Photo by Chris Steele-Perkins/Magnum



How to save money

Aside from basic needs, your financial priorities are up to you. Resist short-termism by keeping in mind your values and goals

Photo by Chris Steele-Perkins/Magnum





Kim Stephenson

is a financial psychologist, business coach and writer. His books include Taming the Pound: Making Money Your Servant, Not Your Master (2011) and Finance Is Personal: Making Your Money Work for You in College and Beyond (2015), co-authored with Ann Hutchins. He lives in Warfield in the UK.

Pradnya Surana

is a positive psychologist and financial wellbeing expert.

Edited by Christian Jarrett





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Need to know

People save for a variety of reasons: to put money by for unforeseen contingencies; for retirement; for holidays or other expensive purchases; to leave money for a spouse or children after death; to avoid debt. Others save only because they think it is a good idea or that they ‘ought to’. Whatever the motive, saving not only has financial benefits, it can also improve psychological wellbeing and emotional health.

Of course, not everyone is in a position to save, particularly right now – for people with significant debt, living on minimum wages or chronically unemployed, saving is not a realistic priority. Yet for those who do have the means to save, and given its benefits, why do so few of us do it?

For instance, in the United Kingdom in 2019, of more than 27 million households, nearly 13 million had no savings at all, according to the Money Charity. So, approximately half of all Britons have no money of their own to fall back on or to use either short- or long-term. In the United States, average personal saving rates (the amount of disposable income that people put by) were around 7.6 per cent in 2019, and even below 5 per cent in the decade prior, which is significantly less than required to retire comfortably, according to financial commentators.

There are countless articles and advice columns available online that will tell you why you need to save and that teach you the basic practicalities of saving – such as how to compare interest rates or where to find the banking apps that allow you to partition your money into virtual savings pots. The trouble is, such advice fails to address the fundamental psychological reasons that impede so many people’s intentions to save. In this Guide, we’ll take you through these psychological hurdles and show you how to overcome them.

Underlying many of our difficulties with saving is that we evolved to cope with short-term, usually physical, threats and to prioritise satisfying our most immediate needs. For instance, rather than responding to a threatening letter from your credit card company with a long-term saving strategy, it is all too easy to react instead as you would to an acute physical threat – to run, fight or freeze. These automatic survival responses narrow attention on the threat and speed up short-term decision-making at the expense of longer-term strategy. But you can’t run from or kill the creditor. Likewise, freezing and hoping that the threat will go away might have saved your distant ancestor from a physical predator, but it won’t work with your bank.

It’s partly because of these evolved survival mechanisms that, rather than planning ahead, so many people take out instant ‘payday loans’ with punitive interest rates to tide them over until the next pay cheque. To the stressed or scared brain, such loans can seem like a good survival option, but in reality they are a long-term financial disaster.

We also evolved to attract mates. Status was (and still can be) a good attractor, so it might be very tempting to buy shiny things to show off, such as a new phone (despite your existing one being adequate) or new clothes and shoes (although you might not wear half the stuff you already own). Left unchecked, these impulses to keep purchasing new and impressive items can also thwart any intentions to save.

You’re more likely to become a successful saver and to overcome your unhelpful evolved tendencies if you do three things: take the time to consider what your overarching values and long-term goals are in life; develop a sense of balance (allowing you to weigh your current needs against your future plans); and build new monetary habits, so that saving is no longer a constant battle or test of willpower, but something you do automatically.

If you’re in a position to save, you might feel that the middle of a pandemic, with uncertainty high and many salaries falling, is not the right time to pay attention to saving. That’s understandable, but our advice about identifying your priorities and finding ways to make better use of the money you have is arguably more important than ever.

