How Anyone (Yes, That Means You) Can Make Saving Money a Lifelong Habit
Leveraging the Power of Purposeful Goals
What if I told you that saving money could become as habitual as your morning coffee?
A fascinating research titled “Relationship of Saving Motives to Saving Habits” by Fisher and Anong sheds light on how ordinary people can make saving money a habit.
The goal of their research was to figure out what drives people to tuck money away - is it the fear of a rainy day, or the dream of retiring comfortably?
They dug into data from a survey that asked thousands of households about their savings habits, specifically looking at who saves regularly, who saves only now and then, and who doesn't save at all.
Now, the cool part of what they found was that whether or not savings becomes a habit is largely dependent on your goals—or lack thereof.
Think of it this way: when you have a clear target, like building an emergency fund for those just-in-case moments or saving for your golden years, you're much more likely to stick to your saving plan.
Having a specific goal in mind is what people need to make saving a life-long habit.
Emergency funds can motivate you to start saving
Let's dive into the nitty-gritty, starting with saving for a rainy day - the precautionary savers.
These are the people who stash away money for unexpected expenses, like a car breakdown or a sudden job loss.
The research showed that this motive is the most powerful determinant of whether someone will save money at all. People who had traditionally been non-savers are much more likely to begin saving money if they adopt a precautionary goal.
Fear is a powerful motivator.
The idea of being prepared for emergencies nudges many people to start saving in some form, which is obviously better than not saving at all and the necessary first step towards a healthier relationship with money.
Retirement is the perfect goal to turn you into a life-long saver
On the flip side, there’s retirement goals.
Imagine you're aiming to save for a retirement that's as comfortable as your current lifestyle. Fisher and Anong discovered that people who focus on saving for retirement are more likely to save consistently over the long run.
People who prioritize retirement goals are the types who set a part of their paycheck aside every month without fail to long-term savings.
It turns out, having retirement as a saving goal made a big difference in encouraging people to become regular savers compared to those without any clear goals around retirement.
The power of goals in driving savings behavior
Here's the kicker, though: the research didn't just say "these goals are good"; it showed that people genuinely save more effectively when they have these targets. Specifically, having a retirement goal seemed to really bolster people's commitment to saving regularly. They didn't give exact dollar amounts in their findings, but the implication is clear: goal-oriented saving, especially for retirement, significantly increases the likelihood of saving habitually. This means by focusing on these goals, you're not just more likely to save; you're setting up a habit that consistently builds your nest egg over time.
While setting specific financial goals is a game-changer, there are more pieces to the puzzle. Let's explore other critical factors that shape our saving habits.
Other important factors that determine if people make saving a habit
Long vs. short term thinking
Let's talk about other crucial factors that influence how and why people save money.
Long-term thinkers are more likely to save money. If you've followed MOAM for a while, this won't surprise you
People who can envision a future where they achieved their financial goals tend to save more diligently because they have self-belief they can achieve those goals.
If you struggle with long-term goals, don’t worry I have you covered. I wrote an entire 6-part mini series discussing the research behind developing a long-term mindset:
Higher income gives the luxury of long-term thinking
Next, let's talk about the most obvious factor that drives saving behavior: income levels.
Even my four-year-old knows that having more money makes saving easier.
But there's a bit more to it then simply having the money—it’s about the mental freedom that extra money provides.
Higher income does generally lead to more savings, but it's not just about having extra available cash to stash away.
It's also about the sense of financial security and the ability to plan for the future without worrying about making ends meet today. Higher income levels give people the breathing room to think about and save for the future.
Getting comfortable with risk
Risk tolerance was identified as another important factor that predicts savings habits.
People with a lower risk tolerance tend to save in safer, more predictable ways, like a regular savings account, rather than investing in stocks. Those with a higher tolerance for risk are more inclined to invest in assets that are volatile but offer the chance for higher returns, potentially increasing their wealth significantly over time.
Final thoughts
In essence, Fisher and Anong's research shows us that saving money isn't just about putting aside what you can, when you can.
It's deeply influenced by:
Where you're aiming (your goals)
What you're working with (your income level)
How you handle uncertainty (your risk tolerance)
Your thought process (thinking in the long-run)
Understanding these aspects can give you insights into your saving habits and help you navigate your way to a more secure financial future. So, as you think about saving, consider these factors as part of your personal finance map, guiding you toward your goals.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.