My hair dresser is a young woman who came into a small inheritance recently. The amount wasn’t large but it was enough to make her pause and ask for advice. I told her to save the money. My suggestion wasn’t as exciting as a proposal that she take a sun break in Nevada or buy an entertainment center, so I was surprised when I next returned for a haircut to learn she’d invested in a mutual fund. Knowing that she lives from paycheck to paycheck, I congratulated her on the decision. In 30 years, I said, that little mound of cash could grow into a hill and make the difference between scrimping in her old age and living comfortably. She nodded back at me, sagely.
My hair dresser is one of the smart ones. We all know that talking about saving money is easier than doing it. Instant gratification is hard to ignore. But there are ways to trick ourselves into saving our money and Sendhil Mullainathan, a professor of Economics at Harvard University, has provided a few. (Why Is Saving So Hard?” by Susie Poppick, Money, December 2013, pg 80) His first piece of advice is familiar to us all. If we’re lucky enough to have jobs, we should enroll in an automatic savings plan where a bit of our money is deducted from our salaries before we are paid. What we don’t see, we don’t miss it is the theory. Another suggestion is to put all windfall money, like tax refunds, product rebates or birthday cash, immediately into the bank. If it stays in our pockets it burns a hole. These deposits, Mullainathan reminds us, do add up over time with or without compound interest.
Another of his suggestions is to sign up at the website, FutureMe.org. There we can leave automatic messages reminding ourselves to save regularly. We can even program these messages to be delivered around times when we are most likely to receive extra cash, like birthdays or holidays. (Ibid 90) According to Mullainathan, research shows that when people give themselves regular reminders to save “they do even better than when they can picture a goal.” (Ibid 90)
I suspect even the Grinch would approve of the professor’s advice. So, now that the gift giving season is over, empty those stockings above the fireplace and head for the bank.
(Courtesy of animatedly.about.com)
