5 Savings Tricks You Haven't Tried Yet
If you're a regular Wise Bread reader, you probably think that you've read every trick under the sun for saving money. After all, there are only so many ways to say "brew coffee at home and bank the cost of your daily latte!" (See also: 101 Ways to Save Money)
But even though the problem of saving money may be age old, there are always new tricks to attempt. Here are five savings strategies that you probably haven't tried — and an explanation of why each one works.
1. Tape Your Goal to Your Credit Card
One of the biggest reasons it is difficult to save money is because of a brain quirk called "hyperbolic discounting" — which is a science-y way of saying we like instant gratification. You may feel absolutely committed to saving for retirement, your child's college education, or your next vacation. But those events are all in the future, and that pair of adorable leather boots is on sale now! (See also: Simple Ways to Stop Impulse Buying)
That's why it's important to keep a tangible reminder of your goals. Often, you'll see advice suggesting that you display a picture of your goal — such as an age-progressed photo of yourself, a picture of your child at school, or an image of your vacation destination. But that advice forgets the fact that putting your goal picture up at your home or office does nothing to inspire you when you're actually facing spending temptations.
Instead, tape or rubber-band your inspiration picture directly to your credit and debit cards. That way, you'll be reminded of your goal each and every time you reach for your wallet. You'll have to actually remove your goal picture to use your card — and you could not get a better symbol for unnecessary spending.
Why This Works
Recent research has shown that the oft-repeated self-help suggestion of positive visualization is actually counter-productive. When we imagine that we have already succeeded, then the brain starts to relax, thinking we've got our goal covered.
However, putting a picture of your goal on the very item you need to indulge in goal-breaking temptations is not the path to brain relaxation. Instead, this will provide you with the momentary pause necessary for you to evaluate if your purchase really fits in with your greater goals. (See also: The Right Goals Make Saving Easy)
2. Figure Out How Much Things Cost in Hours Worked
Take the time to start looking at financial transactions in terms of the hours you spend to get them, rather than the dollars.
This suggestion comes from the fabulous and game-changing book Your Money or Your Life. In this book, Vicki Robin and Joe Dominguez point out that time is literally money, since you trade your time away in order to earn money. And while money is fungible (that is, replaceable), your time is finite, precious, and gone once it's spent.
That's why it's very illuminating to translate the dollars in your paycheck into hours of your time. Sure, spending $600 on an iPhone may seem like no big deal — but is it worth an entire week of your time? (See also: How a T-Shirt Equals a Taco)
Why This Works
When you look at cost in terms of time, you are changing your anchor point. Anchoring is a cognitive bias that causes you to be influenced by the first piece of information you encounter. For instance, you might have no idea how much is a reasonable price for a bottle of wine when out to dinner — but the presence of a $100 bottle of wine makes the $25 bottle seem like a reasonable amount. (See also: 10 Surprising Marketing Tricks)
But you can create your own anchors so that you're not led astray by $100 bottles of wine. I had a friend in college who converted all costs into "ramens," which were $0.25 each and were her go-to cheap dinner. That helped her remember that a $14 CD might seem inexpensive, but actually cost her 56 ramens — or almost two months' worth of dinner.
That strategy worked well for a poor college student, but for anyone past the ramen stage of life, converting dollars into time would be even more effective. That's because those of us who have seen several big-ticket birthdays come and go are particularly sensitive to the tyranny of time. We may feel like we deserve the latest gadget — but remembering just how much of our lives we would have to give up for it can help us remember to only spend on the things that truly reflect our goals.
3. Hide Money From Yourself in Your Checking Account
This trick is an attempt to recreate the feeling of intense joy you get when you discover a forgotten-about $20 bill in the pocket of a coat you haven't worn for several months. Basically, you can't spend money you don't know you have.
So, to that end, you can "hide" money from yourself with some creative accounting. For instance, The Christian Science Monitor suggests simply subtracting $100 from your account balance in your check register. The money is still there, and at the end of the month (or several months), you can put all of your phantom savings toward your goal.