What to do

To increase your chances of saving successfully, the first thing you need to do is to define what matters to you – in other words, your values. What are you saving for? When it comes to your behaviour, your motivation is far more important to initiating change than your energy levels. Imagine you’re hiking in the woods and become so tired that you feel like you can’t take another step. If a bear appears and goes for you, don’t you think you could run a bit more, let alone walk again? Motivation is just as critical when it comes to saving money, so think about what matters to you. Maybe you’d like to run your own business, start a charity, or simply have enough money to go away next year? These are the kind of meaningful, long-term goals that you need to have at the forefront of your mind if you are to overcome short-term temptations and find the motivation to save money.

If you’re struggling to figure out what you really want in the long-term (and what you want your money to do for you), there are several thought experiments you can try. Research suggests that contemplating death can alter your financial priorities. Imagine that you’ve died and that your life is being commemorated on the news: what would you like your significant achievements or experiences to have been? Or imagine you’re nearing death: what would the future ‘you’ tell the current ‘you’ about what was actually important? These thought experiments are good for working out what you’ll regret if you don’t get started on longer-term goals, but death can be a bit depressing. An alternative is to imagine appearing on a TV show with your favourite interviewer in 15 to 20 years’ time. What would you like to say you’re grateful for – what were your greatest achievements, or your happiest, most meaningful moments?

When you’ve got a goal or value, picture it. The more detail the better. Draw it, describe it, get a clear image of it. Then get some of those little sticky dots you can find in stationery stores. Put one on the picture, or on your computer, phone, TV, mirror. Make sure you keep in mind why you’re doing what you’re doing. Then, when you get out your credit card to buy something, or look at your phone to pay online, you’ll see the dot, think about why you’re saving and how great that goal or value is, and won’t spend the money. You’ll use your dreams and motivations to change your behaviour and, each time you do, you’ll take a step towards that day when you’ll have achieved what you’d like to celebrate in your fantasy TV interview.

The next thing you need to do is to create a sense of balance between your immediate needs and your more optional or discretionary desires, so that you stay happy and motivated while also having enough resources left over to put toward your overarching, long-term values and aims.

Only you know the things you absolutely must have (apart from food and shelter, and ideally companionship). But do bear in mind that, if you’re completely honest with yourself, most material things are really optional – you might think you must have the dozens of things your grandparents had never even heard of, such as dishwashers, wireless headphones, instantaneous, unlimited internet and a phone with a teleport app. Yet you don’t. You need essentials for life, the rest you have to prioritise, and your priorities are up to you.

One important thing to consider is that there are times in life when it’s unwise to save. For example, it’s better to clear high-interest debt, such as credit cards, first. There is little point in putting aside savings at a 2 per cent interest rate if you’re simultaneously paying 20 per cent interest or more on your credit card debt. That might sound obvious, but in the UK in 2019 credit card debt averaged £2,591 per household, so it’s not as obvious as it should be.

An inappropriate savings habit can be as bad as an inappropriate spending habit, the key is balance and planning

Similarly, it’s all too common for people to save while neglecting urgent essentials. Consider the case of pre-pandemic winter-related deaths among people aged 65 and over – which in the UK are around 379 per day in excess of the rest of the year, according to the charity Age UK, due largely to increases in respiratory illness, especially pneumonia. Yes, poor conditions, poverty and seasonal viruses play a role, but we’ve also heard many stories of people continuing to try to save rather than spending sufficient money on vital heating. A lifelong habit of saving can be dangerous, when the more appropriate action is spending on self-protection.

Another reason that balance is so important in choosing how much, when and what to save for is that living like a monk through force of habit rather than conscious choice is actually bad for wellbeing. An inappropriate savings habit can be as bad as an inappropriate spending habit, the key is balance and planning. After all, if life under your new saving regime is too dull and arduous, you’re unlikely to keep to it. So remember to set exciting short-term goals along the path to your big dreams (such as clearing out the garage to use as an office, and selling the junk to use as starting capital). And do make sure to reward yourself from time to time – buy some music you love or something else that gives you joy, to celebrate your progress when you stick to your new plans.

