Figuring out how to save more money is one of the most common financial New Year’s resolutions along with sticking to a budget and paying down debt. Saving more money is a great goal to have but is much easier said than done. We all have things that we love to spend money on and, maybe even more detrimental to our savings goals, it has become so easy to spend on “small” things without thinking. Just like sticking to a budget and paying down debt, saving more money can be a difficult task to achieve but you’re more likely to be successful if you create a solid money savings system.
Before you start to think about how to save more money, you should first make sure that you’re tracking your spending and/or following a budget. Why should you do this first? Because your cash flow is the backbone of your financial situation and knowing where it’s going, and where you can optimize it, will help you to be able to save more.
Once you understand your cash flow and have a plan in place to cut back spending in areas that you don’t find valuable to you, then you can move onto figuring out what the appropriate debt pay down strategy is for your personal financial situation. Sometimes saving more is the better answer and sometimes paying down debt more quickly is the better answer. You can find more information to help you figure out which option is better for your situation here.
Once you have a solid cash flow plan in place and have reviewed your debt situation, you’re ready to move onto saving more. Just like we discussed with budgeting and paying down debt over the previous two weeks, it’s more important to just get started saving right now than it is to try and optimize your savings.
Here are three steps that you can take to create a successful savings system to help you achieve your New Year’s resolution of saving more money in 2020:
1. Automate
Automate personal finance habits whenever possible. Automating your savings is one of the easiest things that you can do to get ahead financially and make progress without having to think about it or put forth any effort. It doesn’t matter if you start saving an amount that’s so small that it seems like it’s not worth it to you – start flexing your saving muscle now so that it can learn to grow.
Automating savings can come in the form of making retirement plan contributions from your paycheck before it hits your bank account, setting up deposits from your pay into a separate savings account, and setting up automatic contributions from your checking account into your savings account, IRA, or brokerage account.
2. Create Habit Creep
While lifestyle creep is something that we want to try to limit, habit creep as James Clear coined the term in his book Atomic Habits, is something that we can get behind. Clear describes Habit Creep as the process of adding to a habit slowly rather than jumping all in.
This goes back to the idea of just starting to save no matter how small the amount may be. Once you’ve started you can continue to slowly and incrementally increase the amount. For example, you could increase your retirement account contribution by 1% every year, every 6 months, every quarter, etc. or you could increase your automatic contribution to your savings account by $25 each month.
Starting with a small habit that you can build on and going slowly is better than trying to jump all in at first and failing which leads to giving up.
3. Change Your Environment
Behavioral scientist, Dr. Wendy De La Rosa recommends changing your environment to help you make better financial decisions and save more. Some ways that you can change your environment are by making saving a pre-commitment through automatic contributions and planning how much you’ll save before you receive a bonus or tax refund. Making a decision for what you will do with your money before you receive it makes saving easier.
Another way to change your environment is by intentionally making it harder to spend. If you’ve been following along then you’ve already made it easier to save through automation, but you can also make it harder to spend by making it take more steps or clicks and making it more of a hassle than not spending.
Something else you might do to change your environment is to keep the majority of your cash in a savings account at a separate bank and use a debit card instead of a credit card so you see your bank account decreasing as you spend. Add to the pain of spending to add to the ease of saving.
Remember that we’re looking for progress and not perfection when it comes to saving more money. Automate your savings, be consistent and slowly increase it, and change your environment so that spending is harder and saving is easier. No matter where you’re starting, the key is to start.
