3 Super-powered Tips to Get You to Save More Money

1. Make Saving and Investing Automatic
One of the most effective ways to live below your means and save more money is to put your savings and investments on autopilot – have your saving program and investing program draw money from your transactional account (usually your checking account) before you can get to the money.So, for a typical example, let’s take a look at an hourly or salaried employee who obtains all of his or her income from his or her job. Let’s say they get their pay via direct deposit into their checking account every 2 weeks (this is the most typical payment timeframe). They should set up a system so that it automatically withdraws money from their checking account either every two weeks or once a month. Such a system is very easy to set up on most online savings accounts and online brokerages – once your accounts are open, it usually will take you less than 20 minutes to set something like this up.

Automatic withdrawals into a savings or a checking account almost always beat manual withdrawals into those accounts because of issues presented in the field behavioral finance. Humans are prone to procrastination, forgetting, getting lazy, or getting distracted – the algorithm or computer program that will be in charge of executing your automatic withdrawals will not be prone to such things (although it could be prone to computer bugs). You might think you’ll be able to consistently save and invest every month, but if you look at what people really do in the world, you’ll see that too many people fail themselves and their financial plans at some point in time. Usually, it doesn’t take very long for them to fail and not make the monthly or weekly transfer or stock purchase they committed to making. With an automatic investing and savings plan, however, you’ll turn your human faults into advantages – the same procrastination and laziness which would prevent you from saving and investing money will also help to prevent you from going into your online savings account or online brokerage to change or remove your automatic savings and investment plans.

2. Understand that Many Significant Expenses Don’t Occur Monthly
We’ve written about this a bit already on Crafting Wealth, but it is worth restating often. Only a portion of all of your expenses are monthly expenses – other expenses occur once a year, once every few years, once every five years, once every decade, or once in a lifetime. These expenses are not financial emergencies because we can predict them (eg. you know you’ll have to pay your child’s college tuition or you know you’ll have to pay for a wedding).

Since we know that many expenses (especially the big and important ones) occur very rarely (but predictably), we must save for them if we are to be prudent adults. Anyone who is serious about building wealth and attaining financial independence cannot ignore this important fact about our current financial reality – that not all of our expenses are monthly. Ignoring this fact will cause you unnecessary stress and anxiety down the road and might cause you to have to either dip into your emergency fund or your investments for something that you should have (and could have) planned for.

Realizing the above should motivate you to live below your means in order to save. We must all realize that our monthly expenses are just an illusion (they don’t represent the full reality of our expenses over long stretches of time) and we must live below our monthly means in order to save for future expenses. It’s pretty interesting that before even taking investing and wealth building into account, we still must live below our monthly means in order to just break even over the long term – if you spend your entire monthly (or biweekly) income you are actually overspending. For example, multiplying your monthly expenses by 120 would severely underestimate how much you’ll need to spend over 10 years because you won’t be taking account those big expenses that occur once every year, once every five years, or once every decade. If you’re spending your entire monthly income you are doing the equivalent of going into debt except you are borrowing from your future self who will have to struggle and strain to make up for your lack of forethought and planning today.

3. Imagine and Connect With Your Future Self
At Crafting Wealth, we value research but we also value common sense, good stories, and tradition – we’re not religious about research like many people are in today’s modern world because we are aware of the games that can be played with research and the various biases and agendas that can influence studies. We also know about the games that can be played with statistics. Have you heard the following saying?: “There are lies, damn lies, and statistics.” We won’t go into it deeper than this in this article, but we wanted to let you know our views on research before we proceeded with the following point.

New research is showing that when people are better able to “connect” with their future selves, they will make better long-term decisions including financial decisions. A piece by the Harvard Business Review on the study can be found below. We encourage you to read HBR’s piece and look at the actual research study if you are so inclined. In very general terms, the research implies that people generally have a disconnect with their future selves – people don’t really understand that their future selves are themselves. This might sound funny, but it’s true in a way. The research showed that people are more willing to commit to things in the future and are also more willing to commit other people’s time. It’s almost as if they view their future selves as a different person.

It’s astonishing in a way, but the disconnect described in the research between your current self and your future self sort of makes sense. Have you ever committed to something in the future only to realize how foolish you were to do so when the time to actually execute on that commitment comes around? Have you ever set an alarm to wake up extra early the following morning only to hit the snooze button and wake up at your normal time (or wake up late) when the time comes around? Have you ever promised yourself to save more money or spend less money only to not follow through when it’s time to actually have the discipline to follow through? The research suggests that this occurs because it’s as if you’re committing another person to something when you’re making a future commitment – it’s easy to commit your future self to a project if it’s a year from now because it is as if you’re not really committing yourself but are instead committing another person. If you had to execute on things immediately, you would be far more cautious about what you promise to other people and to yourself and you would feel the weight of your actions (or inactions) much more.

All of this is to say that if you can better connect with your future self, you are more likely to make better financial decisions – you’re more likely to save money today and live below your means today because you’ll have a better connection with the future you who will one day benefit from your smart decisions today.

In the study, researchers used MRI and sophisticated aging techniques to present participants with photos of their aged selves. This is very expensive and difficult for us to do, but there are other techniques that can help. You can simply sit and imagine yourself in the future or you can write a letter from your future self to your current self. Additionally, there are apps available that can “age” your current photos. Check out one such app below. Your connecting with your future self doesn’t have to be complicated or sophisticated – it just has to help you realize that it’s not some distant other person that will benefit from your positive actions, it’s you who will benefit.