The Real Reason Why Saving Money is So Hard

Thu, Sep 2, 2010

Budgeting, Financial Advice

If saving up a nice chunk of cash was as easy as saying we ought to, most people would have already put away a nest egg, a rainy day fund, and a bunch of spending money to top it off. The reality is that most people struggle to discipline themselves in improving their saving habits. Temptations to spend are all around us and many people frequently give in. Why? A large part of the reason is how our brains work.

In some ways, the mind works in simple patterns. A main one of these patterns is to move towards pleasure and away from pain. Additionally, the most primitive parts of our brain have difficulty thinking of long term things in real terms, whereas we can touch, see, and taste what is going on this minute. In terms of money, that means it will always be easier for our minds to move towards the immediate payoff of say, a fun night out with friends or a new TV, while it is very abstract and does not feel like a payoff to improve our retirement prospects or payoff a long standing debt.

The trick is to tie immediate rewards to your long term savings goals. This might mean giving yourself small gifts for hitting savings milestones. It seems counterintuitive to spend money to help yourself save, but if you successfully put away half of your paycheck and treat yourself to a nice dinner, the tradeoff is worth it and you are more likely to stick with the plan to get the next reward. If you know yourself well and the type of rewards you respond to, it can develop a strong drive to take your savings to the next level.

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