying with cash. We might also carry a notebook and write down every purchase we make, so we’re more conscious of our spending.

Like the diets that exclude entire food categories, we might forbid ourselves from certain expenditures, such as restaurant meals or online purchases. We tend to do better with blanket prohibitions than with rules aimed to getting us to spend, say, 50% less on shoes and clothes, because it’s easier to break such rules. We could also tell others about our goal for monthly spending—and encourage them to ask us how we’re doing—so fear of their disapproval pushes us to spend less.

Finally, we might constrain our spending by minimizing the sum we keep in our checking account. We tend to engage in mental accounting, happily spending from our checking account but considering our savings and investment accounts untouchable. To the extent we get money into these other accounts, we’re less likely to spend it—though there’s a risk we might compensate by racking up the credit cards instead.

2. Make saving painless. The most popular strategy is to automate regular savings. That includes making contributions from our paycheck to our employer’s 401(k) or 403(b) plan, so the money is gone before we get a chance to spend it. We might also sign up for automatic savings plans, where money is pulled each month from our checking account and placed in the savings account, brokerage account or mutual funds we choose.

We should also strive to keep our fixed living costs—mortgage or rent, car payments, utilities and so on—at a modest level, so not only is it easy to save, but also we’ll still have money left over for discretionary expenses. That discretionary spending—things like vacations, concerts and eating out—should help ensure we don’t feel deprived.

3. Make future spending more desirable. If we’re to resist today’s many consumer temptations and instead sock away the money for goals that may be decades away, we need to somehow make those goals super-alluring.

To that end, we might visualize our goals, imagining in detail how great it will be to, say, own a home or never again have to go to the office. We might also think about how spending $100 less today might allow us to spend $300 or $400 in future, thanks to investment compounding.

In addition, we might ponder how good it’ll feel to escape the anxiety of living paycheck to paycheck that accompanies today’s constant spending. In its stead, we’ll have the long-term happiness that comes with knowing that our finances today are on a solid footing and that the future is getting taken care of.

Next: Investing Better

Previous: We Hate Losing

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