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Why people generally aren’t good at saving money

How much is in your checking account right now? Now, if there was $25 less than that, would you care? The answer is most likely no. This is hard to do, but try and think how much less would you be willing to stomach. Would you care if your account were $100 lower right now? Would you care if your checking account were $200 less right now? Here’s the thing, when trying to do this, you must ignore the fact that your account should actually have the “original” amount of money in it.

For instance:

Let’s say your account balance is $679.00.

Assuming you don’t know your actual value should be $679.00, if you checked your balance and observed your account to show $629.00 available, would you care? I would argue that you wouldn’t care at all. In fact, based on how we bank today, it wouldn’t even change your spending habits. You would still get everything you wanted over the short term. This is because we set our internal spending limits based on what’s available. In the past, I’ve likened this to our relationship with toilet paper. However, if you presented the same situation in a slightly different way, you’d freak out.

Let’s say your account balance is $679.00.

Now, have at it. Spend whatever you like, and send whatever is leftover to savings at the end of the spending period. I’ve just described the process that 90% of people go through (by the way, 85% of statistics are made-up and the other 35% are inaccurate). This process doesn’t work for most people. It does work for some people, those that don’t check their checking account balance often. But I find those people to be few and far between in the 21st century.

There is a pretty simple fix to this. It’s a fix that’s been used for years, well before online banking ruined us. By the way, online banking did ruin most of us. Save (hide) the money before you have a chance to see (spend) it. This sounds like a stupid, simplistic solution. It is. Why should it be anymore complicated than that? It shouldn’t. That’s what works. There’s a few different ways to accomplish this. Here are a couple:

  • Direct deposit from your paycheck- Your paycheck is most likely directly deposited in your checking account, but you should strongly (read: do it) consider setting up another direct deposit to a savings account. Whether you know this or not, most employers let you do this. Sidenote: make sure your savings account is at a different bank/credit union than your checking. “Easy transfers” can be the death of your savings.
  • Autodraft- Setup your checking account to automatically transfer money to another account based on the frequency of how often you get paid. If you get paid every two weeks, your money should transfer every two weeks. If you get paid weekly, then you should have money transfer to savings weekly. The same rule applies in regards to using a different bank for savings.

Ultimately, I find that people who aren’t good at saving money are simply doing it wrong. Go figure. It’s nearly impossible to save money when you try to save the money that’s left over. You must save before your money hits the checking out. Once your money sits in your checking account for a couple of days, it starts to seem like fair game.