Easy life hacks to save more money
These five small changes will help get your savings back on track.
It's not a pretty chart: the average savings rate among Australians hit a multi-decade high in 2013, with the last financial crisis still fresh in mind. Since then, however, it's dropped like a stone. The current household savings rate is just 1%.
A recent Westpac survey found that 41% of people break their savings resolutions due to unexpected expenses or a change in circumstances. There's not much we can do about that, but a further 27% of people said they can't save due to a lack of willpower - and here we can use our brain's zeal for mental shortcuts and biases to get back on track. It only takes some tweaking.
You might be familiar with the story of Ulysses, the adventuring king featured in Homer's Odyssey. Before returning from the Trojan war, he was warned about passing the Sirens - women whose beautiful singing lured sailors to run aground.
Ulysses had an idea that is relevant to every aspiring saver. He ordered his men to put wax in their ears so they wouldn't be tempted to change course, while instructing them tie him to the mast and ignore his pleadings, so he could listen to the singing without danger.
Essentially, Ulysses locked himself into an outcome by intentionally removing his options - he knew he wouldn't be able to think rationally when in earshot of the Sirens, so he made his decision ahead of time. Today, this process is known to behavioural psychologists as a Ulysses pact.
Every day, we face our own set of Sirens trying to lure us off course financially - beach holidays, a new TV, even the infamous avocado and toast. So, how can we tie ourselves to the figurative mast?
Automate. Automate. Automate. The best way to get on track with your savings goal is to cut out as much decision-making as possible. All the big banks offer automated deposit and 'sweep' functions that can take a given amount out of your pay each month, the moment it arrives, and move it to a savings account. Automated savings, regular contributions to investments and dividend reinvestment plans are easy ways to take the thinking out of saving and investing. Our own funds all have the option to set up a direct debit regular contribution plan. There's truth in the saying 'what isn't seen, isn't missed'.
Build locks. If money is removed from your account and put beyond reach, you're less likely to spend it. Online-only savings accounts are great for this, as they don't link up to a credit or debit card, so you have to consciously move the money before spending it. You can take things a step further by setting up accounts at more than one bank - one for receiving your paycheck, the other for saving. It may seem inconvenient, but that's the point - it slows down your ability to make rash spending decisions. Term deposits are good for money you won't need to touch for a while, and there's no better lock-out account than your Super fund. Making voluntary contributions is the ultimate Ulysses pact: by preventing withdrawals, Super forces you to manage the money for your future self, and saves you taxes in the meantime.
Start small, but fix your ramp. If you've built a lifestyle around zero saving, it will be difficult to suddenly jump to 10%. Don't let that discourage you from making small changes. In Nudge, a great book by Richard Thaler, the author discusses a successful behavioural intervention known as 'Save More Tomorrow' - a program where people commit to saving more in the future. It's easier to force your future self into giving up a new TV, after all. Even if you don't think you can save anything extra today, set up an automated deposit of just $10 a week a few months from now. It's better than nothing. You will gradually adjust to this level of saving, and then you can increase the level to $20 and so on. It takes a bit more work, but this ramp-up can also be automated by setting the withdrawals to begin on certain dates, staggered into the future. And if you know you're getting a pay rise or a bonus sometime soon, program a higher deduction starting at that date so you don't get used to the extra income.
Go on the right kind of spending spree. The truth is, unless you're some sort of saving superhero, as money starts to pile up in your account, you'll get looser with your spending. The trick, then, is to satisfy this spending urge in a sensible way: buy things the 'future you' will want. It's important to have an emergency fund of 3-6 months' worth of living expenses put aside, but, other than that, as soon as money arrives, buy stocks or other growth assets with any money you won't need to touch for five years. Property is another option: one watertight benefit of getting a mortgage is that you're forced to save.
Think about your future self. Spend a moment visualising the future you want and your place in it. A Stanford University study found that people who saw images of themselves that were altered to look older were more likely to forego immediate rewards for future ones. It may seem silly, but regularly looking at photos of an age-enhanced version of yourself on apps like Aging Booth could do more for your savings rate than cutting down on avocado toast.
At the very least, when faced with an expensive purchase decision, ask yourself 'what choice would my 80-year-old self wish I had made today?' The future you will thank you for it.
If you have any saving tips or tricks you would like to share, we would love to hear them in the comment section below.
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