Have you ever wondered why saving is so hard? Well, the answer lies in the psychological conditioning of the human brain. We are notorious pleasure seekers and pain avoiders. We tend to overestimate immediate consumption and undervalue future profits. And so we fall into the habit of procrastination – that is to keep delaying something unpleasant. Procrastination is a systematic mistake in the programming of our mind that we are all prone to make. Here’s what makes saving so difficult for humans and what you can do to outsmart your brain.
We all do it
It’s 6:00 in the morning. The alarm clock rings and confronts you with the first big decision of the day: Either you get up, go through your care routine in peace, welcome the day with a sun salutation, treat yourself to a well-balanced breakfast and perhaps do some housework, which you will be spared in the evening. Or you can press the snooze button on your alarm clock four times. Until looking at the clock almost gives you a heart attack, you rush to the bathroom, accidentally squeeze hair conditioner on your toothbrush instead of toothpaste, put on two different socks that you will try to hide under your trouser leg all day long and then arrive hungry and rushed at work. You briefly weigh your options and press Snooze.
Of course, not everyone is like that. Some of us make difficult decisions more rationally. But most of us are hesitants by nature. Facts show:
- One in five even suffers from a severe form of procrastination.
- Men are somewhat more prone than women.
- And young people more than elderly ones.
Financial procrastination – it’s a thing!
The psychological pattern of procrastination can also be seen in the way we deal with finances, especially when it comes to saving and old-age provision. Because procrastination is a systematic mistake that we all tend to make. Particularly, when it comes to making decisions that do not immediately change our lives, but are aimed at the future. For example: I needed a pension plan, but which one? If something then gets in our way that promises short-term enjoyment, we postpone the uncomfortable until later – even if we lose money this way. That is because people have difficulty imagining the future, behavioral economists have found out. Interest and compound interest have also proven difficult to grasp.
Hyperbolic discounting: We tend to value future profits and losses much less and overestimate short-term consumption
We tend to value future profits and losses much less and overestimate short-term consumption. This is what behavioral economics calls “hyperbolic discounting” or the Sparrow-in-the-Hand paradox.
4 ways to stop postponing and start saving
There are tricks against procrastination. Dan Ariely, for example, a behavioral economist and professor, found that the less leeway he leaves his students to do their homework, the better they manage to do it. Obviously, one way to prevent postponement is pressure from outside. But you can also use these insights to guide yourself to more financial discipline. Here’s how:
1. Commit yourself
If you transfer part of your money to a savings account every month when you receive your salary, you save the most.
2. Take little steps
Start with small financial goals. Manageable challenges will help you gain a sense of achievement and further boost your motivation.
3. Keep reminding yourself what you are saving for
Don’t lose sight of your ultimate goal. Use a vision board or track your progress with a chart, so that you always know why to keep on saving.
4. Look to others for advice
Benchmarking your consumption and saving behavior against your peers’ gives you a sense of where you stand financially and how you might optimize your lifestyle. (Read more about why peer comparison is a powerful tool here.)
At the end of the day, it is a fact that: As you make your bed, so you must lie in it. Now, of course you can always treat yourself to some snoozing when you’re resting comfortably on a fluffy financial cushion. However, postponing the uncomfortable for too long can cost you significant amounts of money – and even worse, items on your bucket list that cannot be afforded without saving. This is a reality that is worth waking up to rather sooner than later.