THE MAGIC OF AUTOMATIC DEPOSITS
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Don't just count on your employer. Be your own external
role. Set it up so that the bank or investment service of your
choice (we think you should try one with incredibly low
fees, backed by Nobel Prize-winning research like, hmm,
Wealthsimple) transfers a sum of your choosing from your
bank account each week, or month. Watching that number
in your investment account get bigger feels good, and that
makes you want to save more.
The trick, though, is to pick a number that's actually
do-able. If you keep having to cheat and take money back
out, that can ruin all the positive reinforcement you've been
giving yourself. Remember, you're not creating a slush fund
so you can use it when you need it. Set a target amount and
a goal (like buying a house) and don't use that money for
anything else.
ONLY USE CASH
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This is a way to make spending money more painful.
Paying right away, and watching your reserves deplete,
isn’t very fun. Shefrin also recommends carrying large
bills and then paying with whatever the largest bill in your
wallet is. “That forces you to think, ‘Well, do I really want
to break a hundred dollar bill in order to have a particular
expenditure?’ That becomes a way of saving: by cutting
down your consumption as opposed to purposely taking
some of the income off the table.”
You know why casinos use poker chips and fancy
restaurants say a $110 bottle of wine costs “One Hundred
and Ten”? To make you forget you're spending money. So
remind yourself and make it painful.
MAKE A HABIT OF SETTING ASIDE SOME OF THAT CASH
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TURN SAVINGS INTO A GAME
This might sound goofy, but
stick with us. Shefrin is one of
the world’s leading behavioural
economic experts, after all.
“Gaming is really the key,
because it gets your brain to turn
on the reward centres,” Shefrin
says. “If the reward centres are
driving your behaviour rather
than fear, then it’s likely that you
will act.”
One easy way to do this is
to pick an attainable number for
you to save each quarter. Then,
when you hit your number, reward
yourself with a nice night out or an
obscenely expensive pair of jeans
you’ve been coveting for months.
“Just make certain that you
structure the game so that it’s
winnable, and then you can get
the treat. You’ll also need to be
tough on yourself—if you don’t
save, then you forego the treat,
whether it’s a restaurant meal
or something fun you were
planning, or whatever it is that
is pleasurable,” he says. “People
respond really well to game
environments.”
And of course, make sure
you take all that hard-earned
money you save and invest it in
a smart way.
Now introduce a little pleasure to savings. “When you pay
for stuff in cash,” says Shefrin, “and the change is five dollars
or less, put that in whatever your version of a piggy bank is
and let it accumulate over a month. And then go deposit it.
That feels pretty good.” This is obviously not going to be
enough to set you up in a Tuscan villa for an early retirement,
but it adds up more quickly than you'd think and, as we
mentioned above, watching that number in your account go
up will make you want to save more.
If you're more into credit cards (and refuse to follow
Trick #3), try something like Digit. It'll round up your
purchases, creating its own “change,” which will be shunted
off into a checking account.
WEALTHSIMPLE MAKES SMART
INVESTING SIMPLE AND AFFORDABLE.
WEALTHSIMPLE.COM
S y l va n u s - U r b a n . c o m
The Edge
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