The One Reason You Are Not Saving Enough

By: ispeculatornew
Date posted: 03.27.2012 (5:00 am) | Write a Comment  (7 Comments)

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The other day I was listening to an interview about the human mind and thing struck me as very related to personal finances even though the interview had nothing to do with it. Basically, it was about the fact that the human mind has so many strengths but one problem it has is evaluating and juding future benefits or downsides. Just think about it for a second…

-People that struggle to lose weight know very well that eating healthy food is the biggest key yet they often struggle.I think a big part of it is simply that the desert or chocolate bar that I can eat now is so much more powerful than the future benefit of losing weight. If that happened only once, it would not be an issue, but when we keep making decisions based on the present, it can have major impacts down the road.

Back To Saving Money

If all of us know that we should be starting to save money as early as possible, that it will end up making a world of difference, that pretty much anyone nearing or at retirement tells us they wish they would have saved more and started earlier, how is it that the savings rate in the US remains so incredibly low? Sure, it has risen a bit but nowhere near what it should be.

It’s Critical And We All Know It

Picking the right stocks, having an optimal asset allocation, choosing the right person to help us manage our money.. All of those decisions certainly have an impact on how our retirement will end up looking like. But I don’t think any one of those comes even close to being as important as saving enough money early on in our life/career….

Why We Are So Terrible At It

For most of us, being able to save money comes down to being able to spend less than we make for a few weeks in order to be able to transfer that amount to a retirement/savings account. Unfortunately, how often do we end up with extra money? It’s rare. Why? Because we find extra expenses like a trip, a gift for a loved one, etc. It doesn’t matter because what does a $20, $50, or even $500 really change? Especially for something that will happen 20-30 years down the road and sometimes even more? Not much of course, even with the compounding effect. But those things add up.

The Only Way Out Of It

Personally, I feel like the only way to be able to save enough is to put it away before even seeing it. I will write more about this in the future but basically, for some time now, I’ve been automatically transferring money to my savings account every time I receive a pay. Also, when I get an increase of any kind, I make sure to increase that amount as well. That way, I never get used to having that money to spend

More Importantly

The critical part here is that I don’t rely on making the smart long term decision over and over…

How do you manage? Are you saving enough? Or should you be saving more? And if so, how can you get it done?

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  1. Comment by Zavi — March 27, 2012 @ 6:48 am

    It’s pretty hard to save when we will in a consumption society!! But I would say that the best thing is to set up automatic transfer from your bank account and you live with what you have in your bank account. The hardest is to control your expense when you have a credit card with reward points (my spouse is addicted hahaha).

    We bought a house one year ago and we are having a kid in a few months, so we need to save much more that what we are spending right now!

  2. Comment by Drew — March 27, 2012 @ 12:00 pm

    I agree with the automatic transfer method if you are able to think long range about your money but struggle to live up to your expectations in the short-term. Set and forget. It has worked for me and I know what I’m like from years of struggling to keep to diets! This article does a good job of linking in broader aspects of human nature and applying it to savings.

  3. Comment by Andy — March 27, 2012 @ 12:04 pm

    I think a big aspect of it is that when you’re in your mid to late 20s it is just so easy to put it off till later. The fact that virtually NO ONE makes saving a priority compounds the fact even more as you have to look hard to find fiscally responsible role models.

    I’ve been automatically investing money for almost a year now and can’t believe how well it works. My paycheck is directly deposited into my checking account every Wednesday, and then my investment account withdraws money automatically every Thursday, so by the time I check my balances the money is already invested.

  4. Comment by IS — March 27, 2012 @ 6:54 pm

    @Zavi – haha… yeah, always tricky to use a credit card efficiently, but the automatic transfer is the biggest key:)

    @Drew – Thanks a lot for the good words, I’m also glad to see it’s working for you, any other tips?

    @Andy – Yep, once it’s set up and you never have that money to spend, it’s so much easier than we could imagine:)

  5. Pingback by Dividend Links — March 30, 2012 @ 4:01 am

    […] 2. The One Reason You Are Not Saving Enough @ IS. […]

  6. Comment by Bret @ Hope to Prosper — April 3, 2012 @ 3:58 pm

    Paying Myself First has always worked for me. I am so happy that I learned about it so many years ago. I don’t know a single person who consistently saves money after paying the bills and expenses.

  7. Comment by IS — April 4, 2012 @ 6:12 pm

    @Bret – No doubt, it’s the key, they should teach us to this early on in our lives…

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