A recent study showed that a quarter of British adults have no savings, and that one in ten typically spend more than they earn. Yet more than half of the poll of 2,260 respondents in the UK wished they could save. And more worryingly, one in ten adults aged over 55 don’t have a penny put away for their future, compared to 38% of 25-34 year-olds who already have savings.
While these figures are alarming, for most people, saving for a rainy day is not something that comes naturally, but rather a habit that needs to be developed. It is not necessarily a case of affordability either, as the notion of ‘I will start saving when I can afford it’, is being made redundant by the growing trend of micro-investing – the act of saving small amounts of money regularly, with ‘regularly’ being the operative word.
Nonetheless, saving is hard. It requires consistency and discipline, and in some cases a change of lifestyle. Many people set goals to save for big things such as a house or a dream wedding, and if they struggle to reach them or fail, they become discouraged and give up. The trick is to not aim too high too quickly, but rather to start saving regularly by making it part of your lifestyle. Overtime, developing a saving-lifestyle will prove to be far more effective as well as rewarding.
If saving regularly is already part of your lifestyle, that’s great, keep going! But if you are not a habitual saver, the following four-step approach, published on Psychology Today website, will help you cultivate the habit of saving.
Financial experts such as Suze Orman and Dave Ramsey advise that when starting off, you need to choose, and then achieve the goal of saving a specific amount for a rainy day. The concept behind this idea is that, forming and achieving a specific goal is a crucial early step in habit formation.
The specific amount for your emergency fund may vary. Dave Ramsey recommends saving a £1,000 for emergencies, while Suze Orman suggests a higher target of at least eight months’ worth of living expenses.
The most important thing is setting a specific amount and then making a start. New saving habits can only be formed when you adopt particular behaviour patterns and the motivation to achieving your own specific goal.
For a robust habit to be formed, the targeted behaviour must be repeated regularly within the specific context. Consciously and constantly thinking about where and how you can save money on a daily basis, is a crucial aspect to forming a saving habit. According to experts on the Psychology of Habit:
‘Habits strengthen through associative and reward-learning mechanisms that capture the slow, incremental nature of habit formation. With each repetition, small changes occur in the cognitive and neural mechanisms associated with procedural memory… cognitive associations between context cues and a response are strengthened gradually so that people are prepared to repeat performance when the context cues are encountered again.’
In other words, and to put it into context, the more you make money saving decisions daily, the sooner you will begin to shift your mindset towards forming a saving habit.
The common phrase, ‘keep your eye on the ball’ pretty much sums it up here. Not only in the sense of staying focused on the goal, but also as a way of remaining motivated to be successful. Making your actions and results visible will help you develop a resilient habit. Visibly seeing your savings accumulate on your savings account will boost your morale and encourage you to continue.
When you are still at point one, that is, setting a specific goal, you can also use online tools to help you visualise your potential savings with an ISA, for instance.
Finally, as already mentioned, most of us are living beyond our means. Hence, the main reason many people struggle to save, is that they do not have control over their spending. Therefore, in order to develop a strong and sustainable saving habit, you must consistently spend less that you earn.
This does not happen by magic either, it will require planning and sticking to a set budget. The internet offers a plethora of personal and household budget tools that can help you with your monthly planning.
So, there you have it. These four steps are by no means easily done, yet they can be achieved. They will require you to make some changes, drastic changes for some, and minor changes for others. In order to be successful, you will need to set your goals and implement them regularly. And if you stick it out, the end result will be rewarding.