Save more by tricking your brain: How to hack your money mindset

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Embarrassingly low bank account balance?

For a couple reasons, your savings rate, or lack thereof, might feel out of your control.

One problem is that young people just don't have much cash in the first place: According to a recent U.S. census report, the generation just entering the workforce earns about $2,000 less per year, adjusted for inflation, than their parents did.

To be fair, it's hard to save dollars you simply don't have.

Then again, even those who make a decent salary can find it challenging to save — thanks, in part, to a psychological mechanism researchers call "temporal discounting."

What's that? And how can you beat the odds?

Read on for four key moves that will make saving easier and net you hundreds of dollars you wouldn't otherwise have this month.

Saving takes work but has its rewards. Source: ROUND_TWO/Reddit
Saving takes work but has its rewards.  ROUND_TWO/Reddit

Recognize that your brain is to blame.

In addition to the economic issues at play, there's a psychological element to the financial duress of young Americans.

The fancy word for it is "temporal discounting." Human beings are wired to prioritize smaller, more immediate rewards over larger, slower ones.

This actually happens at a chemical level: Drunkenly dropping $100 on second-hand Miley Cyrus tickets (don't judge) actually feels better then just putting $100 in a savings or retirement account — even though, thanks to the power of compounding, that small sum would be worth much more invested toward retirement.

In my defense, Miley was marvelous. Source: gifsformcyrus.tumblr.com /Giphy
In my defense, Miley was marvelous.  gifsformcyrus.tumblr.com /Giphy

Psychologists have theorized that this mechanism explains many human behaviors, including addiction and substance abuse — and also why we are just so bad at saving money. Some of these behaviors might even be genetic, meaning you can inherit a tendency to overspend just as you would your grandfather's pattern baldness.

Luckily, there are a few solutions to overcoming this psychological block: A new study even suggests that simple education can make people better at delaying financial gratification (so good on you for reading this story).

Another weird trick?

Download one of those age-your-face photo apps. An experiment by UCLA Anderson School of Management professor Hal Hershfield found that when people see a photo of an aged version of themselves, they saved twice as much money for the future. 

In a follow-up study, Hershfield further quantified the effect, finding that people who saw their older selves saved 6.2% of their paychecks, compared to 4.4% for the control group.

The reason, the researchers suggest, is that seeing your wrinkled "old" face reminds you that your current and future self is — in fact — the same person.

Estimated savings: Assuming you made the median weekly income of $828, that extra 1.8% per week nets you about $15. Over the course of a month, that's about $60. 

Automate everything.

Lack of willpower is one of the biggest factors that keeps many Americans from saving, so one way to get around that is by removing willpower from the equation entirely through automation.

If you have an employer-provided retirement account like a 401(k), you should absolutely sign up for automatic contributions, especially if your company matches the money you put in. Among the employers who use Vanguard, one of the largest investment companies in the world, 91% offer matching funds — aka free money for you. 

And if you need to prioritize normal saving in your bank account? There are ways automating can help you too.

As technology improves, it's getting easier and easier to automate your savings. Source: Uncredited/AP
As technology improves, it's getting easier and easier to automate your savings.  Uncredited/AP

Acorns, for example, links to your checking account, and rounds up all your purchases. So, if you charge a cup of coffee for $1.50, it rounds up the charge to $2, and puts the extra $0.50 into an investment account for you automatically.

Then there's Digit, which also links to your checking account and monitors your spending. Every two to three days, it moves some small amount of money that the algorithm determines you won't notice from your checking account to your savings account, usually somewhere between $5 and $50.  

Another app, Rize, takes a different approach by pulling money from your account when you actually have it — right after receiving your paycheck — at a set amount of your choosing.

Estimated savings: Many automating savings programs let you set your own limits about how much gets withdrawn and when, but saving $10 every three days would net you $20 a week, or around $80 a month. 

Pay with cash instead of plastic.

The convenience of credit cards — as nice as it is — is one reason why personal finance experts advise using cash instead of cards, particularly if you have trouble managing your spending.

There's solid research showing that people actually spend more when using a credit card than when using paper money.

Why?

One 2008 paper in the Journal of Experimental Psychology suggests that using credit cards reduces the "pain" that you experience when you spend money. 

So to keep yourself from overspending during a night out, set aside your card, give yourself a budget for the night — and withdraw that money in cash.

Estimated savings: One prominent MIT study found that people using credit cards were willing to spend double on basketball or baseball tickets than the people who had to use cash.

By that logic, you could cut your entertainment costs in half by going cash only. Booze, tobacco and admission fees collectively account for around 3% of income spent among Americans, meaning that your weekly savings could add up to about $12.50 a week, or $50 a month.

Setting a budget before you hit the bar is always a good idea. Source: SimpsonsWorld/Giphy
Setting a budget before you hit the bar is always a good idea.  SimpsonsWorld/Giphy

Choose a splurge to tide you over.  

"Everyone knows how to quit drinking; everyone knows how to lose weight," said J Money, the pseudonym for the personal finance blogger who runs Budgets Are Sexy. Where people get tricked up when trying to practice restraint, he says, is not the "how," but the "why."

You know you don't need to buy yourself coffee every morning and you don't need to go out to lunch every day.

But why stop?

Rather than trying to reign all your expenses in at once, try and choose the one or two indulgences in your life that actually matter to you. Maybe it's your predilection for craft beer, as opposed to reasonably priced swill. Maybe it's a long weekend you take every summer. Keep that.

Then cut your other expenses ruthlessly.

For me, those "other" costs were my morning coffees and lunches out. When I took a more careful look at my own spending, the $2.65 I spent each morning on a Starbucks iced coffee didn't seem worth it. 

Too much caffeine also made me jittery. Source: bostontrad/Imgur
Too much caffeine also made me jittery.  bostontrad/Imgur

Estimated savings: By cutting my morning coffee habit, I was able to save $2.65 for each weekday, or about $53 a month. 

Then, by bringing my lunch to work once a week — as opposed to eating out in the expensive financial district of Manhattan — I pushed that total savings up to $73 a month, assuming I saved about $5 per lunch, for four lunches per month.

Now, that arrangement doesn't work for everyone. Some people can't be bothered to deal with mixing salads or messing around in the kitchen. 

That the advantage of starting off this exercise by picking out the thing you're not giving up. 

Total savings: If you're really gung-ho about using all four strategies together, those savings should add up to more than $250 a month. 

You'd be surprised at how quickly that money can grow for you.