The Psychology of Saving Money: Tips and Tricks.

Written by: Oluwatoyosi Adebusuyi

Imagine this: You wake up one morning, and there it is, sitting in your inbox — a well-detailed email. As you open it, your heart skips a beat. It’s not a bill or another piece of junk mail; it’s something far more exciting — it’s a letter from your future self. In it, your future self thanks you for taking control of your finances, and for making the decision to save money and invest in your future. They describe the freedom and security they now enjoy because of the choices they made.

This scenario may seem like a scene from a sci-fi movie, but it holds a more profound truth. The decisions we make today about our finances have a profound impact on our future selves. Saving money isn’t just about building wealth but a life of financial freedom, peace of mind, and endless possibilities. Saving money allows us to plan for the future, whether it’s for retirement, emergency funds, or long-term goals like buying a house or travelling. It also provides a safety net in case of unexpected expenses or job loss.

So why is it that some individuals effortlessly save while others struggle to put aside anything? Why do we succumb to impulsive buying, even when we know it’s detrimental to our long-term goals? The answers lie within the intricate workings of our minds.

Our relationship with money is deeply intertwined with our values, beliefs, and experiences. It influences our decisions, shapes our lifestyles, and impacts our overall well-being. In fact, Forbes states that our early experiences with money, such as witnessing arguments about it or being defined by it, can trigger a range of emotions such as anxiety, resentment or feelings of elitism that we carry through life.

In this blog, we’ll uncover the psychological barriers that hinder our saving efforts. We’ll shed light on the influence of instant gratification, the fear of missing out (FOMO), emotional spending, and the impact of financial literacy on our saving habits. By understanding these psychological factors, you can gain valuable insights into your own financial behaviours and make conscious choices to break free from their grip.

But it’s not all about the obstacles. We’ll also explore the empowering strategies and techniques that help successful people overcome these barriers and develop sustainable saving habits. From setting clear financial goals using the SMART framework to automating savings, tracking expenses, and implementing budgeting strategies, we’ll provide you with a comprehensive toolkit to take control of your financial future.

Understanding Your Money Mindset

Saving money — it’s a simple concept, yet one that often eludes us. We dream of financial security, freedom from debt, and the ability to pursue our dreams. But somehow, our bank accounts remain stagnant, and our financial goals feel out of reach.

Have you ever tried to control or manage something you know nothing about? How did that turn out for you? Probably hard, right? If you struggle with anything in this world, it is only right that you take out time to evaluate the situation by understanding what is happening before deciding how to make improvements. The same thing applies to saving money. As you slowly immerse yourself in fully realising your financial potential, you must first understand the things that drive you to take action, either good or bad. In this case, your MONEY MINDSET.

Your money mindset defines how you think about money and influences how you save, spend, and how you manage your debt. It encompasses your deep-rooted beliefs and values surrounding financial matters.

These include:

• What you think you can and cannot do with money.
• How much money you think you deserve.
• How you believe you should manage your money (spend, save, share).
• How you believe you should manage your debt.
• Your ability to grow your wealth.
• Your overall financial confidence.

There are two types of money mindset you can have. The SCARCITY and ABUNDANCE mindset. Author Stephen Covey coined both terms in his best-selling book The 7 Habits of Highly Effective People.

A scarcity mindset is often described as a belief that there is simply not enough to go around. It is when we have a narrow perspective, constantly fixating on what we lack rather than what we have. This limited mindset can hinder our ability to move forward and achieve our financial goals.

For example, let’s say you are the type of person who is always worried about not having enough. This mindset can prevent you from exploring new opportunities or taking risks that could potentially lead to your financial growth. Instead of focusing on your strengths and the resources available to you, you remain trapped in a cycle of lack, unable to see the possibilities that lie beyond your current circumstances. You begin to dismiss potential side hustles and investments, believing you don’t have enough capital to start or even ignore professional development opportunities because of fear.

