Psychological Tricks to Save More Money
No matter the age or the current income, it’s never too late and the income is never too low to start saving.
These are 4 personal tricks, mostly psychological, that helped me improve the way I handle money.
The overall recurrent idea that I will dwell on throughout this article is that it’s all about balance. Any extreme, in one way or another, is not sustainable long term even though the desired outcome might be reachable in a shorter amount of time.
Another overarching statement is that the amount of money we can actually save has a maximum cap and that is our current net income. Hence, regardless of how good we are at doing the best with what we have, the only certain way in which we can increase our savings is to actually increase our income. But that’s for another day.
Turn saving into a habit
This is a common advice you can find everywhere that worked for me.
The idea of paying yourself first is not really about making sure you save the desired amount of money every month, but rather about removing willpower from the equation. We need to accept that we are human beings and we have weaknesses. By taking part of the income first day and putting it in a different account, we acknowledge the possibility of recklessness and we avoid falling into a spending trap by the end of the month.
“Things” have a happiness cap
It’s all about prioritization. If we know we will spend money, let’s choose wisely what we spend that money on.
Material things have a cap in terms of psychological reward. And it’s not hard to objectively prove that. Just think about a very expensive thing you bought. The first few days expose the maximum “feel good” state with a gradual decline after that. After enough time passes, that very expensive thing becomes exactly that: just another thing.
Instead, for example, think about the long-term effect travelling has. Experiences last very long (if not forever). By switching the focus from material things to experiences, you will still spend money but the effect will be very different. Not to mention that experiences (vacations, travelling, any investment on yourself, etc) tend to cost more, hence in order to be able to do them, you will need to exercise a bit of self-control and those good habits mentioned above.
Change your narrative
This one is related with material things versus experiences, but goes a bit further. Psychologically, the reason people have the inclination of spending money is the immediate gratification. We continuously search for sources of dopamine and there is no better feeling than renewing your garderobe every month or buying the latest iPhone model every year.
The trick here is to make the effort of replacing immediate gratification with delayed gratification. Or in other words, make an effort today to increase the wellbeing tomorrow. And the level of gratification is huge when it comes later, because all the effort we put in short-term will exponentially increase the satisfaction long-term.
This can be done gradually. A form of delayed gratification is that vacation I was talking about. Instead of buying material things we don’t absolutely need every month, we use that money to go on a long vacation once per year. This combines delayed gratification with the infinite happiness cap of an experience.
Different focal points
The overall idea, as mentioned in the beginning directly and throughout the article indirectly, is balance. In order to sustain any good habit about spending and saving you need to balance enjoying the present with planning the future. This is very nuanced and individual, because a specific level of compromise is needed, and everyone has different tolerance levels.
The future can be anything from next week, to a yearly vacation, to a retirement plan. The way we need to handle the present is proportional to the point in the future we choose to put our focus on.
By exercising all these psychological practices, together with the more practical ones like having a budgeting strategy, write down all your expenses, compare months and identify areas of improvement, I personally manage to either save or invest approximately half of my income.
I hope you will find value in my words, and that you are willing to put in the effort now to receive the rewards later.
