Does saving money sometimes feel like a struggle for you? Turns out you may be able to blame science. A recent study found that our brains have a bias against saving money, and that they're more attuned to earning than saving.
Americans stand as proof: Although the median income is higher than ever before at $59,039 per year, four in 10 Americans could not easily cover a $400 emergency expense, according to a Federal Reserve report. Another recent survey shows that one in five Americans have zero savings for retirement.
But just because saving money doesn't come easily doesn't mean it's impossible. Allowing your brain's inherent bias against saving to determine how you behave can have long-term financial and health costs for you and your family.
Overcome your bias and train your brain to save money with these five methods:
1. Automate your savings.If your money goes directly into your savings or investment account before you ever even see it, you're much less likely to miss it. Automate your savings by setting up contributions to your retirement account or savings account to go directly from your paycheck. That way, you don't have to take the step to manually
move money into savings - an action that can be difficult to take when your brain is already geared up to spend that money.
2. Set specific savings goals.Rather than stashing money into a savings account for vague reasons, get specific about why you're saving. For instance, you might have a retirement savings account, a new car savings account, a vacation savings account and an emergency savings account. When your brain associates the savings with the reward of a vacation, a new car or even a stress-free emergency, it may be easier to actually follow through.
3. Budget for saving.A budget is simply a plan for spending your money. If you don't have one, you need one. (Here's how to get started.) Once you start following your budget, it will gradually become easier. When you develop a spending plan, make sure to include savings in your plan. Whether it's five percent, 10 percent, 15 percent or more of your monthly income, you should have a certain percentage earmarked for saving. And then just stick to the plan.
4. Take it day by day.If you just can't imagine socking away hundreds or thousands of dollars each month into a savings account, reframe your thinking. Instead of aiming for a certain amount of savings each month, set a goal for saving a certain amount each week or day. For instance, it may seem more manageable to save $10 per day than to save $300 per month, but you'll achieve the same result either way.
5. Understand the consequences of not saving.
Your brain may not want to save, but it's also smart enough to understand the facts. And the facts are that by not saving, you're actually costing yourself money. Here's how: If you start saving today for retirement or other financial goals, you'll always end up with more than if you waited until next month, next year or 10 years down the road. That's because when you save now, compounding interest allows you to earn interest on the interest your original investment earns. The more time your money has to grow, the more money you'll have over time.