External stimuli, rather than intelligence or willpower, determine one’s capacity to accumulate.
All people want to save money, but not everyone succeeds. Behavior researcher Wendy de la Rosa researches the habits that lead to financial well-being. In his lecture at TED, she shares the secrets that will help to achieve this.
1. Plan ahead
An intriguing truth discovered by Wendy and her colleagues is that people tend to save significantly more if they plan it in advance and not at the moment when the money is already in their hands.
After filing a tax return in the United States, citizens are refunded part of the fees paid, and usually, this money is regarded as a pleasant bonus. Some spend it on spontaneous purchases, while others use it for savings.
Also read: 9 Ways to Enjoy Saving Without Stressing
In a study involving two groups, people were asked how much their tax refunds they planned to defer. Notably, those who answered the question immediately after receiving the refund were going to save about 17%. But those who were asked even before filing the declaration (without being sure that there will be a refund at all) called numbers from 17 to 27%.
The belief explains this change in behavior in the future itself as a more successful and capable person. The trick is to use this when planning your savings by committing to yourself.
For example, if you set up the deduction of a certain percentage from each salary on the deposit, you can avoid the temptation to spend money when it is on the card.
2. Make good use of transition periods
There is a “blank slate” effect in psychology when motivation is higher at the beginning of the year, the start of a new semester, or before a birthday. This works with savings as well, which is confirmed by another experiment by de la Rosa.
While promoting a housing rental site for seniors, her team posted two social media ads targeting the same audience – 64-year-olds. The first banner had the text, “You are getting old. Are you ready for retirement? Renting rooms will help. ”
On the second, they just replaced “You are getting old” with “You will soon be 65”, but this gave many more transitions and registrations.
This is the very same “blank slate” effect, in which a reminder of age became a call to action. It is convenient to use such turning points, when motivation is very high, for making decisions about savings, preferably backing them up with obligations.
Just add a calendar reminder the day before your birthday and set a financial goal.
3. Control frequent petty expenses
Research confirms that what people regret the most is the money they spend on snacks and dining out. Such small expenses add up to a tangible expense item and hinder saving. Taking them under control can radically change the situation.
Wendy shows this with her own example. Living in New York, she spent over $ 2,000 on ridesharing, which was more than renting an apartment. The girl promised to save herself, but she continued to provide the same amount until she started acting differently.
She untied the credit card in the ridesharing app and added a debit card with a $ 300 per month limit. When the limit was over, it was necessary to link a new card, which stopped Wendy from spontaneous spending.
You can do the same with other frequently recurring expenses – setting an acceptable budget and making payment after exceeding it more difficult. Instead of calculating limits, it is more convenient to use a limit on the amount of spending. For example, Wendy only allowed herself to ride three times a week.
Adapted and translated by The Cop Cart Staff
Sources: Life hacker