The 3 Stages of Saving

Dylan Jones, Product Manager at Tandem

(Second in the series on Autosavings and the Psychology of Saving, by Dylan Jones. If you missed part one, read it here first).

When we talk to our users at Tandem about how they save in our weekly testing sessions, there are some consistent themes that appear.

Firstly, we can usually categorise users as being in one of three stages of saving.

The first and often most challenging stage of saving, is activation. As discussed in our previous post, The Psychology of Saving, getting started is often the most difficult part of saving. At this point, the most important thing is building a regular rhythm of saving and developing good habits. Saving little and often can lead to surprisingly high total savings and over time can exceed sporadic deposits of a larger size. It’s the hare and the tortoise all over again.

Once a regular savings pattern has been established, the next step is to try and accelerate the rate of saving by increasing the amount you save each week. It’s often helpful to think of larger goals, such as a holiday or a deposit for a house. You can then track your saving against that goal and make small improvements to reach your goals quicker.

The third stage is optimisation, where you have saved up a healthy sum and are looking for ways to make additional money from your savings. That involves searching for the best investment products and interest rates, so that you can maximise the interest you are earning.

Save First / Save Later

In our testing sessions, we’ve also noticed that users tend to use one of two mechanisms to save.

Users who save first will wait until they’ve just been paid and then move a set amount into their savings account. They will continue to spend as usual over the course of the month, but often have to dip into their savings when they spend too much, whether it’s due to an unexpected bill or just too many meals out with friends. By using money they had originally moved into their savings, they are building up bad habits, establishing the mental rule that it is okay to take money from your savings account and reducing the amount you save in later months.

Users who save last will wait until the end of the month before sweeping any left-over money from their pay check into their savings account. The problem here is that it is very easy to overspend when you can see a large balance in your current account, even though you know you should keep some of it aside to save at the end of the month.

Save Often

To avoid some of the pitfalls of save first or save last, we often encourage users to put money aside regularly throughout the month. Instead of completely separating saving and spending, with a specific time of the month for each task, it is healthy to build saving habits where you save alongside spending. For example, saving an extra £3 every time you treat yourself to a morning coffee can build up your savings without completely impeding your spending. It’s like pay it forward. Except to yourself.

At Tandem, we have designed our new auto-savings rules specifically to help people along their savings journey, from activation through to optimisation. By setting rules that save little and often throughout the month, you can get started saving without really noticing it. Once you have developed a regular rhythm of saving small amounts, you can increase the amount you are saving each week and start thinking about larger goals. You could be on the beach in the Bahamas in no time!

If you want to be an early tester for our new Autosavings feature, please sign up here. We will be releasing on Android first, with iOS following closely behind.