Many people consider saving money to be a simple concept. Open a savings account, place money in it and watch it grow. Simple enough, right? Wrong! Why do you think it’s difficult for so many people to stay motivated to save?
The truth is there is actually a bit of psychology behind the idea of saving money. The way you think about it can undoubtedly impact when and how you save. So if your saving account is losing steam, it’s not only good to learn how to keep your motivation intact, but also explore how your thinking could impact your savings habits.
Saving Money Isn’t Easy for Many Americans
Saving money for both short- and long-term expenses is not so easy for a sizable portion of the American population.
A study conducted in 2011 by the National Foundation for Credit Counseling (NFCC) revealed that 64 percent of Americans were lacking a mere $1,000 in their savings accounts for emergency expenses.
Separate data compiled by the Employee Benefit Research Institute revealed that saving for retirement has been a challenge as well. In fact, only 14 percent of workers in 2012 felt “very confident” that they would have enough money to live comfortably in retirement.
One reason that people have trouble saving in the present — and believing that they can save in the future — is the money they’re bringing in. If they’re struggling to pay bills, it’s hard to think about setting aside cash for a rainy day.
But even within that reality is a second reason that some people don’t save: psychology.
How Does Your Psychology Affect Your Savings Account?
The psychology of saving money is a bigger issue than many people might think. There have been a number of studies conducted over the years that examine why people make the financial decisions they make. Most conclude that choices are related to their thoughts on the concept of money as a whole.
One study in particular, titled “Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory,” which was published in the Journal of Financial Therapy in 2011, revealed an interesting theory on how people think about money.
The study found that people tend to operate from one of four distinct money belief patterns: money avoidance, money worship, money status and money vigilance.
- Money avoidance is used to define individuals who believe money is bad, or that they do not deserve money.
- Money worship is the belief that bringing in more money will make things better.
- Money status is associated with people who are concerned with association between self-worth and how much they earn.
- Money vigilance means that people feel that money is a source of shame or secrecy, no matter their income level.
The study revealed that holding one of these four patterns about money can make a huge difference in how money is saved and spent.
For instance, individuals holding a money avoidance pattern often worry about abusing credit cards or overdrafting their checking account. Money avoidance also results in people avoiding reasonable or necessary purchases. In general, the researchers found that money avoiders tend to younger or single individuals with lower incomes.
The study found that most Americans fall into the category of money worship. In other words, most of us subscribe to the idea that more money will solve our problems. Individuals who fall into this category are said to operate on extremes of hoarding and unreasonable risk-taking to make sure money is always available. Gambling, being a workaholic and over-spending are also characteristics.
Money vigilance, on the other hands, is connected with shame. As a result, lies and secrets about money aren’t uncommon. Also, individuals are said to constantly feel concern about money and are excessively frugal. One major benefit of this pattern, however, is that these people are much more likely to put money away in a savings account.
This study is not the only one that examines the relationship between the psychology behind saving and a person’s financial habits. For instance, a study conducted in 2012 by Professor George Loewenstein of Carnegie Mellon revealed that one in four people are actually addicted to saving money, finding it painful to spend.
And yet, a working paper written by the National Bureau of Economic Research found that individuals who belong to peer groups that focus on saving money tend to place money into a savings account 3.5 times more often than someone who doesn’t surround himself or herself with individuals who aren’t focused on saving.
How to Stay Motivated in Saving Money
With so much evidence that money is managed based on how individuals think about money, how can a person with a specific disposition or peer affiliation then stay on track? The good news is learning how to stay motivated in saving money can accomplished by taking a number of steps that could benefit most everyone.
- Keep your savings goals in focus: While some savings patterns like money avoidance and money vigilance associate money with harm or social status, if you can take the focus away from negative thinking and direct attention toward specific goals like having money for the family, it could help you stay on track.
- Save a little at a time: Of course, when saving money we always save a little at a time. But usually, we’re thinking about the major savings goals, which can feel very overwhelming for some. So much so, in fact, that the prospect becomes mentally un-achievable. Refocusing on saving by the month versus the total amount may make it easier to stay motivated.
- Know yourself before tracking progress: If you are a much better saver when you keep records and spreadsheets of your progress then take this approach when saving. However, if record keeping makes you feel overwhelmed and keeping track in your mind is better for you then do so. Being honest about your motivational quirks will definitely help you stay on track.
- Consider blogging about your progress: There is no better way to remain motivated to accomplish any goal then forcing accountability. If you publicly declare your commitment to saving then log your efforts in a blog, you’re going to increase your likelihood of staying on course.
- Surround yourself with savings peers: As mentioned previously, peer savings groups can do a great job of keeping each other motivated to save when some members start to lose focus.
- Direct deposit into savings: If you have direct deposit available from your employer, consider directing some of your cash into a high-interest savings account with low liquidity. This way, you can save without ever seeing the money. At the same time, your funds can enjoy high dividends that are sure to make you feel good about your efforts.
- Reward yourself: If you have a money worship or money vigilance personality, feeling that money helps you feel better about yourself, consider rewarding yourself for reaching benchmarks. For instance, if your goal was to save $1,000 in six months and you did it, reward yourself with a new gadget or outfit to keep yourself motivated.
It’s easy to feel burned out on the saving process, particularly when an aspect of your thought process may hinder how you feel about setting money aside. It’s not easy to break spending habits that have been ingrained in you for years, or even decades.
The best route to take is making a strong effort everyday to feel good about the benefits of saving money (having cash for emergencies, saving for retirement, having money for a child’s college tuition, etc.) then following the above tips on how to stay motivated to successfully accomplish your goal.