Okay, we know that might not make too much sense at first, but stay with us. If you’re financially able to save money but you frequently overspend, this post is for you.
Most employers allow you to use direct deposit to distribute your paycheck across multiple bank accounts. As it turns out, you can use this to trick yourself into saving more. You can do this by choosing an amount to be direct deposited into your second account, and having the rest of the money go to your main account. A lot of the challenge in saving money is simply in not spending it just because it’s there. If you could put your money somewhere where you didn’t see it all the time, you’d be less likely to get the urge to spend it. It’s like they say, out of sight, out of mind!
The Science Behind It
Top social economist and recent Nobel laureate Richard Thaler recommends that you save your money before you’re given the chance to see it.
“Your grandmother probably knew that the best way to save is to put money aside before you have a chance to spend it.” -Richard Thaler
To be clear, he was talking about setting aside money from your paycheck into a retirement account, such as a 401k. Hopefully you’re already doing this. (If you’re not, read up on why you absolutely need to start saving for retirement as soon as possible). Naturally however, this concept can be extended beyond retirement savings.
The idea here is that if you put part of your paycheck in a second bank account that you rarely look at, over time you’ll save up a lot of money without even realizing it! Of course, you have to commit to not using the ATM card that you get with your new account. To help with that, we’d recommend keeping it at home and stashed away out of sight until you actually need it.
What to Use it For
You can use this secondary account for
- Saving for emergencies
- Retirement funds
- Buying yourself something nice
- A gift shopping fund (holidays are expensive!)
To start saving more, just decide on a set amount of money that you want to save each check- even if it’s as a small of an amount as $20. Just remember that whatever you decide to use it for, it’s important to not spend from it except for the purpose that you decided on!