Why Do You Find Saving Money So Difficult?
As Sendhil Mullainathan, an economics professor at the Harvard University pointed out – people’s failure in saving money should not be blamed on their lack of self-control. Contrary to what most people believe, saving becomes difficult not just because of low self-control, but mostly because individuals cannot set their priorities right. For example, if you have current expenses to bear, you are less likely to take your savings for retirement seriously. You might think that saving is difficult as it needs a heroic (and almost impossible) tightening of your monthly budget. But in reality, all you have to do is to automate your savings so that a chunk of your monthly paychecks go straight to your savings accounts.
How Do You Start Saving Regularly?
Economists Shlomo Benartzi and Richard Thaler developed an automation model for saving which is known as ‘Save More Tomorrow’. The model helps in setting up a deduction at regular intervals that doesn’t start right away. If you don’t have a steady paycheck, it might not work for you well as you cannot automatically save your money. The big question here is what you can do when you have a sizable amount of money to spare. For example, how can you save money when you get a tax refund? Most people end up not just frittering away the extra money, but even more than what they get.
Can You Use Tools To Automate Your Savings?
There are cool websites and smartphone apps that allow you to set reminders. For example, if you always struggle to settle your credit card billing on time, using such an app would help you with paying down the money you spent with your credit card. There are also apps that work silently in the background. So when you receive a paycheck, this kind of app simply moves a certain amount from your salary account to your app account. You can even analyze your cash flow using some of these apps. For example, Mint is an app which allows you to create your personal budget, track your expenditure, and get smarter with your money. You can even connect your bank accounts and your monthly bills with the app. Isn’t it cool?
Can You Trust An Advisor?
You might have leafed through a lot of saving tips on the web (just like you are reading this piece at this moment), but can you really trust a financial advisor? Of course, there are upright and really efficient people working in the industry, but a lot of financial advisers get incentives to sell specific financial products which may or may not be good for you. So, when you already have your money in a low-cost fund, they might try to push you toward some undiversified and high-load fund. This can be depressing. Whether you want to trust an advisor or not, it is totally up to you; just make sure to trust the right person!
How Do You Avoid The Trap?
Targeting life-cycle funds can do the trick as these funds help you mitigate the riskiness of your financial portfolio. All you have to do is to choose the age of your retirement. Also, it’s always a good idea to let the financial advisor charge you on an hourly basis as they cannot make money by selling you products you don’t need.
How Can You Get Better At Saving?
If you are finding it really hard to start saving your money, try the 52-week money challenge to get in the habit of saving. This is actually an incremental saving plan. On week one, you just need to save $1, the next week you have to save $2 and so on. This incremental savings plan might be really fun, but you will actually end up saving $1,378 in a single year. Are you up for that challenge? Also, it’s important for you to stick to a plan. You can set up realistic saving goals and reward yourself upon achieving those goals. If you get a larger tax refund than usual, make it a point to save that extra money. Lastly, if you have recently paid off your credit card or mortgage, increase your savings contribution right from next month.
Planning, sticking to your plans, and automating your savings – it’s almost like a workout regimen. With the way new-age financial software development firms are trying to disrupt the market, it’s highly likely that you would get a handful of apps to use in the near future for saving your money. Saving money is only going to be easier in the days to come.
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