To help find the balance in your spending priorities, try this exercise: imagine you’ve won £25 million in the lottery. Write down the first 15 things you’d buy in as much detail as you can. Next, read through the list (you can do this alone, or with a trusted friend) and consider where the desires came from. Categorise them: which items are driven by expectations (‘if I’m rich I must have…’); which are to compete with siblings, friends or colleagues; which did you choose because you think it’s the smart thing to do (probably because of advertising); and finally, which did you list because you really do want them and have always wanted them, or you want to give them to those you care about? For most people, there are only three items or fewer that we really want. See what you put on your list, and think about where, with the finances you have and have the potential to save, your balance lies for your own wellbeing.

Finally, you need to turn your new saving behaviours into a habit. Forming new habits is tricky. To change, you first need to know what your current habits are, and decide which ones should change.

Think: where are you currently wasting money on habits of behaviour that don’t get you nearer to your goals and dreams – where is your money using you, rather than you using it? Do you automatically renew subscriptions, such as the gym, and then waste that payment by relaxing in front of the TV instead? Do you always buy the brand you had as a kid? Do you pay for labels, or buy for value in order to save for what you really want (and not to compete with others)? You are the expert on what you do, so you’re the best analyst.

Habits start with the trigger – the place, experience or situation that prompts the behaviour, such as feeling depressed, having some spare money, seeing something you want that isn’t a priority. You then carry out the action automatically, in this case whipping out your credit card or thinking: ‘I’m not going to change at once, I’ll just buy this’ – and then comes the short-term reward, which is usually the emotional kick that reinforces that spending behaviour.

While maintaining the right balance of priorities in your life – as described above – you need to replace these unhelpful habits with more constructive ones, such as putting money aside on payday – after the credit cards are paid off – and balancing the budget for your priority items with the amount you can put away. Set yourself up to succeed – don’t walk into the shop that sells your favourite things with your credit card on the first day of the sales. Modern apps and other tools can also be extremely helpful in automating your savings habits (see the resources section).

Bear in mind that you’re more likely to be successful with habit change if you organise yourself to do one thing at a time, so don’t try to change your whole financial life in one go. Pick one or two things that will make the biggest difference in the short term, and work on those. As you form new money habits, you can continue to change gradually to be the financially astute person you want to be.

Key points – How to save money

  • Humans have evolved to deal with threats via short-term thinking and to compete for status with showy resources. Saving requires long-term thinking that runs counter to these deep-rooted tendencies.
  • You will find it easier to overcome these tendencies by spending time reflecting on what really matters to you in life, especially over the longer term. Think hard about what you’re really saving for and why it matters to you. Set up personal reminders about what you’re aiming for, for example by sticking red dots on your credit card.
  • You need to strike a balance between your immediate needs and desires and your longer-term goals. This means sorting out a budget that lets you live, but also puts aside money for important things. Only you know what the right balance is for you, and it’s worth spending time figuring this out.
  • Decide what changes you’re making to give yourself money to save, and try to automate the correct amount (with an app, a standing order or whatever).
  • Reward yourself for behaving the way you want to, not the way you used to. Get some music you love or something similar to reward yourself when you stick to your new ideas.
  • We’re social animals, and you’re more likely to succeed if you enlist the help of positive friends – that’s one reason why Weight Watchers and Alcoholics Anonymous work so well because they enlist a supportive group.

Learn more

A lot of advice about finance emphasises financial capability – knowing about money, interest rates, tax, etc. It’s nice to know those things, but you need to know them only after you’ve decided what you want to do. You’re the important part, your money is your tool, so our main message here is that it’s vital you first work out what you want, then see how best to use your money for you. If you learn about money first without laying the psychological groundwork that we’ve described in this Guide, then the danger is you’ll end up being used as a tool by your money.

