Author: Brent Lemieux CFA® CPA

We all want to maximize our happiness today while still saving enough money for our future goals.  So why is actually accomplishing this so difficult for so many of us?

When it comes to spending money, we often have two separate states of mind.  Depending on which state were in, we act like a completely different person.  These two separate people who each inhabit our body at different times are:

1. The careful budgeter

This is the person that sets a strict budget at the beginning of the month.  This person most certainly isn’t going to Starbucks in the morning or Chipotle for lunch.  They are going to drink the office coffee and eat last night’s leftovers.  They’re going to limit their online shopping to the necessities and when they go on vacation they’re only going to spend what they budgeted for in advance.  The problem is that for many of us this person is only in charge when we are reviewing our finances or paying bills.

2. The carefree spender

This is the person who inhabits our bodies throughout our daily lives.  Living in the moment, this person doesn’t want to miss out on any opportunity to receive immediate gratification.  They can easily rationalize away any and every unnecessary expense until we are left with little to no savings at the end of the month.

These two separate versions of us have completely different agendas.  This is why the “budget, spend, review, repeat” method often fails us.  Knowing all of this, what can we do to effectively save money?

The first step is to acknowledge that we have a self-control problem.  If we aren’t saving any money or we are constantly worried about our financial situation, we may need to do something to place constraints on ourselves.

Setup a commitment device.

A commitment device can be a powerful tool to accomplish a goal that requires a high degree of self-control.  A commitment device can be used for losing weight, learning a new skill, or increasing savings.

Simply setup an automatic savings plan at an account that is more difficult to access than a regular checking account.  Setup an automatic transfer each month – or each pay period, that goes straight into this account.  If you know you have self-control problems, it may be helpful to setup your savings account at a separate bank.  This creates an extra barrier by not allowing you to simply transfer the money into your checking account with a few clicks of the mouse.  This simple method has helped me dramatically increase my personal savings.

This method works because we often spend whatever is in our checking account without really thinking about it.  Depending on your situation and how much you decide to save each month, you may not even notice the difference in your standard of living.

Now that you’re saving the amount that you want to save, you’re free to spend the rest however you like.  Budgeting can still be useful if we want to make sure our spending is in line with our values.

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