This is one trick, however, that does not work for all personality types. For example, I once worked with a woman who would check to see if there was money still in her account — even though she knew that money was already spoken for by charges that had not yet cleared. This trick would certainly not work for her.
However, it is still possible to hide money from yourself even if you have the wrong temperament for the checking account trick. In that case, round up the amount you need for various items in your budget. For instance, when I first graduated, my student loan payment amount was $360, so I budgeted $400 for it. Every nine months, I had an entire payment's worth of extra cash set aside. In my case, I sent the extra money to my lender, but you could easily transfer the "extra" budgeted money into your savings account.
Why This Works
Such mental trickery helps to keep temptation at bay. It plays on the fact that for most of us, if something is out of sight, we just don't think about it. That's why you might find that your chocolate cravings cease if you think your spouse ate the last slice of cake — even if it's simply in a different spot in the kitchen.
The other positive aspect of these tricks is the fact that they get you into the habit of spending less than you have. As long as you can successfully trick yourself into thinking you have less money than you do, then you will force yourself to live on less.
4. Stash Your $5 Bills
Marie C. Franklin of the Boston Globe, suggests putting aside every $5 bill you find into a jar or envelope, and depositing those fives into savings at regular intervals. Ms. Franklin was able to save $12,000 in three years using this strategy.
Basically, this is a way of reframing your view of $5 bills. Instead of seeing them as cash to be spent, they become something to be saved.
J. Money of Budgets Are Sexy describes a similar cash savings trick. Every time he's at the bank, he buys every $2 bill the bank has on hand. Unlike fives, $2 bills are already rare and something you would want to keep. (J. Money mentions that several people have held onto $2 bills that they received in childhood). So by buying however many $2 bills are available whenever you're at the bank, you convert your fungible and boring ones, fives, tens, and maybe some twenties into rare $2 bills that you'll be loathe to part with.
Why This Works
Our brains already react to cash in a much different way than they do to credit. It "hurts" more to spend cash than it does to spend money on a credit card. By making a point of saving certain denominations of bills, you become more focused on what you plan to do with the bill (save it with others of its kind) rather than on what you could buy with the money. That means it would "hurt" even more to spend your chosen denomination, because you can't let it join the party with the rest of the bills you've saved.
5. Adjust Your Withholding
How big will your tax refund be this year? If you're like the average taxpayer, you'll probably be seeing a refund check in the neighborhood of $3,000.
While it's always exciting to get a check for that kind of money, it's important to remember that three grand is your money, which you have just loaned, interest-free, to Uncle Sam. It may feel like windfall money, but it's actually your hard-earned cash that you've been passing along to the government each month, $250 at a time.
This year at tax time, do a few things to improve your savings strategy. First, put your refund into your savings account. It's very easy to blow refund money, but you'll be better off in the long run if you save your refund rather than use it to buy a new TV or go on a vacation. (See also: Smart Things to Do With Your Tax Refund)
Next, while you still have all of your tax information available, use this year's tax return to determine what your withholding should be to reduce your refund. You should aim for a modest return next year — around $500 or less. The IRS offers a handy-dandy withholding calculator to help you figure out the withholding that will work for you.
Of course, simply adjusting your withholding will not be enough to make sure you save the $250 per month that you would otherwise be overpaying the government. You also need to get that money into savings before it simply becomes part of your lifestyle creep.
Rather than rely on your own memory to transfer the money into savings, have your employer do it for you. Contact your HR department about splitting up your direct deposit into multiple accounts. Most employers will allow you to deposit your money into more than one account — you just need to fill out a form and know how much you need to go where.
Why This Works
It's tough to spend money you don't remember that you have. And since human beings are very much creatures of habit, it will feel as though you haven't changed a thing between last year and this year. After all, your paycheck will be about the same size.
But instead of your money getting a little interest free trip to the government and back into your pocket (where you're very likely to spend it unwisely), you'll be saving money and earning interest on your savings — meaning it's worth more in your savings account than it would be as a refund check.
Do you follow any savings tricks? Have they worked for you?