4 Subtle Shifts in Your Mindset That Can Help You Crush Your Savings Goals

Trick your brain into thinking saving is easy

The human brain is easily tricked — especially when it comes to money.

Most of the time, our brain gets tricked into spending too little, making poor investment choices, and not saving enough.

But you can flip that script and trick your brain into saving more. Here are four lessons from behavioral finance to help you spend less, begin saving, and, crucially, stick with your savings for the long run.

#1 — Reframe intimidating savings goals

If you’re intimidated by an ambitious savings goal, try tricking your brain into believing it’s a smaller goal.

A 2019 study on Acorns app users found that reframing a $150/month savings goal into a $5/day goal led to a 300% increase in the number of people who decided to start saving.

We like to think of humans as overly complex creatures, but sometimes all it takes is to say $5 is less scary than $150 to get started saving money.

Here’s a detailed breakdown of this reframing technique.

#2 — Put a label on it

Earmarking is a budgeting technique that involves setting aside money for a specific purpose.

So, if you had a medium-term savings goal to save for a down payment on a house, you could have a separate savings account labeled “house fund,” where you separate the savings for your down payment from the rest of your money.

In a 2019 study, researchers found that people who earmarked their savings were more likely to save money than those who didn’t.

The study also found that the effectiveness of earmarking was enhanced when the savings were partitioned into two envelopes, and the envelopes had pictures of the people’s children on them. This made it more difficult for people to spend the earmarked money on other things, as they would feel guilty about breaking the rules they had set for themselves.

Partitioning money + labeling = powerful incentives to save money.

Here’s a detailed breakdown of segregating your money and labeling accounts.

#3 — If money is tight, focus on what matters most

A 2011 research paper found that when money is tight, focusing on a single savings goal increases the odds of following through on your plans to save money.

The researchers ran an experiment where employees were encouraged by their employer to think about pursuing multiple savings goals like retirement, house repairs, and saving for a child’s education vs. a single goal like buying a car.

The employees who were encouraged to save for a single goal saved significantly more money over the next six months.

In a follow-up study, participants were given a hypothetical situation where they needed to spend $3,800 per month on basic living expenses like food and shelter. They were then split into two groups;

1. The first group with monthly take-home pay of $4,200.
2. The second group with monthly take-home pay of $5,000.

Each group was randomly assigned to save a total of $300 per month, either for a single goal or multiple goals.

The lower-income group were much more likely to save the $300 when assigned to save for a single savings goal.

It’s not a matter of having the money or not; in either case, they have $400 of disposable income and are being asked to save $300.

Living on a tight budget is stressful. Being reminded of all the different goals competing for your $400 is overwhelming and keeps you constantly thinking about saving but not actually following through.

But a single savings goal like building an emergency fund feels doable.

Here’s a detailed breakdown of the power of financial focus.

#4 — Reduce spending and save more by reducing decision fatigue

Personal finance gurus make you feel like a failure with money if you buy a latte or go out to dinner.

This kind of small, variable spending is a perfect example of a low ROI issue that does not deserve (much) attention.

These are small purchases that happen every day. Remember that attention is a finite resource. Dedicating your attention every single day to a $3 problem like a cup of coffee is a quick way to burn through our attention.

A high ROI issue to focus on is your fixed and recurring spending.

Examples include:

• Housing costs
• Transportation costs
• Internet
• Cell phone
• Gym memberships
• Netflix and all other subscription costs

There are two reasons why fixed and recurring expenses deserve your attention:

1. This is where the lion’s share of your money goes. Find me a person who spends more money on coffee than housing.
2. Cutting these costs requires a one-time investment of your attention.

That second point is critical to understand.

Let’s say you cut out $350 in recurring or fixed expenses. That likely required a lot of your attention to track and prioritize your spending and find places to make cuts.

But, once you’ve made that upfront investment, you continue saving $350 every month without investing another second of your attention on the issue.

Compare that to focusing your attention on cutting out your daily latte. That requires your attention every single day to save yourself $3-$5.

By focusing on fixed and recurring spending, you invest your attention once and reap the financial rewards every month going forward.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.