If you want to start putting some money aside for your financial future, it can be quite difficult, can’t it? Because you’re already used to living within the means that you currently have, if, all of a sudden, you have to carve out some money to put aside for the future, it’s a real challenge because you’re going to have to make some changes to what you’re spending right now. Now, I’m not suggesting you don’t do that because saving is incredibly important, but I am suggesting that there’s also another way that you can make a substantial difference to your future and that is by saving with tomorrow’s money.
A few months ago I came across a great piece of research by two behavioural economists called Benartzi and Taylor. They asked a group of people one very simple question, namely, what would you like to eat one week from today? Would you like to eat a banana? Or would you like to eat a bar of chocolate? What they found was that at that time when they asked the question, three quarters of those people said “I’ll go for the banana, please”. But what was very interesting is what happened a week later when the economists turned up again and they actually showed the people the banana and the chocolate right in front of them and said, which one do you want? You chose a banana; do you still want it? Actually, 70% of people chose the chocolate bar. If you think about it, that makes perfect sense because, in reality, none of us really like making big changes that affects us right now and that’s because we’re going to feel the pain of loss in some kind of level.
Knowing this is how we typically behave, the good news is that we can use this to our advantage when it comes to saving. When you have a cash windfall, why not get into the habit of putting aside the lion’s share of it to safeguard your financial future. Whether that be a bonus, pay rise, cash gifts or a little lottery win, the same approach applies. By all means use some of it, perhaps up to a quarter of it, to enjoy right now, but put the lion’s share into some kind of savings scheme. That way you won’t notice the money that’s gone because you weren’t used to having it but, much more importantly, you’ll be making a substantial difference to your bank balance.
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