How can you change your behavior to save and invest more?

Saving and investing more can help you achieve your financial goals, whether it's buying a house, retiring comfortably, or traveling the world. But how can you change your behavior to make saving and investing a habit, rather than a struggle? In this article, you'll learn some tips from behavioral economics and psychology that can help you overcome common barriers and biases that prevent you from saving and investing more.

1 Set SMART goals

One of the first steps to change your behavior is to set specific, measurable, achievable, relevant, and time-bound (SMART) goals. SMART goals can help you clarify what you want to achieve, how you'll measure your progress, and how you'll stay motivated and accountable. For example, instead of saying "I want to save more money", you could say "I want to save $10,000 for a down payment by the end of next year". This way, you'll have a clear target, a timeline, and a reason for saving.

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2 Automate your savings and investments

Another way to change your behavior is to automate your savings and investments, so that you don't have to rely on your willpower or memory to do it. You can set up automatic transfers from your checking account to your savings account or investment account every month, or every time you get paid. This way, you'll pay yourself first, and avoid the temptation to spend the money on something else. You can also use apps or tools that round up your purchases and save or invest the difference, or that automatically increase your savings or investment rate over time.

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Michael O'Connor

Finance | Impact | Business | Optimism
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Automation is one of the easiest and most straightforward ways to save and invest more — there's a reason why so many people recommend setting up automatic transfers and paycheck retirement contributions! It's important to recognize the human aspect of how you may approach saving and investing. Taking time to do significant research and analysis on a regular basis doesn't make sense for most people, and removing a barrier of choice on when and how to invest can be extremely helpful. Even if you do have the time and expertise, automating at least a portion of your portfolio can go a long way.

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3 Use mental accounting

Mental accounting is a concept in behavioral economics that describes how people treat money differently depending on its source, purpose, or location. For example, you might be more willing to spend money from a bonus or a gift than from your regular income, or more likely to save money in a separate account than in your main account. You can use mental accounting to your advantage by creating different buckets or categories for your money, and assigning them different rules or priorities. For example, you could have a separate account for your emergency fund, another one for your retirement savings, and another one for your travel fund, and decide how much you'll contribute to each one every month.

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Amit Grinvald

Helping Leaders Communicate with Impact | Public Speaking Coach | Communication Trainer | TEDx Organiser | Award-Winning Mentor | Founding Partner @ Mind Your Business
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Assigning specific rules to each financial bucket can simplify your money management. Your emergency fund remains easily accessible for unexpected expenses, while your retirement savings prioritise long-term growth. Aligning your resources with your goals ensures that your financial resources effortlessly serve their intended goals, promoting discipline and purpose in your financial journey.

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4 Avoid the sunk cost fallacy

The sunk cost fallacy is a cognitive bias that makes you stick to a decision or a behavior even if it's not in your best interest, just because you've already invested time, money, or effort into it. For example, you might keep paying for a gym membership that you don't use, or hold on to a stock that's losing value, just because you don't want to admit that you made a mistake or waste what you've already spent. To avoid the sunk cost fallacy, you need to focus on the future benefits and costs of your choices, rather than the past ones. You also need to be willing to cut your losses and learn from your mistakes, rather than doubling down on them.

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5 Reward yourself

Changing your behavior can be challenging, especially if you have to give up some immediate gratification for a long-term goal. That's why it's important to reward yourself for your achievements, and celebrate your milestones. Rewards can help you reinforce your positive behavior, and keep you motivated and engaged. You can choose rewards that are meaningful and enjoyable for you, but that don't undermine your goals. For example, you could treat yourself to a movie night, a massage, or a new book, rather than splurging on something that will derail your budget.

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6 Seek social support

Finally, changing your behavior can be easier and more fun if you have social support from your friends, family, or peers. Social support can help you stay accountable, share your challenges and successes, and learn from others who have similar goals or experiences. You can seek social support by joining a savings or investment club, finding a buddy or a mentor, or using online platforms or communities that connect you with like-minded people. You can also use social support to challenge yourself, and compete or collaborate with others to achieve your goals.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you change your behavior to save and invest more?

1

2

3

4

5

6

7

1 Set SMART goals

2 Automate your savings and investments

3 Use mental accounting

4 Avoid the sunk cost fallacy

5 Reward yourself

6 Seek social support

7 Here’s what else to consider

Economics

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How can you change your behavior to save and invest more?

1

2

3

4

5

6

7

1 Set SMART goals

2 Automate your savings and investments

3 Use mental accounting

4 Avoid the sunk cost fallacy

5 Reward yourself

6 Seek social support

7 Here’s what else to consider

Economics

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