Want To Build Wealth? Put Your Money Out of Sight

Out of sight, out of mind, into long-term wealth.

If you’ve never tried “tricking” yourself into getting richer, here’s a primer. Spoiler alert: It usually works, at least to some extent.

“One of the best things to do is ‘out of sight, out of mind,'” said Robert Johnson, a professor at the Heider College of Business at Creighton University. “It’s a phenomenon that behavioral financial experts acknowledge.”

What sort of self-trickery are we talking about? Much of it has to do with making chunks of your money more difficult to get to, and/or stashing those chunks in places where you’re less likely to miss them.

In other words, taking yourself somewhat out of the equation for portions of your money.

Shaun Melby, a CFP and founder of Nashville-based Melby Wealth Management, noted another phenomenon: People have a tendency to spend what they see in front of them. This can lead to “lifestyle creep.”

“You adapt to whatever the balance is in your checking account,” Melby said. “You get paid more, you start to spend a little more.

“Sometimes we’re our own worst enemy. We see that cash in our account and think, ‘I’ll buy this and worry about saving down the road.'”

So what if you looked at your go-to account and didn’t see that cash, because you’d placed it somewhere else? It may sound simplistic or basic. It may also be more effective than you think.

“You want to look for any way you can set it aside before you even see it, before you can really use it,” said Julie, the otherwise anonymous Maryland-based creator of the One Frugal Girl personal finance blog.

Here are a few tips for hiding money from yourself that may be worth a look.

Having portions of your paychecks whisked away automatically to other accounts can be quite effective. People tend to adjust to their paychecks without those funds and make due.

This is commonly done with retirement accounts such as 401(k)s, but there are many options including health savings accounts (HSAs) and 529s for those saving to cover education costs. Melby also noted that more employers are allowing split direct deposits to multiple bank accounts.

“The best strategy,” Johnson summed up, “is to automate as many of your financial decisions as you can.”

Another reminder while you’re at it: Really try to max out those 401(k) contributions. If you don’t, you’re missing out on matching funds and potentially leaving a much more comfortable retirement on the table.

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If you’re fortunate enough to have an emergency fund (most experts recommend 3-6 months’ worth of living expenses), consider moving it somewhere separate from your main bank. Or start with a separate bank if you’re just getting started on an emergency fund. It might help you to think of it less, and having to work a bit harder to get to the funds may slow you down.

“Having that extra step is a nice little barrier,” Melby said.

“Put it in a high-yield savings account,” Johnson advised. “That’s where that money should be. That account should be separated from other funds.”

“One Frugal Girl” Julie is a big fan of this one. She thinks of it as “paying yourself first.”

“Every time you get a bonus, a raise … you’re used to living without it,” she said. “Put it somewhere else, like it never existed.

“Essentially you’re hiding it from yourself, kind of forgetting it’s even there.”

Where should you put it? She recommends those high-yield savings accounts for the shorter term, particularly with interest rates moving higher. For the longer-term, bigger bets, she looks to retirement accounts.

Minimizing withholdings is one way to send your money away from yourself for a while, and getting a decent tax refund may certainly feel good in the moment. But there are drawbacks, experts warn.

For starters, you are letting the government make interest off your money, rather than using it to build more wealth for yourself.

“I don’t love that one,” One Frugal Girl’s Julie said. “I think there are better ways to hide money from yourself.”

Melby said, “People may overpay on their taxes, then they go out and spend the tax refund. So that kind of defeats the purpose.”

You’ve probably heard of more old-fashioned ways of hiding money from yourself. Stuffing it in a mattress may come to mind, along with freezing your credit cards in a large block of ice to at least slow yourself down. “One Frugal Girl” Julie tells a story of a woman who kept portions of her money in her wallet, but behind a zipper and out of sight.

These might help you to spend less, but again, you won’t be earning anything off mattress money.

As an alternative, she recommends finding a photo that represents a financial goal or dream, then attaching it to the places where you go to withdraw money. It may give you pause at just the right time.

“Sometimes we need a mental reminder before we spend money,” she explained. “Maybe you go into a store to buy a bag of chips and a Coke. Then you see that photo, and you think, ‘Is that bag of chips and Coke worth forgoing this dream?’

“Will it stop you every time? No. But it will stop you sometimes. It’s worth a shot, right?”

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