We would all like to save money. Yet, so few of us are successful at it. Why? Is it because of those big, bad money-sucking corporations conning us out of our hard-earned crumbs? Or are greedy banks and bankers siphoning cash out of our bank accounts without our knowledge? Or are we being exploited by the infamous “1%” to fill their coffers?
Or are WE actually the culprit for not being able to save more? Do we dare consider that perhaps its not someone else’s fault that we’re living from paycheck to paycheck, drowning in debt, and not able to save anything extra for a rainy day? Oh yes, my friends, the greatest hindrance to us saving more money is none other than that individual we look at in the mirror every day. Moreover, it’s almost always the case that to save money means going contrary to our natural inclinations.
A Friend’s Tragic Tale
A friend recently wrote to us expressing, in exasperation, how she and her husband know how to make money but they just never seem to be able to hang onto much of it. She shares how every time they see money in their savings or checking account, they magically find ways to spend it. She even asked if there were ways to “hide” her money to make it much more difficult to access, in hopes that they would be deterred by the extra effort required.
I think my friend’s story is illustrative of how many people live their lives. Except, she’s already overcome the greatest hurdle – that is, actually taking personal responsibility for the matter and not simply blaming someone else! We’ll get to some practical ideas of what to do, but first we need to wax philosophical for a moment.
Understanding Human Nature
So much of what we do depend on our assumptions about the nature of human beings. Specifically, is man innately honest, selfless, and with integrity? Or is man innately selfish, greedy, and corrupt? How we answer this fundamental question will determine how we attack the problem of how to save money.
I think the history of mankind (or just witnessing the behavior of a baby) confirms that if left to his own devices, man’s natural course leads to corruption, greed, exploitation, and other bad stuff. So what this tells us is that the course for us to be more thrifty, to save for the future, to be more generous is an uphill battle.
In other words, it is UNNATURAL and NOT EASY. Truly, to successfully save money, we need methods that will work counter to our natural inclinations.
A Few Ways to Outsmart Ourselves
So what can we do to save money in spite of ourselves? I’ve summarized the tactics below in four general categories and offered a few suggestions each. There are certainly other ways to do this, but these principles should apply.
- Assign Tasks to Your Money: Your money are soldiers under your command. They need assignments and missions. Soldiers without clear instructions go MIA and you never see them again. Every dollar you receive should be designated a task, whether it be for the grocery bill or utility bill or for kid’s college savings or for a the new house. If our money is accounted for and has a task assigned to it, it’s much less likely for us to view them as available for our impulse decisions. (Psst…I refrained from using the word, but this is basically what we call budgeting.)
- Automate Your Money: Once you know what your money is assigned to do, the next thing is to set up a system that takes as much of the work out of your hands as possible. If you assigned $200 from each paycheck to go into retirement savings, set up the auto-transfer to move that amount each pay period to your designated account. Auto-pay your regular, fixed-rate bills so you don’t intentionally/accidentally forget.
- Lock Up Your Money: What did our parents do when we got birthday money (or red envelope money for us Chinese) as little kids? They would keep it for us until we needed to use it, because they knew we had too little self-control and would spend it instead of save it! Guess what, we might have grown up a bit, but those tendencies are still within us. Instead of toy cars or dollhouses, we just buy REAL cars and REAL houses! So we need to employ the same tactic that Mom used to use by locking up our money in accounts that keep our hands off until we need it. At the top on the list would be retirement accounts, like 401k and IRA accounts. Next would be education saving accounts (like 529s and ESAs). HSAs would also qualify if you have access to them. If you don’t want your money as restricted as in those accounts, you can always open a CD at your bank with a long-enough maturity period so you tie your hands from accessing it without a big slap on the wrist in early-withdrawal penalties.
- Don’t Think Too Much About Your Money: This might sound strange coming from folks whose hobby is to write about personal finance, but even for us, if we look at our money too much, it stirs up that carnal desire to buy stuff. We certainly are not advocating a laissez-faire approach to your personal finances, but once you’ve laid the groundwork by determining your budget, automating your various transactions, and setting up your various financial accounts, don’t spend too much time fiddling with stuff and second-guessing yourself. Remember that our emotions can really mess with our best intentions for our money. Just stay the course and check in once a month or so to make sure everything is still on track.
The Change Within
Strategies, budgets, accounts, and techniques are good as far as they go, but fundamentally the ability for us to habitually save money lies in getting control of our wayward human nature. Believe me, if the desire is strong enough, no early-withdrawal penalty, tax, or budget is going to keep us from spending that money! We’ve got to realize that the problem lies within, and until we get a handle on that, we’re just treating the symptoms.
So we’ve shared some of our thoughts. What are some things you do to protect your money from yourselves?