Why it is Easier to Save More Money Tomorrow Instead of Today

Don’t worry, or feel guilty, if you find it difficult to save more money today for your emergency fund, retirement, or other long-term savings.  Shlomo Benartzi suggests you may find it easier to save more money tomorrow instead.

I recently watched a fascinating TED talk by Benartzi, a behavioral finance expert, and author of Save More Tomorrow. In his talk, he identifies several obstacles that keep people from saving money today, and offers practical solutions to help us save more – tomorrow.

Most people really want to save more of their money, Benartzi explains.  We know it is important to save, we often think about finding ways to save more, and we eventually decide that we really will save more money.  Some day. But not today.

We don’t save more money today for three reasons:

1. We lack self-control – To save money today means we need to have enough self-control to cut back on our lifestyle and spending today so that we can set aside more money for savings.
2. We want to avoid pain – Making reductions in lifestyle and expenditures is a painful process for many of us. We’d rather avoid that, so we avoid the pain of cutting back and thereby decide avoid the savings.
3. We have a bias for the present – We want to have maximum fun now and not cut back.

The good news is that these problems are all problems we have to deal with today, but not tomorrow.

Benartzi suggests that one of the easiest ways to get people to save more money is to help them do it tomorrow in ways that they’ll experience no pain or cost.

Ways to Save More Money Tomorrow

The key to saving more money tomorrow is to pre-commit any extra income to future savings.  In other words, decide today that when you receive any extra income tomorrow, that you’ll put it all (or a certain percentage) into savings:

1. When you get a raise or a bonus – save it.
2. When you get a tax refund – save it.
3. When you get an extra paycheck twice a year (if you are paid bi-weekly) – save it.
4. *Bonus for pastors:  When you receive an honorarium for officiating at a wedding or funeral – save it.

What’s great about this method of saving is that you’ll never miss the money you put into savings because you never had it to begin with – you already decided to put it into savings.

Another great way to pre-commit to savings is to set up an automatic savings plan and start saving a tiny percentage that you’ll never miss.

For example, decide today that, starting next month, you’ll set aside just 1/2 of 1% of your income into savings.  If you can do more, start with 1% or even 3%.  Start low with an amount you won’t feel and stick with it for 6 months.  Then increase it another 1/2 of 1%, or 1%, and stay there for 6 months or so. Then see if you can increase it again without feeling any financial pinch or pain.

By using these “save more money tomorrow” methods, you can build up some serious savings in no time without it it really “costing” you or depriving you of anything.

I’ve found this to be so true in my life:  The easiest way for me to save is to do it in a way I won’t feel, or in a way that doesn’t seem to “cost” me anything. What about you?  Do you find it hard to save money today?  Do you think one of these methods will help you save more tomorrow?

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