Psychology of Saving & Mindset

Starting to think about money seriously can happen at any age, it’s never guaranteed if you start early you will reach your goals. However the earlier you start, the more time there is for your actions to compound fruitfully.

When I write about savings and personal finance it can seem easy: don’t spend money = save money. However in the real world – it is never that straight forward. Understanding why we behave the way we do can help to shape different habits by identifying ones that deviate from our long term goals.

Here are some things to think about when it comes to saving and investing:

#1: We are who we are around

I grew up in a strict household with parents who were just getting by.

They would only buy things that were absolutely needed, rarely eat out and save on what they could when they could. Growing up in this environment allowed me to see the value of money and the importance of saving it.

Being around others can normalise their behaviours and savings ethos. It could be normal for your 20th birthday to take out a car loan for the BMW, because a few of your friends did it. It could be normal to have 2 international holidays a year, because your parents always did it.
Our minds also are lured into thinking that it’s important to keep up with others around you. In a social setting this may be the most important thing to some but externally if it doesn’t align with your future goals – it can do more harm than good.

#2: We want things now

In a world of instant messaging, instant search results, instant food delivery- our minds move so quickly, we want things now as they happen.
What’s the point of earning money now if I can’t instantly spend it on the present – this is a desire our brains are being wired to do.
We all know of something in our lives that we impulsively bought and now it remains unused and gathering dust underneath our beds. That might be a gadget, or room decoration, or piece of clothing.
Detaching your mind from the present and understanding what that same money can do for you in the future is an important step to financial independence.

#3: The more we earn the more we can spend

Inflation eats away at the value of the money we have, lifestyle inflation eats away at the increased income we have.
For most people, their income starts modestly and increases with age and experience. We learn to live on a certain income and when our income increases $50,000, our brains are pushed to think this $50,000 is “extra money” which can be used for all our wants.

However are these wants, needs?
More often than not, the extra spending is far from necessity and as time goes on, we save little and maybe less than we did on a lower income.

Summary

Thinking about savings isn’t straightforward, our brains are wired to think a certain way and act on our true desires. Reining in these thoughts can help us all make better financial decisions not only for the present but for our future. I challenge everyone reading this to not lull into what you think is right because it’s what others have done but research and understand your own path to personal finance.