What would you do when you need to pay an emergency hospital bill, apartment rent, and car repair all at once at the end of the month while you run out of cash and – to make it worse – your salary has not been paid yet?
Some people might turn to take money from the medical loan when trapped in similar condition. While this method could help, it could be a more serious problem if you cannot pay them back, especially if it comes with significant interest. That being said, the best financial source to pay those bills is from your own savings.
Money saving is one of very important aspects you should prepare in life as it would be a great help when you have to deal with unexpected things mentioned above. It will also help you stay away from crushing debt and loans. Melanie Wright, an independent money mentor and a financial journalist, commented that there are 5 added reasons why you need to save early, starting from today. The reasons are: you will be financially independent sooner, will not have to worry for unforeseen expenses, will have financial back-up once you lose your job, will be prepared if your circumstances change, and will be more comfortable in your retirement.
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Wendy de la Rosa, a co-founder of Common Cents Lab, shared her evidence-based research on how money saving is important. She agreed that saving as small as £1 a day or once a week will help our future to be better as we would be less threatened by unexpected things. According to her, saving money is not about how smart your money management is. In her study, de la Rosa argued that saving behaviour isn’t about how smart you are or how much willpower you have. It is about the amount we save depends on our environmental cues. It is proven in her study that money savings will much depend on your environment and mindset.
So, how can we save money by empowering our environment and mindset? De la Rosa talked about her backed-up tactics on how we make use our environment and mindset to save more money for our future self. In her Ted Talk, here are tips she humbly shared.
- Harness the power of pre-commitment
Fundamentally, humans think about themselves in two different ways: future and present. For our future self, we believe that it will take care of us, for our retirement, for our work, or for our financial security. And so – our present self does not save because we believe in our future self. However, we forget that our future self is actually the same as our present self, said de la Rosa.
Therefore, the best decision is to commit to your present self just like how you will commit to your future self. For example, you can sign up for an app that lets you make savings decision in advance. “The trick is, you have to have that binding contract,” added de la Rosa. Contract here means you should commit for real consequences that might happen. The decision you make today for your future must matter.
“In our tax savings experiment, users made a real commitment when they told us how much they planned to save; they knew their refund money would be directly transferred into their savings accounts,” de la Rosa advised.
- Use transition moment to your advantage
In psychology, there is something called “fresh start effect”. It is when you should think about whether you need to start a new year or a new season, whether you need to change career or retire from a job. To the best practice is, you should identify the financial things you want most to do.
For example, is it the time for opening a retirement savings account? Is it the time for consolidating your student loans and credit-card debt? Is it time for building a new home with your beloved one? After you know which transition you need to follow, you should then make it non-cancellable or move around.
- Get a handle on small, frequent purchase
Have you ever regretted spending too much money on food? Or spending too much on entertainment? If yes, you should practice this.
Pre-commitment tactics mean you should take a look at your expenses and identify your most regretted purchase. Then, you should modify your environment to make it harder for you to spend. For example, you linked your credit card to subscribe to a popular magazine or food apps that you frequently use. Without realising it, you spend more than 1000$ on both. So, you need to unhook the credit card and change it to a debit card with some money like $300. You will soon manage your expanse better.
Other than that, de la Rosa suggested that if the thing cannot stop even when you have a debit card, limit yourself from entering your card number to purchase something online. As far as possible, you can withdraw money from an ATM, and purchase the thing without your card. Leave your card at home and only bring some mighty dollar in your pocket.