The psychology behind saving – and how to make it simpler
Why does spending feel easier than saving? We take a look at some of the psychology involved and ask experts how to make saving less of a chore.
By Steve Smethurst
Saving isn’t always easy. It might be wise, it might even be essential, particularly when we’re in a recession and unemployment figures are rising 1. But fun and exciting, it just isn’t. Why is that?
A pressure to spend
Harley Street therapist and coach Olivia James 2 is a specialist in the psychological and physiological aspects of behaviour. She puts part of the blame at the rise of social media influencers, leading to people being compelled to spend more to fit in and to get social approval and validation.
“A lot of it is about belonging,” says Olivia. “On YouTube, for example, you'll see influencers who appear to have made it – but they’ll have their pictures taken with hired expensive cars and bottles of champagne just to make themselves look successful,” she says.
“All humans want to belong, we want people to find us attractive and stylish,” she adds. “But the dark side of this can be people trying to heal internal wounds with material possessions. It leads to a thought process of: ‘When I have this, I will feel better. Oh, I still don't feel better. Well, it must be this other thing I've seen…’
“There’s also a ‘you only live once’ element from the pandemic. We’ve seen people with the attitude of ‘What's the point? I'll never own my own home, I won't pay off my student loan, I might get coronavirus.’ They think, ‘sod it’, basically, when it comes to money and saving.”
Savings. But simpler.
Manage all your cash savings in one place.
Don’t think ‘sod it’
In addition, interest rates on savings are so low 3 that you might be forgiven for thinking ‘what’s the point?’, but money blogger Emma Jackson 4 says that saving money is vital to create a safety net for any financial bumps.
Emma says: “COVID has demonstrated how important it is to maintain a financial buffer. I'd always advise saving for an emergency fund in case you have a personal financial dilemma, such as a loss of income or having to pay for a car repair. It’ll allow you to cover the cost and keep you out of debt.”
Accountant and financial coach Carrie Barclay 5 adds that it’s important to highlight the difference between short and long-term savings, for example saving for a purchase versus an emergency fund.
“I’d suggest having three pots – £2-£3,000, or whatever’s relevant to your lifestyle, in your current account,” she says, “short term savings of £5-£10,000 in a savings account and long-term savings of anything above and beyond that in investments or long-term/fixed-term savings. Your emergency fund should be at least three months’ worth of expenses and, in an ideal world, six months.”
Carrie also points out that during COVID and at a time of recession, it’s harder to access lending. “Opportunities to borrow for an unexpected expense will be limited for a lot of individuals, particularly those that have been on furlough, had bounce back loans or self-employed grants. Having a regular saving habit will not only help you gain more financial stability, it’ll also give those on lower incomes a bit of headspace around their money.”
Our spending habits play just as an important role when it comes to saving money, says Emma: “People often overlook the most obvious ways of saving money such as reviewing your bills, weekly food shop and transport. If you're serious about saving money, your monthly bills need to be the first place you look. Use a comparison site to see if you could get a better deal on your energy, broadband, insurance, and mobile. Aim to find the best deal on every monthly payment or purchase that you make.” See what else you can do to recession-proof your life.
And if you’re on a lower income, make sure that you're applying for all the financial support available to you. This could include universal credit, warm-home discounts and water bill capping schemes.
Easy ways to save
Use support that’s out there
You might ask whether people on lower incomes really save money? Yes, says Carrie. “Having been a young single mum on a low income while studying I know it’s possible, although it’s by no means easy.”
She cites the government’s Help to Save scheme where for every £1 in the scheme they’ll give you a 50p bonus up to a maximum of £1,200, with bonuses paid at two and four years from opening the account.
Put a little aside
Carrie says that a lot of bank accounts, particularly online ones, have pots or spaces where you split money off from your main account balance. “As the balance of the pots is separate from your main account balance and not on the main screen, people are less likely to 'dip in',” she says.
Emma adds that automating savings is an easy way to give your savings a boost. “I have an app that automatically calculates what I can afford to move from my current account to my savings account based on my incomings and outgoings. This way, you're making a habit of effortlessly building up your savings.
“Likewise, the ‘1% at a time’ challenge has helped many families. The trick is to divide your goal by 100 and tackle it 1% at a time. For instance, if you wanted to save £500, divide it by 100. Then you just need to save £5 a hundred times. There's definitely something to be said about the personal achievement you feel as you tick off another 1%.”
Have a ‘no spend’ week
A third suggestion is to challenge yourself to a 'no spend' week or month. “With this challenge you’re only allowed to pay for things that are absolute necessities, staying away from anything that you don’t need (like takeaways or new clothes),” she says.
All that said, it’s important to remember that paying off any debt should normally come before saving. Carrie explains: “The interest rates on debts are far higher than those on savings. It should be a priority to have an emergency fund and then plough what you would have saved into your debt.”
Be kind to yourself
It’s often said that we need to ‘knuckle down’ to save, but with distractions from social media, peer pressure and advertising, it isn’t easy. As such, finding it hard to save money and being tempted to spend more than we can afford is a problem many face. What’s less well known is that it can also be a reaction to stress or financial anxiety.
At one extreme, it can be a reaction to trauma, says Olivia. “This even applies to a collective trauma, like the coronavirus pandemic,” she says, “in which people use spending to numb and distract themselves from what’s going on. People may not want to look at the reality of their finances or their bank and credit card statements.”
Saving can also be difficult for those people with heightened anxiety. “Anxiety is a feature of the fight/flight response in the body,” explains Olivia. You're less likely to have access to your full logical, rational problem-solving brain when your system is flooded with stress hormones. Basically, when you're anxious, you tend to be less strong-willed. So you're much more likely to want to feel better in the moment and think, ‘I’m going to buy X.’
If you recognise this in yourself, says Olivia, get somebody to help you like a trusted friend, your parents, or a professional. “It can be really scary to start taking stock of all this. Having somebody there will give you strength,” she says. Here’s a practical guide on what to do if you’re facing financial anxiety.
And if you do manage to save up some money, give yourself a little reward. “Allow yourself some sort of budget, so you can still have a little treat every now and then,” says Olivia, and perhaps saving might not be so bad, after all.