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Funding Your Future: The science of saving money

Posted at 7:07 PM, Apr 25, 2018
and last updated 2018-04-26 13:12:47-04

Sometimes it can feel as if the world is against you when you're trying to save your hard-earned money. Financial expert Rachel Langlois of Cyprus Credit Union says that many times our phycological mindset can make the difference between a savings account that grows and one that goes in the red. Today she shares 3 ways our minds can trick us into spending money when we should be saving it and some ways to combat these urges.

Our first physiologic block is a  present bias or prioritizing your current desires over your long-term goals. Most Americans don't have a savings account to cushion them during hard times.  Rachel says that people tend to underestimate the cost and frequency of special occasions which eliminates any money they would set aside for a rainy day. She says one solution to this problem is to set up an automatic transfer from your paycheck to a savings account, tricking your mind into not seeing this as money as extra income.

Next is Relative Comparison or the curse of the "good deal". Just because something seems like a must buy or a bargain does not mean we need to buy it. Many times sale items will lead us to impulse shopping and breaking our budgets that we have set. Rachel says one way to overcome this problem is to wait and think about your purchases. Take time to mull over the pros and cons and decide if it is something you will really need.

Finally, there is emotional accounting or thinking of extra money as a splurge account. Words like bonus, gift, and winnings trick our minds into thinking that this is money to spend over being saved. But in reality, these are some of the best assets that can help you reach your savings goals sooner. Ways you can change this behavior is by taking the ease out of discretionary spending. Remove your credit card number from your favorite shopping websites and pay for things with cash so you can only spend whats in your wallet. By changing our mindset we can save money and work for our future goals.

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