4 Steps To Better Saving Habits

Habits are the building blocks of life. Whether we want to admit it or not, they make up a majority of our everyday functioning. For better or worse, an overwhelming ratio of our daily iterations are on auto-pilot, nearly unconscious.

After reading the latest book on habit formation Atomic Habits (James Clear), we’ve learned about ways we can hack our human psychology in order to form good money-saving habits.

More specifically, we’re going to show you how our automated saving plans through our work accurately follow Clear’s four-step system.

Every two weeks, the following savings contributions are automatically made from our paychecks:

401K (hers)

403 B (his)

HSA (hers)

HSA (his)

According to James Clear (and a bunch of science), the system for creating good habits must include the following elements: make it obvious, make it attractive, make it easy, and make it satisfying.

Our automatic savings program satisfies all four of these criteria. Let’s see how.

#1. Make it Obvious

The goal is to make the cues of your good habits obvious and visible. With money, one way this is done is by visually and actively knowing how much money it is you have in your accounts.

I sure do love an unread email. Especially when it’s titled “Payroll Stub”.

I get a pay stub every two weeks. The pay stub enters my inbox, making it visual and obvious, highlighted in bold black. On that pay stub, I not only see how much money is being directly deposited into my checking account, but I can also see my 403(b) investment account growing. What started as just a few hundred dollars turned into a couple thousand and then by years end it was $18,500. At the conclusion of the month, this money posts to my Mint account, and I see how my entire net worth has increased from month to month.

This is why an automated savings program such as a work-sponsored retirement program is an ideal strategy for habituating savings. The money I’m saving is right in front of my face every two weeks. This acts as a visual cue that I am participating in a good habit. But a cue isn’t enough, we have to want it.  

#2. Make it Attractive

 You have to want to save money. You have to make saving money for retirement sexy (although it might not appear that way at first).

Making something attractive can be accomplished in a few ways. You can use what Clear calls “temptation bundling”, where you pair a behavior you want to do with a behavior you need to do. One example: every time I get my paystub in my inbox, I treat myself to a grande latte from my favorite coffee shop. I want to enjoy a really delicious latte and get my daily caffeine fix, and I need to save money for retirement.

Or, you could join a culture where your desired behavior is the supposed ‘normal’ behavior. So if you want to save money for retirement, what groups exist that could help support you in reaching your goals? We help run a financial independence group in our city that has over 250 members. We provide feedback, ideas, and support along our journeys toward financial freedom. It’s a constant reminder that we’re not alone on this journey, and it shows us how many others out there believe it’s important to do well with their money. We want to continue living up to that standard and this group is one way we accomplish that.

Another idea would be to create a motivation ritual. You could do something that brings you joy or happiness or pleasure right before doing something difficult (like saving bookoo bucks). What that looks like for you would probably look completely different for us.

#3. Make it Easy

You want to make saving money as easy as possible because it has a nasty reputation for being dull and difficult. This is why our jobs are great vehicles for effortlessly saving money.

The initial setup takes a little work (Clear would refer to this as ‘priming the environment’). In order to contribute to a 401k or an HSA or a Roth IRA, you have to do some legwork on the front end. These are once per year processes that pay dividends (literally) over the course of your career. Once the setup is done it’s the easiest way to save money because you don’t need to do anything else.

Our retirement savings gets siphoned off our paychecks before they ever enter our bank account. All we can see is the end result. No need to drive to the bank and deposit our check. No need to log into our online account and transfer money over to a retirement website. No, no, no–it’s already been done!

This is doing what Clear refers to as reducing friction. Or, removing the number of steps between you and a good habit. Maybe for you, it’s automatically paying student loans before you can spend the money elsewhere, or maybe it’s automatically having your bank save $100 every two weeks for that vacation you’ve been saving for. Whatever it is, don’t forget to make it easy.

#4. Make it Satisfying

We are wired for rewards, and we are motivated by insta-rewards, meaning, we want a reward right now. So in order to make saving money satisfying, we need to reinforce it with something. A goodie or treat of some kind could definitely suffice, but ultimately, the mere act of saving money for your future self will be satisfying in itself.

It is what Clear talks about as identity formation, the ultimate reward – becoming who we want to become by doing what it will take to get there. Perhaps our favorite quote from his book, he purports that “…every action you take is a vote for the type of person you wish to become”. Every time our paystub rolls into our inbox or the Mint account updates our net worth, that feeling is all the reward we need to repeat the habit down the road. It’s solidifying our identity. It’s a vote for who we wish to become. 

This four-step process can be applied to virtually any habit you are trying to form, whether it be money-related or something else. Have a New Year’s resolution that has already started to dwindle? Try this. It could be the difference maker for you.