An abundance mindset on the other hand is the exact opposite. It is the belief that there is enough of everything to go around, including resources, opportunities, and success. Consider a situation where you’ve just landed a new job, a position you’ve worked hard to secure. It’s an opportunity that could open doors to growth and financial stability. However, instead of feeling excited and grateful, you find yourself dwelling on limitations.

You catch yourself thinking, “This job is decent, but it’s not as good as what others have. I’ll never make enough money to achieve my dreams.” You constantly compare yourself to others, believing that there’s only a limited amount of success and that you’re falling short. Rather than embracing the possibilities and being grateful for the job, you focus on what it lacks. Thoughts like, “I wish the salary were higher” or “I deserve a better position” consume your mind, preventing you from fully appreciating the opportunities that lie ahead.

By continuously fixating on what’s lacking, you limit your ability to fully embrace and thrive in your new position. Your mindset is consumed by scarcity, preventing you from recognizing the potential for growth and progress that exists. In this scenario, it’s evident that you haven’t embraced an abundance mindset. Shifting your perspective involves acknowledging the value of the job you’ve obtained, appreciating the growth opportunities it offers, and believing in your own capability to create abundance and fulfilment in your career.

How does my money mindset impact my financial situation?

A negative mindset towards money can create a wall between you and financial success, leading to unhealthy money habits that hinder your ability to save and improve your financial situation. It may even push you into a cycle of debt, causing stress and anxiety, which can negatively affect your mental well-being.

Individuals with a negative money mindset often believe that there’s a limited amount of money available, and they feel they will never earn enough to improve their financial situation, even if they have a decent income and can cover their daily expenses. They may not make any effort to earn more because they think they can’t, they don’t deserve it, or they consider having a lot of money to be undesirable.

On the other hand, a positive outlook on money empowers you to realize that although you may not be in the ideal financial situation yet, you have the ability to reach your goals and are actively taking steps to improve your circumstances. People with a positive money mindset acknowledge that they will make mistakes but are willing to learn from them and recover from any losses.

Those with a positive mindset see the potential that money offers for growing wealth, whether it’s through saving, investing, or pursuing educational opportunities to enhance their earning potential. They simply have a greater awareness of the opportunities money can provide them.

A lot of factors contribute to how you think about money — including how you earn, nurture, manage and grow it. A great way to understand where some of these habits you exhibit with money are by asking yourself a few questions like,

• What influences my beliefs about money? Could it be from your parents or my friends?
• How do I feel about spending money? Does every Naira that goes out of your account almost bring you to tears?
• Does money boost my self-assurance or trigger feelings of insecurity? Is it a topic that gets you excited or anxious?
• Do I have a history of making good financial decisions, and if not, why? Do you make financial mistakes very often?
• Do I tend to hesitate when it comes to addressing money matters? If you lend a friend money and they don’t return it, would you let it go just to keep the friendship?
• Am I prone to impulsive spending, or do I have the discipline to resist unnecessary expenses? What would you do if you came across a bag on sale you don’t even need? Are you going to buy it just because it’s on sale?

If thinking about these alone makes you feel uncomfortable, there’s a possibility you may not have a good relationship with money. A mindset is built over a certain period of time and you’ll need to be patient and learn as you go on this journey. Brian Tracy has identified easy steps to take to positively impact your money response here

Common psychological barriers to saving money

Hard truth? A lot of us know what to do — we just don’t. You know you’re supposed to manage your money, save some, budget and track your expenses, get health insurance, reduce your shopping spend, and only spend money on what you need. Before you evaluate yourself and say, “It’s not my fault, what can man do?”, think it through. Are you really going to blame everything on inflation and the state of the economy? You know that’s just what you say to cover up for some of your financial mistakes and excesses. But deep down, there’s more. Fortunately, it’s not completely your fault.

