Saving money consistently is hard. The temptations and needs are numerous. There will always be just one more thing to buy to make everything perfect. How do we resist the urge and how do we discipline ourselves to save?
Having the required self-discipline is a good start but is by no means enough. Making the process of saving more rewarding and more tangible is a must in order to succeed in this long term effort.
The sense of tangibility of money has been greatly decreased since the invention of credit cards and online bank accounts. Bills and coins have become number on a screen and these are easier to spend (in most cases we just hand out a credit card). We have no real since of how much money we’re spending and on what unless we budget carefully and regularly. Increasing the tangibility of money and saving would allow us to save more easily and to be more motivated and geared towards saving.
Rewards are always a good motivator if they are applied correctly. Adding small rewards to the process is crucial for success. One can not deny his own wishes always. Satisfying smaller wants and wishes will make delaying the bigger ones easier.
Taking these two concepts of reward and tangibility and applying them to the saving process will help us achieve our goals. Here are my practical tips on how to do that:
#1 Budget and plan
A budget has another significant advantage beyond keeping track and planning. It serves to make income and expense, loans and savings much more tangible. By budgeting we have a constant reminder on how we’re doing, how much we’ve spent and on what items, how big is our debt or our savings account and more.
#2 Make your budget more visually attractive and revisit often
This sound trivial but is very important. Draw pie charts, graphs, use averages and reports and build as many statistics as possible into your charts. Revisit your charts often and constantly examine them. You’ll soon discover how keeping a positive balance becomes increasingly important to you, how you enjoy watching your net worth grow each month and how sorry you are you haven’t done this before.
The explanation is simple. Through behavior and repetition we change believes and rational. There is a concept in behavioral sciences called “cognitive dissonance”. This concept deals with gaps between behavior and belief and, in short, describes how a contradiction between the two would be settled psychologically either by changing behavior or changing believes. Changing behavior is considered harder. This is where self-discipline comes into play.
#3 Don’t be overly ascetic
Much like a diet denying everything from your self will end up in nightly raids on the fridge. This never works. Instead, allow fulfilling small yet important needs while postponing bigger ones.
#4 Set goals and mile-stones and complete with matching rewards
Ambitious yet attainable goals serve as powerful drivers. However, with out properly acknowledging their completion they quickly lose their affect. Set goals and mile-stones such as reaching a 20,000$ portfolio and reward yourself accordingly (for example, setting aside that month’s savings for a nice restaurant, for example).
#5 Learn to understand and enjoy the process itself
It takes time to turn small savings to a formidable portfolio. This process may seem to take forever. A watched pot never boils they say but I believe taking occasional peeks at your bank account does you good and motivates you to save more hoping to see the dollars and cents pile up. I discourage acting often but keeping track in expectation helps (please do not confuse this with waiting for stock investments to generate returns. It’s a whole other issue).