Most Americans aren’t financially prepared for the unexpected. 2021 data from PYMNTS and LendingClub revealed that 61% of Americans live from paycheck to paycheck. Despite having a meager amount of savings, most said that they’d struggle to pay their bills if they failed to generate income for a single month.
So, if you want to be prepared for emergencies and unexpected events, it’s important to build an adequate pool of savings. With that in mind, we’ve listed a few smart strategies that you can use to train your mind to save.
Pretend You Make Less
When times are good, it can be difficult to see the importance of saving. And without that sense of urgency, you might become lenient with spending. Raise the stakes by pretending you make less than you do. Giving yourself a smaller pool of funds to work with forces you to cut non-essential spending. The money you don’t use then goes to savings or investments.
If you’re a freelancer or business owner and your monthly income varies, you can also base your budget on your lowest month’s income. AskMoney’s guide on ‘How to Balance a Budget’ explains that this strategy helps you prepare to work with fewer funds in case income becomes slow. And if you make more than you anticipated, you’ll have excess money to set aside for savings.
Pretending you make less is a great way to limit your spending. The problem is, it’s still on you to set aside the money you won’t use. If you don’t want to make hard savings decisions month after month, automate your savings. Many fintech solutions eliminate savings-related decision fatigue by setting aside and saving set amounts of money from your accounts each month.
Qoins' Smart Savings algorithm will even help you figure out how much to save. After you select a preferred level, the algorithm will calculate how much money it will contribute to your savings goal each day. The average Qoins user saves $91.11 each month using the Smart Savings algorithm.
Use the Cash Envelope Method
One of the best ways to trick your mind into spending less money is to use cash. Having to part with a physical object gives you a sense of loss, making you reluctant to spend more.
Using cash works best when you also employ the cash envelope method. According to CNBC’s report on cash stuffing, the cash envelope method involves placing cash bills into separate envelopes, each marked for a specific purpose, such as rent, food, and transportation. Through the cash envelope method, you get a visual representation of your budget. And because each budget category will contain a limited number of bills, the method helps you prevent overspending.