One thing that all of us should be doing (or at least trying to do) is save money. We all have different reasons for wanting to save money and these can range from saving for retirement, a raining day, vacation, new tech gadgets and the list goes on. Whatever the case may be, more often than not, doing the actual saving is easier said than done.
In my case, I have a set-up where every paycheck, a certain percentage goes directly to a savings account before I even have the chance of see the money. To add to that, the savings account is with a bank different from the one I use for everyday banking. I did this for two reasons:
1.) Access – since it isn’t with the bank I use for everyday transactions, it makes it a bit of pain to withdraw from it. To add to that, it is an online bank so if I want to get access to my money, it takes a day to transfer and clear the funds into my regular account.
2.) Interest Rates – even more importantly, the interest rates are one of the best I could find compared to those offered by other banks.
As already mentioned, for a number of us, saving is easier said than done. I recently watched a video by Shlomo Benartzi (Saving For Tomorrow, Tomorrow) where he attempts to give an understanding of the money mistakes that people make and turing them into behavioural solutions to help save more for tomorrow. He talks more in terms of saving for 401(k) but the message is very relevant to any form of savings.
Sholomo explores reasons as to why people aren’t saving with one of them being immediate gratification where people think about saving but end up spending. He also spoke about loss aversion where people see savings as a loss because it means them having to cut their spending. Will that in mind, it is easy to see why it harder to save ‘now’ and easier to spend.
A solution that he came up with was the concept of saving more for tomorrow where money is automatically transferred from your pay cheque to savings before the issue of immediate gratification comes into place. He also adds that every time you get a pay raise, there should be a corresponding increase in the amount that goes into savings.
My take on the video is that if you are finding it hard to save, set-up a system where the money is automatically transferred to a savings account or if possible, get your employer to split payments between accounts and get them to transfer a predetermined amount to a savings account. If you don’t get to see the money, you don’t have to deal with resisting the temptation of spending it!
How do you go about managing your savings?
Savings Image courtesy of 401K Flickr