Ways to make cents of saving
IN AN unequal society such as ours, saving is not possible for everyone. However, there are those who can afford to save – they just need to cut down on the spending.
The most difficult part of saving is starting. The second hurdle is staying committed. As we go into Savings Month, I have revisited one of my favourite TED Talks on money, “Saving for Tomorrow, Tomorrow” by Shlomo Benartzi, a behavioural economist.
One important aspect of behaviour he points out is that self-control is not a problem in the future. Which is true. We plan ahead, promising ourselves we’ll stick to our budget “next month”, or we’ll go to the gym “next week” or we’ll cut out sugar from our diet “tomorr – but most of us never do as we intend to.
Benartzi says a study revealed three things about people’s attitudes towards delaying gratification and, by extension, saving:
● The present bias: given the option of spending or saving now, people choose the former because of the joy factor;
● Lack of action: people are more comfortable having decisions made for them than having to think about their choice; and
● Loss aversion: people do not like to feel like they are losing out. Since saving means they can’t spend immediately, it feels like a loss.
So how can you help yourself? The first step is to automate your savings. Set up a scheduled monthly payment that is not easily accessible, and make it as close to payday as possible. If it’s part of your “essential bills”, you won’t miss it.
When you get an increase, divert a portion of the increase to savings. This way you save more, but because it doesn’t affect your spending you don’t feel short-changed.
There are a few employers who have automated retirement savings as part of employee benefits.
Although you might be opposed to this, your future self will be very grateful that you weren’t given much of a choice here.
Some banks have also developed “bank your change” options, which usually come as an additional extra and which you have to opt out of rather than signing up. Banks take your change and channel it to a separate bank account every time you transact.
For instance, if you spend R142.99, the change banked will be R2.01 – rounded off to the nearest R5. Those funds can easily accumulate over time to a substantial amount if left untouched.