The present makes us anticipate gratifications and postpone sacrifices, while overconfidence causes us no interest in saving. What do we recommend?
The end of the year always represents a heavy expense: family dinners, Christmas gifts, meetings with people, etc.
These activities generate an increase in monthly consumption, and often need to learn how to manage it. For this reason, on World Savings Day, it is good to stop and think about why it is so difficult to control the use of one’s own money.
It is difficult for people to save because the context influences their decision-making. In that sense, the savings challenge faces three biases:
1. The present: It makes people anticipate rewards and postpone sacrifices. Money that is being set aside to achieve a goal -such as a down payment on a house- is used to buy a product that seems important but that, in reality, is not so urgent -such as having a state-of-the-art cell phone.
2. Overconfidence: There is a tendency to believe that one will be fine and that the situations that friends or acquaintances go through will not happen. For example, it is common to believe that there will be no health difficulties in old age, so it is not a concern to start saving to cover those expenses.
3. Projection: People believe that tastes and needs will not change and that certain things will always be required. But they do not take into account, for example, possible changes in diet, which will be necessary due to some health problems generated by age.
How to start?
Once you become aware of these biases, it is time to take action and start saving. To do this, it is essential to control expenses. These tips will help you take the first step:
– Learn how to make a family budget and respect its development. With this, you will be able to see how you use your money and, based on this, allocate certain amounts to spend without problems.
– Prioritize essential and fixed expenses such as food, housing, and services like https://essayswriter.org/ to avoid impulse purchases.
– Plan your purchases for the future. If you invest in purchasing a house, car or any appliance, calculate the amount to be paid in each installment and the interest and the time it will take to pay off the debt.
– Loan and credit card payments should not exceed 30% of your income.
– Check with your financial institution to find out what tools they offer to help you control your expenses.
– Make savings
Since childhood, older people have instilled in you the value of saving. Although you are not aware of it at a young age, protection is vital to coping in the world because it allows you to face economic difficulties or meet goals with less debt.
Saving is a healthy habit that allows for achieving objectives and generates well-being. A savings account is an ideal vehicle to deposit your money with greater security and easy access when you need it, for example, if you want to buy a house or a car, travel, or attend unforeseen events.
In that sense, savings accounts are products offered by banks, in which you can keep your money and receive interest established by your bank. You can access your savings at any time through withdrawals at branches, withdrawals with your debit card at ATMs or operations such as transfers by digital means.
Opening a savings account offers the following benefits:
Security: It is better than saving “under the mattress” because the person is exposed to the risk of being robbed or losing money in case of an accident, it transmits insecurity and the constant feeling of having to be alert. It does not allow you to be updated with the balance easily, and your money loses value month by month. Therefore, handling money deposited in the bank is safer and more efficient than at home.
2. Money increases in value with the interest it receives.
3. Availability through various channels (branch, web, etc.).
4. Possibility of making purchases with a debit card without carrying cash.
It is advisable to have two savings accounts, one account for the day-to-day, affiliated to the debit card for easy disposal and another to save, so you do not have the ease and temptation to touch those funds. It is better when this second account is not affiliated with your debit card, so you have to go to the office or do it through Internet banking to get the money.
The objective is to increase the balance of savings and see them grow month by month until the time comes to invest in them.
Saving implies discipline, so it is suggested to save a percentage of the monthly income faithfully. You could start with 5% and pay 10% of your monthly income in the fourth month.
Remember that it does not matter how much you earn per month, but persevere, create the habit and save a part of your income month by month.
Any time is a good time to start saving, although it is easier to do it in July and December when you have extra income, such as bonuses.