Did you manage to resist the urge to splash your hard-earned cash this weekend? Or are you feeling a little bit guilty about that shiny new purchase? When pay day comes it's hard to avoid those little treats that help make Winter just that bit brighter. We asked Art Markman, author of Smart Thinking and premier cognitive scientist, for some tips on how to turn money-spending habits into money-saving habits.
Saving money is hard. Even if you have extra money after paying the bills for all of your necessities, it can slip through your fingers. There are three aspects of money that make it hard to save, but as I discuss in my new book Smart Thinking, the more you understand about habits, the more effective you can be at changing them.
The first difficulty with saving money is that it requires a trade-off between your short-term self and your long-term self. Your short-term self wants a new outfit, some new music, or that great new iPad. Your long-term self wants to save money for a house or perhaps buy a new car. Unfortunately, you are wired to want to satisfy your short-term self rather than your long-term self. In the moment, that new outfit, CD, or iPad just seems more attractive than anything your long-term self could want.
The second difficulty is that you have lots of habits for spending small amounts of money that add up over time. The espresso you buy in the morning doesn’t cost that much but over a week the money you spend on your caffeine fix really adds up. Lunch bought at work everyday can soon help put a dent in your account. Buying an extra pint at the pub for your friends won’t break the bank but it adds up too. The thing about these habits is that you don’t think about them. You are a habit creation machine. Your mind wants to help you do as many things as possible without thinking. After a while, that daily espresso is just a mindless part of your day.
The third difficulty is that you probably spend most of your money using credit or debit cards. That means that you aren’t even reaching into your wallet to pull out notes or coins. Instead, the money you spend becomes an abstract number. It is hard to think of those abstract numbers as real money and even when you are aware that each purchase is taking money away from your bank account, it is hard to keep track of how much you have spent on a card.
So, what can you do to be more effective at saving money? First, you need to become more mindful of your actions. Carry a little card with you and keep it with your cash and credit cards. For a week or two, just observe your actions. Make a quick note on the card of when and where you are spending money. You can’t change your behaviour without knowing more about what you are doing. In Smart Thinking, I call this keeping a habit diary.
Second, you need to make your spending more concrete. Use your credit and debit cards less often. For small purchases like an espresso, a magazine or even a new pair of trousers, pay in cash rather than using a card. You may find that some purchases are just less attractive to make when you have to pull out real cash to make them.
Third, after you have helped yourself to become aware of your spending habits, you need to start making changes in your behaviour. One thing you need to do is to create structures to protect your short-term self from your long-term self. When you get paid, take a reasonable amount of money and put it into a savings account that you are going to use for your long-term needs. Once the money is in that account, just let it sit there. Make sure that money is not available for making quick purchases. Soon, you’ll have formed a new habit of setting aside this money and you’ll get to see it grow.
Finally, ask your friends to help you. Chances are, if you are having trouble saving money, you have friends that are having the same problem. When you are tempted to buy something that leaps out at you in the store, call your friend and ask to be talked out of it. If you are going to go out in the evening, get together with those friends at your house rather than going out to see a film, hitting the pub or eating at a restaurant. In the end, the time you spend with friends is rewarding, even if you don’t spend a lot of money doing it.
Smart Thinking: How to Think Big, Innovate and Outperform Your Rivals is out now. To find out more visit www.smartthinkingbook.com
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