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Saving & Budgeting

Train your brain to save more money: Use these behavioural finance tricks

Let’s face it, saving money is difficult. There are so many reasons that make you feel like you just don’t have enough this month to set aside.

Also, as behavioural economist Dan Ariely mentions “we have a natural bias to try and earn more or get credit instead of saving, not because we don’t know how to save money or we don’t want to save money but because we perceive earning money as a more fruitful way to increase financial well-being.”

But unless you are born with a silver spoon or you never want to retire, you’re going to have to figure out how to save anyway.

There are some subtle little mind tricks you can do that can add up into some significant savings over time. Here are a few you can try:

1) Out of sight, out of mind

Don’t opt to have your savings visible on a daily basis through Internet banking or linking to your other accounts. You want to trick yourself into forgetting you have the money there. Save the money into an account that is completely disconnected from your everyday banking.

You’re habituated to having the money available to you. And as long as the money is visible and accessible, you’ll probably spend it. However, if you can interrupt that behavior you may find you really didn’t need the money after all and you can grow accustomed to spending lesser. With any luck you will forget that you have a magic account full of cash and wake up one day to find a lot of money saved up.

Quick Tip: Save the money in a liquid fund that is completely detached from your everyday requirements, risk free with better returns than your savings account.

2) Control how often you spend than the amount attached to it

In a survey we conducted, we found that our customers regretted spending money on discretionary avenues especially on dining out, pubs and ordering food online. To restrict that, we tried different ways of saving and found that people who limited the number of times they could do a certain similar types of spending were more successful at saving that people who set budgets.

Quick Tip: Use an expense and budgeting tool to help you analyze your spends quickly. In addition, try goals like “2 dine-outs per week” or “5 home delivery orders per month”

3) Gamify your savings

When we experience something pleasurable, like winning a prize, our brains produce a chemical called dopamine that helps our brain activate the reward and pleasure centers. So if there’s a game you enjoy that offers rewards, you’ll likely want to continue playing it. Similarly a fun game that encourages you to save money may push you to keep saving.

Gamification is all about becoming competitive, against yourself, and seeing the so-called task of saving money as nothing but a game you can beat.

One simple idea is to pick an attainable saving number (e.g. Rs. 15,000 each quarter). Then, when you hit your number, reward yourself like buying a new pair of shoes or headphones. Just make sure you don’t spend all your savings into the reward.

Quick Tip: Just make sure that you structure the game in a way that it’s winnable, and then you can get your reward. Incase you don’t save or reach your goal, you’ll need to be tough on yourself and forego the reward, whether it’s something you were planning to buy or a meal at that new restaurant, or whatever it is that is pleasurable.

 

 

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