The Psychology of Saving
Have you ever thought about your behaviour towards saving? Do you constantly perform the same actions unwittingly when it comes to saving money? The psychology behind saving explains what you spend your money on and why that is the case. We as humans are susceptible to impulsive or irrational decisions and being aware and conscious of one’s spending habits is the first step towards reducing unnecessary purchases.
In order to move forward and change your habits, it is important to determine if there is anything that may be triggering your actions. Identifying your triggers will allow you to implement strategies that will assist in minimising them permanently. Triggers can include factors such as people, places, occasions, emotions or thoughts. For example, do you find yourself spending more money on a Friday night as an emotional release after a long week at work? Or perhaps it’s more of a social aspect, catching up with friends as an excuse to spend money? Either way, if you are making similar choices on a regular occurrence, it is important to determine whether there are any triggers impacting those decisions. Two major triggers that are common include personality factors and upbringing (how you were raised).
Personality: Regardless of your current financial position, your personality plays a role in determining whether you are good at saving money. It is believed that someone who is highly conscientious is more likely to work better towards maximising their savings as they are more organised and possess a greater ability to regulate impulse decisions. Understanding how your personality is affecting your saving habits will help create personal awareness, allowing you to recognise when you are about to make a decision that may not align with your original goals.
Upbringing: Parental influences and life experiences are believed to have an impact on an individual’s behaviour when it comes to saving money. As a child, you are unconsciously influenced by your parental guardians’ spending habits. The older you become, this influence is more likely to change as you begin to become financially independent. However, this influence will not be removed completely. In order to change your psychology towards saving money, it is beneficial to determine why your mindset is the way that it is. Establish what these influencing factors may be so that you can take the appropriate actions to remove them if required.
Challenge the Reward System
Psychologists believe that rewards often lead to behaviour repeating itself. For example, do you feel excited when you purchase new apparel that you have been wanting for ages? Or perhaps you tell yourself that if you go to the gym five times this week, you deserve a new pair of shoes? Either way, setting rewards that are achieved through an action or a certain type of behaviour can lead to repetitive behaviour (with similar reward systems being made). In order to re-define your cognitive behaviour, it is important to break your current rewards system and set new principles. Avoiding the rewards system will be the most beneficial way in ensuring that old habits do not resurface.
While being aware of the factors that are prohibiting you from saving is important, having the power and suitable tools to change those actions are equally critical. Analyse your relationship with money and determine how it can be improved. If you require some extra assistance on working towards achieving your financial goals, work with a trusted financial adviser. At IPPFA, we are here with you every step of the way along your personal financial planning journey. IPP Financial Advisers will tailor advice to help you maintain and grow your financial wealth overtime by encouraging you to embrace smart changes that are unique to you, optimising your income and savings in the long term.