The biggest hurdle to saving is creating the habit.
22% of consumers have more debt than emergency savings.
Here are 5 ways to trick yourself into become a better saver.
Prize linked savings accounts (ie, Save to Win)
Each time your make deposits to your checking or savings accounts, you have a chance to win a cash prize. For example, you’d have a chance to win a jackpot ranging from $25 to $5,000. Programs like this may be available through your local credit union.
Get your friends involved (ie, lending clubs)
If you struggle with self-discipline to save on your own, it might help to have some friends hold you accountable. Lending clubs are groups of people who pool their savings and give the cash to a different person each week. The pressure of knowing that other people are counting on you can be an effective way to set aside money each week.
Make it a competition
There are lots of financial challenges out there. The goal with these challenges is to break large, formidable goals into smaller weekly goals. One type of savings contest is a 52-week savings challenge where you start with $1 in week 1 and increase incrementally by $1 each subsequent week until you reach the end of the challenge.
Save your change
This is a classic strategy. at the end of the day, throw singles and coins into a dedicated savings container. At end of the week or month, deposit the cash into your savings account. Many checking accounts can do this for you digitally like Bank of America’s Keep the Change program.
Have an app do it for you (ie Acorns or Digit)
These apps set aside spare change from everyday purchases. Money saved is stored in a portfolio that invest in ETFs (exchange traded funds). Another option, Digit, makes automatic transfers to savings accounts 2-3 times a week. The result is you don’t the withdrawal of money being put away and you have an increased savings account balance.
In investing, you want to minimize cash to maximize the amount of money working for you and earning long term gains. Cash is available only for immediate or short-term liquidity.
A recent study reported that maintaining cash on hand in savings or checking account seems to improve people’s feelings of financial well-being and life satisfaction.
Also, the study reported that no matter how much financial security and income we have that happiness is tied to having cash readily available in your bank account.
From an investment perspective, you should minimize your cash on hand except for what’s required for short term spending needs.
This study shows the power of mental accounting. Part of mental accounting is how you mentally group and view money. Even if you have ample future income, like a high balance in your retirement or investment accounts, you may not be content unless you also have an ample amount of cash.
So the question to ask yourself is ‘how much cash do you need to keep liquid to feel comfortable and sleep well at night?’ Once you know your ‘comfort cash’ amount, you can invest the rest.
Instead of thinking that you are ‘under investing’, consider the satisfaction and contentment of your ‘comfort cash’.