CNBC reported that when it comes to money matters, we are wired to do it all wrong. According to the article, our brains have evolved over thousands of years to focus on short-term survival in a dangerous world with limited resources. They further explained that our ancestors lived in a world of scarcity, where saving for the future was impractical. They had to prioritise immediate consumption to survive in a feast or famine environment. This instinct to consume as much as possible has now been passed down to us, contributing to our struggles with overspending and undersaving. But thankfully, this is no longer old times. Dinosaurs and earth-shattering animals aren’t walking among men anymore. We’ve built different systems to advance our survival. The world isn’t ending tomorrow. Or is it?

However, asides from the above there are also certain psychological traits that serve as barriers to saving money. Some of them include:

Instant Gratification

Instant gratification is the desire for immediate satisfaction or pleasure without considering long-term consequences. It’s like wanting something right away, without thinking about the future. Can you remember all the times you were going through a bad day and had to take out money from your savings or bank account to fund an unnecessary expense just because it satisfied you in the moment? That’s instant gratification right there. It comes in different forms but the commonest one is retail therapy.

Retail therapy refers to the act of shopping as a way to improve your mood or deal with negative emotions. It’s the way a lot of people manage and cope with stress. But how effective is it? Does it really solve your problems? Well, it may improve your mood temporarily but it never really permanently solves the issues. Not to mention the fact that overindulging may cause a financial strain on your account, and in a lot of cases, guilt and regret.

Fear of Missing Out (FOMO)

Fear of Missing Out (FOMO) is the feeling of anxiety or unease that arises when we believe others are experiencing exciting or rewarding things without us. It’s that fear of being left out or not being part of something special. FOMO can act as a powerful psychological barrier to saving money because it drives us to spend in order to participate and keep up with others, even when it’s not in line with our financial goals.

For example, imagine your friends are planning a spontaneous weekend getaway. They share photos of their exciting adventures on social media, and you start feeling anxious about missing out on all the fun. At that moment, you might be tempted to join them, even if it means dipping into your savings or spending more than you can afford. The fear of missing out on creating amazing memories with your friends can overshadow your desire to save money for the future.

This fear can create a sense of urgency and pressure to spend, leading to impulsive buying decisions that can derail your saving efforts. Furthermore, The Economic Times adds that acting based on FOMO can lead to poor investment choices, unnecessary debt, and unwanted expenses.

Lifestyle Inflation

Lifestyle inflation refers to the tendency of increasing our spending as our income rises. It’s like getting a raise at work and then using that extra money to upgrade our lifestyle by purchasing more expensive things or indulging in luxury experiences.

Assuming you start a new job and receive a significant pay raise. With the extra income, you decide to move into a larger apartment, buy a brand-new car, and dine out at fancy restaurants more often. While these choices may bring immediate pleasure and a sense of achievement, they can create a psychological barrier to saving money.

Lifestyle inflation makes it challenging to save because as our expenses increase, so does our need for more money to sustain this upgraded lifestyle. We become accustomed to a higher standard of living, and saving becomes an afterthought. The more we spend, the more we feel the pressure to maintain that level of spending, making it difficult to set aside money for the future. Setting up an automated savings plan can be a good way to ensure that a better income does not affect your savings goals.

Procrastination

“I’ll do it tomorrow,” says the person who knows deep down they won’t. Procrastination is a familiar enemy we all battle with. But here’s the truth: waiting for the perfect moment to create a budget won’t happen magically when your schedule clears up.

A 2013 study by Dr Pychyl and Dr Sirois revealed that procrastination focused on “the immediate urgency of managing negative moods” than getting on with the task itself. Because there’s something unpleasant about the task — cleaning your dirty room or saving money, it may trigger some deeper feelings like self-doubt, low self-esteem, anxiety or insecurity. Thinking about saving money may get you feeling like, “My salary is small enough, what am I saving for again? I can’t even stick to being consistent with this saving plan. It’s not like saving money would make any difference. How long do I have to save to reach just N1 Million, let me just enjoy myself jor.”

All of these thoughts about the what ifs and maybe’s can totally make you give up saving and postpone practising it till you’re in a better position. But there won’t always be a perfect time. As you increase your earnings, your needs increase and you might keep making the same excuses and end up with no financial cushion.

