Saving for your future is an excellent way to work towards your goals, whether that’s a deposit for your first home, retirement or a nest egg for a rainy day. However, sometimes it can be difficult to take the first step, or even know where to start. This is why we’ve put together our expert guide to help train your brain to save more money.
What part does psychology play in saving?
Psychology plays a large part in our everyday lives, but also influences actions and behaviours we may be oblivious to, such as spending habits, risk aversion, peer influence and emotional factors.
If a person is naturally sociable, they may find that they spend more when they’re in a good mood catching up with friends over a coffee, or going to a bar or restaurant with colleagues. Peer influence has a similar effect, as others’ behaviour can often influence our own. If someone notices their friends or family achieving their savings goals, they may fear losing out and in turn feel motivated to do the same. This fear of loss, or financial FOMO (fear of missing out) can not just motivate someone to save, but also influence the way people save. For example, if a person’s family, friends or colleagues have started achieving their savings goals like saving towards a housing deposit or their wedding. They may not just ask them how they’re saving, but also adopt similar behaviours in their day-to-day lives (tracking spending or cutting down on impulsive spends etc).
Your own psychology will also affect the way you save. For example, if someone is naturally risk averse, they may choose to save in a savings plan with less risk, such as a savings account or a bond with a guaranteed return. Understanding your own psychology will give you an understanding of your saving habits, how to make saving-related decisions, and how your behavior can be positively influenced to apply responsible and effective saving habits.
Spending money is connected to our emotions, and this can play a big part in the way we save. For example, if someone is fearful of rising costs and what the future may hold, they may find themselves spending less on luxuries and social events to focus on the money they’ll save and regain a sense of control.
On the other hand, many people get a good feeling from spending money and may find that purchasing something can feel like a reward during a difficult time. This emotional response can make it challenging to save, as the act of spending is directly tied to positive feelings. Once you’re aware of this positive emotional response, you can aim to feel it through different methods. For example, if you’re focusing on achieving your savings goals and have a target in mind, it can feel very rewarding to know you’re succeeding and knowing you’re actively making a difference in achieving your goals.
How can I learn to save money?
Even if you are a natural spender, there are a few steps you can follow to train your brain so you can learn to save money. Whether it’s monitoring your spending habits, setting goals or thinking about the future, starting with small steps is a great way to lay the groundwork to develop healthy savings habits. Remember that this takes time and patience. Be prepared for setbacks, but don’t get discouraged. Consistency is key, and over time, your efforts will lead to a securer financial future.
Be aware of your spending and saving habits
Being self-aware of your emotions and any emotional spending you do is the first step in training to save more money and creating healthier saving habits. Once you first recognise your triggers that lead to impulsive spending you can understand the emotions behind it and channel those feelings elsewhere. For example, if you often spend money when you’re bored, stressed or in need of instant gratification you can instead focus on managing these emotions in healthier ways. Such as; taking up a hobby when you’re bored, meditating or taking up a self-care routine when you’re stressed. You could also talk to a friend or family member, or watch television when you’re in need of instant gratification. Acting upon these emotions can help you stop spending money.
Track your finances
Tracking your finances is a great way to save money, as it will give you a detailed overview of your spending, where you’re spending money and how much you’re spending. This will allow you to create a categorised budget, helping you keep track of your finances and making sure you don’t spend more than you need to. It couldn’t be simpler to create a budget, some current account apps even do it for you. This will give you a clearer overview of your finances, to allow you to see where you can be putting aside more money to save each month, and enhance your financial wellbeing. Without keeping track of your spending it can be easy to have it out of sight and out of mind, which can easily result in you spending more than you intended to.
Setting smaller savings goals are often more manageable and effective than simply aiming to save money. Small goals are less intimidating, making them more achievable. On the other hand, if you had no savings goals or were to focus on saving a large sum, it could feel overwhelming and discouraging, leading to procrastination or abandoning your goal. By setting more achievable milestones, you can celebrate your progress more frequently. These small victories would boost your confidence and encourage you to keep going. Additionally, these small goals would help you keep track of your spending and manage your budget, preventing you from overspending and creating healthier spending habits.
Celebrate each win
Everybody loves to treat themselves, and when you’re actively trying to save money it can be tempting to splurge just once in a while as a treat. However, we don’t need to spend money to get this feeling. There are many free activities that can give you the satisfaction of treating yourself. Whether it’s a walk in nature, a cosy evening at home, catching up with friends, or cooking your favourite meal, all these little treats can trigger the same pleasure centres in the brain. These activities tap into our brain’s reward system, releasing the feel-good chemicals like dopamine, reinforcing the importance of self-care without the financial burdens.
Think about the future
It can often be a struggle to think about the future, especially if you struggle to see the consequences of your current spending. A great way to avoid this is to visualise where you want to be in 5 to 10 years time. This will help keep you focused on your spending and help you stick to a budget. Once you see the potential rewards and consequences of your spending more clearly, you’ll be more likely to make decisions that benefit your long-term well-being. By mapping out goals and sticking to a plan to achieve them, it’ll be easier to make your future goals feel more tangible and easier to achieve, especially as you’ll be able to celebrate your progress.
In summary, our psychology plays a big part in the way we spend money and therefore how we save. Once you are more aware of the psychology of saving and the part it plays in your day-to-day life, you’ll be able to make better savings decisions that foster healthier spending habits in the future. If you’re looking to start today, take the first step towards saving for your future with a Shepherds Friendly Stocks & Shares ISA and start your savings journey from just £30 a month.
Please note, when investing, your capital is at risk.