The Misconception Behind Saving & Spending
When talking to others on the topic of saving, you always tend to hear the same answer: I don’t have enough money. It’s a persistent complaint from everyone you’ll speak to on the matter, from the investment banker who’s just banked their 6-figure bonus to the student working part-time waiting tables. Now that isn’t to say their financial concerns aren’t legitimate; it’s highly likely that they are. The cost of living only seems to go up and up. However, contrary to popular belief, their salary isn’t the main thing holding them back from saving: it’s their consumption habits. More specifically, it’s their unplanned spending that’s really doing them in. Let me elaborate.
The opposite of saving is not spending
Most people have a general sense of how much they’re spending and tend to use mental math to keep a rough budget; I’m guilty of doing the same from time to time. The problem: mental math is horrible for keeping track of expenses. Sure, you likely know how much your big recurring expenses are on a month-to-month basis like your rent, utility bills, and cell phone, but when it comes to keeping track of smaller expenses, the brain isn’t all that great at keeping up to date. The opposite of saving isn’t spending, it’s impulse buying! They’re the kind of things you never really planned to get until suddenly you’re credit card is out faster than your brain can process. It’s that last minute decision at the checkout counter to buy chocolate bars or that impromptu dessert craving that happens right after work.
Self-Control’s a Muscle. Flex It.
Looking at my own bills, it wasn’t like I was spending ridiculous amounts of money on huge expenses; it was the little things, the micro-transactions at Starbucks and Tim Horton’s, that really added up. As a student, I hadn’t really thought about how much those craving purchases were adding up to: a whopping $143.57. While that’s hardly a fortune, I knew immediately this was somewhere I could save more on. Framed differently, everyone has a Starbucks or Tim Horton’s of their own. For some, it’s crossing their favourite clothing store and coming out with bags minutes later. For others, it’s indulging in happy hour drinks after a long work week EVERY week. Now I’m not advocating for people to condemn themselves to a popper’s lifestyle, but looking more critically at their own spending habits can go a long way in finding some extra money to squirrel away into savings.
IFTT: If This Then That
Once I noticed this happening, I started using IFTT as a rule for savings. “If This Then That” works like this: each time I went to Starbucks to get a cup of coffee, I would “charge” myself an extra $3 per visit and put it towards my separate savings account. By increasing the transaction cost of a seemingly harmless visit to Starbucks, I was able to redirect $54.00 to my savings, cutting my coffee consumption by roughly a third. It’s a pretty simple concept, but it does take some self-discipline to implement. The beauty of the approach is you can literally apply it to anything you do in life. Every time you get an Uber, go out to dinner with friends, grab drinks with co-workers, etc. The combinations are endless. By linking your savings to your consumption directly, you’ll slowly start to build healthier spending habits.
About Vicis Labs
Vicis Labs is a social enterprise that leverages behavioural science, design, and technology to achieve improvements in financial health, literacy, and inclusion. Our platform, Sprout, is a “personal financial coach in your pocket,” providing you with the insight and steps necessary to make your financial dreams into tangible goals. Will you be joining us for the ride?
