“I’m in trouble”. The story screenshot.
Tipy: “I’m tired of being short of money. Why do some people find it easier to build up their savings, but others don’t? My sister is brilliant with her savings, she gets excited about the process. I find it hard to save, trying to turn saving into a habit is stressful! It’s so annoying and I can’t seem to save no matter what I do! It even affects the quality of my sleep at night. Do you think I should try a magic course about the money energy?”
Ally: “Well, I am definitely not the right person to ask for advice on the money energy. By the way, let me know if you find the right course, I might join you there! I do know that you may not be managing your money as effectively as you could be.”
Tipy: “Of course! It’s because I don’t have enough of it!”
Ally: “Well, the truth is that if you are not managing what you’ve got effectively, the larger amount of money will not actually make you happier, but rather could make your nights even more sleepless. Let’s check the basics. Give me an example of how you’ve tried to save for something, like a holiday.”
Tipy: “I’ve tried an envelope system before. I wrote the title ‘Himalaya Trip’ on the envelope and decided to put 10% of my income to this envelope every month.”
Ally: “Did it work?”
Tipy: “Yes, initially. I was able to save a few hundred £. Before I knew it, it was Christmas and I had to buy so many bloody presents that I had to use most of my savings from the envelope. This made me very frustrated with the whole idea of savings.”
Ally: “So, do you regret that you bought those presents?”
Tipy: “No, I’m not frustrated that I had to buy them. I just regret that I couldn’t find another way to get the money that I needed for them. I’m disappointed that nothing seems works for me when I’m trying to save some cash to put towards my dreams, regardless of how hard I work for it. It seems that the only thing left to do is find a magic talisman to bring me more money, then I’ll be happy!”
“Why do we behave this way?” Behavioural Science in Layman terms.
Feeling guilty after a session of reckless spending is something that most of us have experienced before. We all have dreams that we want to achieve and sometimes money is the reason for those goals not being met. These days, we don’t have a lot of disposable income and we understand that every spare penny is important. So why is it that we have such a hard time saving our money?
The first reason as to why we find it so difficult to save our cash is known as mental accounting. According to Richard H. Thaler, we gain happiness from the object in which we are purchasing but we also receive satisfaction from the purchase of the item itself. This attracts us to spend money that we know we shouldn’t. Mental accounting can either make it easier or more difficult to save money; it can help us because it allows us to visualise our savings and help us focus on a set goal. However, by personalising our money, it can make us feel guilty for spending our savings on something other than what it was intended for, even if it is a necessity like an unexpected bill. Financial advisors would say that a better approach would be to understand that is money is money and has to flow, it can be replaced; the holiday can still happen, guilt is unnecessary as it only leads to unhappiness.
The second reason is time discounting research; we are less likely to save our money to gain future rewards as subconsciously, we would rather have something that will only temporarily satisfy us now than wait for something that will give us long-term happiness. Behavioural science shows that we are bad at imagining our future selves and recognising that our actions will have future consequences. For example, by being reckless with our money now may result in us being unable to afford that holiday we so desperately wanted in the future. It can seem like the better option to make an impulse purchase and receive instant gratification rather than to save our money because the future is unknown; there’s always the possibility that the chance to receive further happiness will never come so we may as well grab it while we can. As a result of this, it’s difficult for us to act in a way that will benefit us in the future.
“Is there a magic pill to help?” Practical tricks and tips.
1. Visualise. Having the intent to save with a particular goal in mind such as holiday can make saving easier. By putting our spare cash in an envelope with a picture related to what we’re saving for attached, it can encourage us to save better. For example, by attaching a photo of our favourite holiday destination to an envelope can help us imagine the holiday being a reality, motivating us to save.
2. Trick your mind. By forming a connection between our current selves and our future selves, we can better understand the importance of saving money and will, therefore, be more likely to do so. There are apps available such as AgingBooth that can show us what we will look like when we are older. A study conducted between two groups showed that those who had used the app to age themselves said that they would be willing to put up to 30% more money towards their savings than those who had not. Another option as advised by Jane McGonigal is to keep updated with the potential future of our favourite things e.g. books, travel, etc. to get an idea of how things may change for them in the future.
3. Automate. Research suggests that we should take approximately 10% of each paycheck and separate it from the rest of our money. With online banking, we can set up an automatic transfer of a set amount into a savings account. A study conducted showed that people who spend their money freely rather that deposit money regularly into a savings account had significantly less money to enjoy than those who did. By having an automatic bank transfer in place, you can save money by regularly making automatic payments without it constantly being at the forefront of your mind.
Sketch: Tipy is setting fire to her money; she is spending her money on things that do not give her long-term happiness so she may as well burn it.