How to tackle the psychological barriers preventing you from saving money

1. Recognize the value of delayed gratification

Nobody likes the feeling of wanting something they can’t afford right away. Sometimes, even if you have the means, you recognize that it’s not a priority and indulging in it would hinder your ability to afford something more important. Delayed gratification is not about deprivation; it’s about resisting the temptation of immediate rewards in order to reap more valuable rewards in the future.

For instance, choosing to cook your meals instead of eating out every day can lead to significant savings. While occasional dining out is fine, it pales in comparison to the expenses of daily food purchases. By saving that money, you can allocate it towards other financial needs like saving for holidays, emergencies, or any other important goals. In essence, delayed gratification involves cutting back on smaller expenses to make room for larger ones.

That’s why you may come across someone earning N150,000 who can afford a laptop twice the price. It’s because they have embraced financial discipline and understand the power of delayed gratification. You can’t expect to own a laptop if you’re taking an Uber to work every day, as that scenario is unlikely to happen.

By practising delayed gratification, you prioritize your long-term financial well-being and make wiser financial choices. It’s about making sacrifices in the present to secure a more prosperous future.

2. Set clear savings goals

If you want to buy a car by the end of a particular period, you don’t start planning how to get the money when you get to the car dealership, do you? You start planning immediately after you make up your mind about it. The same thing should apply to your money goals.

It does not matter whether you’re saving for a small perfume or a huge house, you must first create an outline of how you want to achieve it. Do you want to save daily, weekly or monthly? Do you want to cut back on some expenses like groceries, transport, and partying? What’s the plan? How do you make sure to achieve this goal you have set for yourself? It is by setting smart goals!

Your goals must be as SMART as your best work fit. SMART is an acronym that stands for Specific, Measurable, Attainable, Relevant and Timely Goals. To further explain what these translate to, see some scenarios below,

A non-specific goal: Increase my savings.

A specific goal: Save N100,000 by the end of the year for a down payment on a house.

Non-measurable goal: Reduce my expenses

Measurable goal: Reduce monthly expenses by 10% by creating and sticking to a budget.

Non-attainable goal: I want to become a millionaire in a month (without a clear plan and N50,000 salary).

Attainable goal: Save N150,000 within six months by cutting back on spending and setting aside a specific amount from each paycheck.

Non-relevant goal: Save money to buy a luxury car (You bought a car few months ago and it’s doing absolutely fine.)

Relevant goal: Save $2,000 for a new desktop within three months to support work-from-home productivity and career advancement.

Non-timely goal: Save for retirement (No specific time frame or milestones).

Timely goal: Contribute N50k per month to a retirement account for 30 years to achieve a comfortable retirement by age 65.

When you set SMART goals, you’re doing yourself a huge favour and you’ll be able to meet your goals in no time.

Read: 5 Simple Ways To Stick To Your 2023 Goals

3. Create a budget

While writing down or using spreadsheets can be helpful in creating and tracking a budget, the core concept of a budget simply revolves around consciously managing your money. A budget is a plan that helps you allocate your money effectively and make intentional decisions about how you will spend and save your income.

Here’s how you can create a budget in 5 simple steps:

