Building Your Savings Muscle

We all know how challenging it can be to save money. The end of the month arrives, and you think you've done well, only to realize you've overspent by $300 and now must dip into your savings. Or, perhaps you managed to save $300, but then your car starts making a strange noise. The problem isn't that this happens once; it seems to occur every month, leaving no savings by year's end. Fortunately, there's a scientific method to help form and maintain better habits, and in this context, to save more money.

James Clear's book, "Atomic Habits," introduces four foundational concepts for habit formation: cue, craving, response, and reward. These 'habit loops' reflect how our brains are wired. Fortunately, Clear reveals the secret to forming new habits and breaking old ones: make it obvious, attractive, easy, and satisfying.

Firstly, we need a cue to save money and make it obvious. This could involve setting a bi-weekly reminder when you receive your paycheck to transfer 10% into a savings or investing account. Enhance this habit by making the account easily accessible, perhaps by adding its app to your phone or computer's home screen.

Having made the cue obvious, we now need to make this activity attractive. Accomplish this by pairing the activity with something you enjoy. For instance, treat yourself to your favorite frappe or a cookie each time you transfer money to your savings. Pairing a new habit with an enjoyable activity is an effective way to ensure it sticks. Additionally, engaging with people who share a similar goal and sharing your progress can provide motivation.

With the habit now attractive, let's simplify it. The best way is through automatic transfers, which eliminate the mental effort of remembering to transfer money each payday. Alternatively, set reminders, perhaps with a calendar invite that includes a link to your savings or investment account. This minimizes friction while still fostering habit formation. Many people also find budgeting apps helpful to track spending and identify areas to cut back, thereby increasing their savings potential.

The most crucial step for long-term habit maintenance is making it rewarding. If your goal is to save $100,000 for a house down payment, it might feel like slow progress. However, setting smaller milestones with rewards, like a nice dinner or a new pair of shoes upon consistent habit adherence, makes goals feel achievable. A visual representation of your savings can also be motivating.

Creating and maintaining new habits is never easy, but it's always rewarding in the long run. Consistency is key to building new habits, even if progress seems slow initially. It's also important to adapt and adjust your approach as you learn what works best for you.