Start Saving by Improving Money Habits
Most of us have money habits and attitudes we are not even aware of that profoundly impact our financial lives. For example, some people become very anxious about buying big ticket items but won't think twice about spending $1,500 a year on daily stops at a coffee shop. They just don't think the little things add up. Alternatively, they might do a lot of impulse buying instead of budgeting and shopping for the best deal. The brain gets a jolt of happy chemicals when we buy things and is very good at convincing us the purchase is a rational one. However, when we can't cover the bills or when an emergency pops up, all those happy chemicals drain away.
If we have financial goals we never seem to reach, we need to begin by recognizing and reconfiguring our money habits.
Know Your Spending Cycle
Cycle 1: Earn/Spend/Earn/Spend
This is living paycheck to paycheck. You spend your money as fast as you earn it and there's never enough for savings or investments.
Cycle 2: Earn/Spend/Borrow/Spend
You know you're spending beyond your means, but you can always justify it. Your brain convinces you the deluxe model is a better value, even though you can't afford it; you need the trip to Paris; you should consider the bags full of Gucci clothes an investment in your career.
Cycle 3: Earn/Spend/Save
You understand the concept of budgeting and saving and really want to do it, but there never seems to be enough money for anything but survival. You have the vision; you're just not making the progress you want.
Cycle 4: Earn/Save/Spend
Before you buy a single stick of gum with your paycheck, you make sure a certain amount goes into your 401K or other retirement accounts, your savings account, your emergency fund, and other things like a life insurance policy. You pay yourself first. Many people say they can't afford this. They have bills to pay. However, experts argue that if you have to figure out how to pay the electric bill, you'll get creative and frugal and find a way. Most people are less motivated to squirrel money into a retirement fund until they're aging, and they've missed an opportunity.
Separate Needs and Wants
This is a lot tougher than it sounds. As we mentioned, the brain can easily convince you that you "need" something. In fact, scientists discovered a decade ago that we make unconscious decisions about 10 seconds before we know what decision we made. So maybe it's a good idea to write down a list as to what is actually a need, like bread, and what is a want, like the freshly baked artisanal bread that costs four times as much. You might need a car but want a new sports car.
Make this list when you're motivated to change your financial life and keep it on hand when you're tempted.