• Calculate your net income: It’s important to calculate your net income, which represents the amount you have after deducting taxes, health insurance premiums, pension contributions, and other automatic deductions. If you’re freelancing, self-employed, or have an irregular income, factoring in taxes becomes necessary. The tax rate, as per “The Chartered Institute of Taxation of Nigeria,” ranges from 7 per cent to 24 per cent, depending on your earnings.
• List out your monthly expenses: It’s time to make a list of all the things you spend money on each month. Think about your recurring expenses like transportation, data or internet charges, rent, groceries, gym membership, savings, and any other items you consistently pay for. Make sure your list is full and covers all your financial responsibilities.
• Seperate fixed from flexible expenses: Now it’s time to categorize your expenses based on their priority. Start by identifying your fixed expenses, which are essential and non-negotiable. These include rent, groceries, transportation, debt repayment, and other critical obligations. They take precedence over everything else.
• On the other hand, you have variable expenses that offer more flexibility. These are the nice-to-haves, such as social outings, gym memberships, dining out, and other occasional indulgences.
• Decide how much you spend on an average for each expense: Your bank statement becomes a valuable tool during this stage, so it’s essential to keep track of your transactions and describe them in detail when money leaves your account.
  For fixed expenses, documenting their prices is usually straightforward since they often remain the same from month to month. However, when it comes to fluctuating costs like gas, groceries, and similar utilities, it can get a little trickier. But don’t worry, you can handle it! For categories where your spending varies monthly, calculate the average monthly cost by reviewing your spending over the past three months. To determine your average grocery spending, for instance, CNBC suggests adding up all your grocery expenses from the last three months and dividing the total by three. If you find that you spend an average of $433 on groceries each month, it might be wise to round up and set a spending limit of $450.
• Review and Track: If your expenses exceed your income or consume more than 50% of it, it’s crucial to make some changes. These adjustments should primarily focus on your variable expenses. Trim and cut them until you reach a realistic point where you feel confident that you’re not overspending and neglecting your savings.

Once you’ve completed the review, it’s essential to track your spending diligently. Creating a budget alone is not enough. Set up daily, bi-weekly, or weekly reminders to assess your expenses. Regularly monitor how much you spend in each category and compare it to your budgeted amounts. If you notice that you’re exceeding your budget, take immediate action to understand why and make necessary adjustments accordingly.

By consistently tracking your expenses, you can maintain financial awareness and ensure that you stay within your budgetary limits. This proactive approach allows you to identify potential areas of overspending and make timely corrections. Remember, ongoing monitoring and adjustment are key to maintaining a healthy financial balance.

4. Break your saving goals into small steps.

Procrastination often creeps in when we perceive a task as overwhelming, stressful, or anxiety-inducing. This holds true for saving goals as well. However, breaking down your big saving goals into smaller, more manageable steps can make a world of difference.

Instead of fixating on the intimidating task of saving a substantial amount, consider dividing it into smaller, achievable milestones.

By dividing your savings target into smaller chunks, you can make the process less daunting and more attainable. Instead of focusing on the overwhelming goal of saving a large sum, you shift your attention to achieving smaller milestones along the way. Each step accomplished brings a sense of progress and accomplishment, motivating you to continue on your savings journey.

For example, if your overall savings goal is N1 Million, break it down into N100k or less monthly. On the Moni app, you can save daily, weekly, bi-weekly and monthly towards your savings.

Celebrate each milestone reached and use it as a reminder of your progress. By doing so, you not only overcome the barrier of procrastination but also build momentum and confidence in your ability to save.

5. Automate your savings

In our busy lives, it’s easy to overlook saving money, especially when we’re still trying to establish a saving routine. This can hinder our progress in reaching our financial goals within the desired timeframe. Fortunately, there are now apps available, such as Moni, that offer automated bill payment features to simplify the process.

With Moni, you have the ability to automate your savings effortlessly. Simply input the amount you wish to save on a daily, weekly, or monthly basis, specify the frequency of saving, and select the desired debit date. This convenient feature eliminates the need for manual transfers, making it easier to stay consistent with your savings goals.

You might wonder, “What if I don’t have sufficient funds on the designated debit day?” Many people opt to align their salary dates with their saving dates, ensuring a stable income is available when funds are debited. You can adopt this strategy for your savings as well. By synchronizing your income and savings, you create a reliable system that promotes consistency.

Take control of your savings journey by downloading the Moni App and leveraging our automation feature. Worry less about maintaining consistency, stay on track and steadily progress towards achieving your financial goals with Moni.

Understanding the psychology behind saving money is essential for successful financial management. By overcoming psychological barriers and adopting key strategies, you can take control of your savings and achieve your goals. Head over to our blog to learn more about how you can take control of your finances.