Another powerful factor that could sway your financial judgment that we haven’t touched on yet, but which it is important to be mindful of, is peer pressure. Everybody wants to be ‘special’, but we also want to be part of a group. So, we all have that pressure, whether it’s to smoke and drink like others, to have the most spectacular or costly wedding (for ourselves or for our children), to have the very latest clothes, accessories, gadgets, holidays – the list is endless. And that’s the problem: the list might be endless, but your money is finite.

Compounding the problem, we tend to judge our wealth (and often our wellbeing) by comparison with others, rather than against what would really make us happy. We also tend to adapt more quickly as we rise up, rather than as we go down the social scale. If you’ve seen the British film The Full Monty (1997), you’ll likely understand and sympathise with the manager who loses his job but pretends he’s still earning. None of us adapts well when we can’t keep up with our former peer group. By contrast, if you’ve ever had a pay rise, you might have been surprised by how quickly you adapted to (and spent) the extra money, and by how soon you were having thoughts such as: ‘If only I had another few thousand a year, I really would be happy.’ But then you get another rise, and start mixing with more affluent people, in nicer places; you have more expensive meals, maybe move to a more expensive neighbourhood, and then suddenly you feel poorer, because now you compare yourself with your new neighbours who have comparatively more. That won’t stop, ever. Even if you have millions, you still can’t have everything and keep up with everybody.

So, our advice is to make sure you’re clear exactly what your values are, and what is really important to you. Ask yourself if social comparison, peer pressure, feeling like ‘one of the gang’ or ‘slightly better than the gang’ is worth what you have to give up to get it. Remember the balance is about what you want, not what other people pressure you to have. Instead of striving constantly to keep up with other people’s priorities, consider sharing your saving goals with close, supportive friends and asking them to help you stay on track.

To help you find the motivation to save, here is one more exercise – ‘expressive writing’, a good technique to bring more clarity to understanding the question ‘What really matters?’ Find a quiet place where you won’t be disturbed for at least 15 minutes, and have a pen and paper ready. Choose a topic related to your overarching values, and write about your core reasons for wanting to save. What is the bigger financial picture? Also, what beliefs do you hold about money and saving? Considering the other information in this Guide, which beliefs do you now think might be useful or harmful for achieving your financial goals? Write a minimum of 15 minutes per day for four consecutive days for better results. Don’t worry about punctuation, spelling and grammar. If you run out of things to say, draw a line or repeat what you have already written. Just keep the pen on paper. By the end you should find you have a better sense of your priorities and long-term saving goals. Good luck!

Links & books

Money Mindset is a YouTube channel hosted by the American psychologist and financial planner Brad Klontz, who provides advice and exercises on the psychology of saving.

The Australian positive psychologist Michelle McQuaid provides many free tools and interviews on her website, including a discussion of how to find your purpose.

The British charity Action for Happiness provides many free tools and worksheets for helping work out what truly matters to you in life; recently, this included a month’s worth of daily tips that they called ‘meaningful May’.

Once you have devoted sufficient time to working out your values, and why and how much you want to save, then, for more practical financial advice, the Money Box programme on BBC Radio 4 is highly respected. It has featured episodes on saving, including a special on saving for the under-35s in 2019.

There are also apps you could use to help automate your saving habits. For instance, in the UK, the Starling Bank app allows you to create virtual ‘spaces’ to save for particular goals. Similarly, the Moneybox app helps you save automatically by rounding up everyday purchases to the nearest pound and putting aside the money.

In terms of books, one of us (Kim Stephenson) wrote Taming the Pound: Making Money Your Servant, Not Your Master (2011) to provide a psychological view of personal finance, including chapters on establishing values, goal-setting, behaviour, saving, insurance, couple’s finance and teaching children about money.

More recently, Kim’s book Finance Is Personal: Making Your Money Work for You in College and Beyond (2015), co-authored with Ann Hutchins, is aimed more specifically at readers setting off for college or university. Sections cover self-discovery and personal goals and values; relevant details to establish (on housing, necessary and optional expenses, credit and debt, saving and investing) and how to put the whole plan together.