As it turns out, it’s not the concept of saving money that is hard. It is, after all, simple math. Spend less than you make, save the rest. However, when you mix human psychology, wants vs. needs, and the availability to borrow, the process of saving becomes complicated. The goal of saving money can seem impossible.
As professionals in the financial service industry, we strive to be better savers and guide our clients to do the same. After all, having enough savings to cover emergencies and major life events is a core component of financial health.
But, let’s be honest. Saving money isn’t something that comes easily to many of us, including the people we serve. We know it’s important, but so often, it seems like an overwhelming task. Instead of putting aside money, we choose to live in the moment, which offers instant gratification and takes precedence over planning for our futures.
With our coaching hats on, we advise clients to use a budget, cut out lattes, save their change, and not eat out as much, but it doesn’t always help. These go-to strategies may not be enough to drive behavior change because they require willpower and discipline. And, willpower, as we know, can be limited.
Truly knowing how to save money requires good financial habits. Therefore, the solution lies in looking for strategies that encourage behavior change that drives our clients and us to save more money. Starting with a savings strategy that includes a practical plan and a little human psychology helps.
Breaking down the rocket science of saving more money:
1. Sometimes, all it takes to build a new habit is a little nudge.
A nudge is a way to influence behavior for the better. Paying yourself first, setting reminders, and automating savings are examples of a nudge – a technique that makes saving money seamless. Encourage clients to save by offering separate savings accounts (or sub-savings accounts). Recommend set-up of auto-transfer of funds on paydays. Consider push-alerts by text or email several times a month to encourage deposits to savings accounts.
2. Take one bite at a time.
Clients may feel overwhelmed when we advise three-to-six months of savings for an emergency, so start small with one bite at a time. Meet clients where they are and look at setting a short-term goal of saving $500 to $1,000 over the next three-six months to get them started. Bite-sized steps can jump-start individuals on the roadmap to build new habits and accountability.
3. Build SMART goals.
Help clients build SMART goals to keep them on track with their savings goals. Start by making a list of all financial goals and designate each goal as “short-mid or long-term.” Be specific about each goal and make sure it is relevant. For example, “save $1,000 for a starter emergency fund which will bring peace of mind.” Make each goal measurable and timely: save $100 every month for the next ten months. Finally, be sure each goal is attainable by following a budget with a line item allocated to “saving $100” and track the progress monthly and celebrate small wins.
4. Make it fun!
Sponsor a Savings Challenge to promote excitement around saving. Develop a program to make saving a priority by helping clients set and work toward SMART goals. Offer prizes based on savings achieved and tie-in financial education programs when available.
5. Enlist supporters.
Encourage clients to surround themselves with family, friends, and colleagues who support their savings goals. Offer guidance from licensed financial advisers as clients build investment strategies.
Ultimately, building good financial habits is the “rocket science” of saving more money.
Laying a foundation for financial health is so important because what we continually do will produce the results we long to see. Remembering that what we do today impacts our lives far into the future and underscores the importance of building great savings habits.