Why can't I save more money?
I'm sure most of us have asked this question while scrolling through perplexingly low online bank balances.
For example, I've tried to budget, I've tried to automate savings contributions, and I've tried to generally be better about details and how much I'm spending on almond florentines.
So what gives?
There are two major behavioral blocks you might not know about when it comes to saving money. Here's a primer on what they are and how you can overcome them.
Say it with me now: Hyperbolic discounting
"Hyperbolic discounting" is a fancy economic way of saying that the farther off something is in future, the less we think about it. We care a lot more about what is happening today than we do about what will happen one year from now, and we care a lot more about what will happen a year from now than we do about what is going to happen five years from now.
In other words, whatever the future benefits and costs of some action we take today, the amount we "care" about it depends very much on how far out into the future we're looking.
You can probably see how this could affect your savings rate.
When you look at your list of financial priorities, it's hard to argue that getting your car fixed right now is less important than having money to pay for medical expenses when you're 80. After all, you need the car to go to work.
The problem is that it's easy to think this way all the time, especially when making long-term decisions about how much to put into your 401(k) or how much you'll need for living expenses in 20 years.
One way around this is to make the future more important by developing empathy for your future self. It sounds weird, but research has shown that identifying more strongly with the person you will become can help you make better decisions for him or her.
Of course, I would like to think that nothing escapes my notice, but the fact is that we really don't pay very good attention to all things at all times. It's not a failure, really: we can't pay attention to everything. That would make us insane.
The downside is that we lose track of important things, too, like how much we have spent on smoothies this month (ahem). Often, a lack of awareness drives overspending, and if you're not used to paying attention it can be challenging to start.
However, it is possible.
One method I like (when I remember to do it -- it's a work in progress) is to use cash for groceries and other big spending categories. This doesn't work for everyone, but I'm a magpie in the grocery store and am invariably that person who looks surprised when the total is announced at the checkout line.
Using cash, on the other hand, puts an upper bound on how much I can spend, and because it would be embarrassing to not have enough cash, I usually end up doing the math as I add items to my basket.
Another method, for those less inclined towards mental math, is technological. Some banks and a host of online companies have free software that tracks your spending for you. All you have to do is set your budgets, fix the odd category here and there, and it runs on its own.
You only have to remember to check the balances, which, of course, can also be challenging if you're just getting used to this sort of thing.
But the good news is that there is a way to make saving easier, particularly if you understand and work with your psychology instead of against it. It might not come easy, but it's well worth the extra effort.