There are many hacks in life ranging from psychological hacks to manage money to using baking soda to unclog your kitchen sink. One particular aspect in life that we taken for granted is money or financial planning. Have you ever wondered where your money magically disappeared to at the end of the month? Here are some psychological hacks you can use to manage your money.
While there are many useful hacks out there, in our journey of meeting people who are doing value investing in singapore, we realized that successful investors typically uses these 3 hacks. (Read more on 7 mindsets of highly effective investors)
#1 – Use cash for day to day expenses
One of the most popular concept in behavior economics is called salience effect. It’s a form of behavior where the most recent information gets retained in our brain. As we use cash everyday, we are reminded of our motion of removing money out of our wallets. When we run out of cash, we have to go to the ATM to withdraw cash. This action will keep us reminded that we are spending money. It might even give us a little guilty nudge to not spend money. A extra push will be to use an app or an excel cheat sheet increase the salience effect.
(Learn how to: Financial Excel Cheat Sheet)
#2 – Automate your savings
Just as per explained above, we can use the salience effect in the other way round. Some people find it hard to save because they have to transfer their money to a “special” saving account. This is a taxing tool for the brain and the brain might associate it with pain. To overcome this, what we can do is to set our saving into automated mode. With many banks embracing technology, it is easy to find a bank who is able to do that for you. Simply choose the date you want to save (we recommend you to set it one day after you get your paycheck), the amount and VOILA! You are on your way to create your financial freedom fund.
#3 – Charity
This might seem counter-intuitive at first. Research (in the book Happy Money: the new science of smarter spending) has shown that spending money on others actually makes us feel better than spending in on ourselves. Give, and it will be given to you. Billionaires all over the world like Warren Buffett and Bill Gates (source) are also giving and donating for a clause. Give what you can afford and you will find money coming to you naturally.
In Journey with money, we want to empower individuals to retire early and avoid financial pitfalls such as this. Such a financial pitfall will delay retirement by at least a decade if not forever. If you already have done financial planning (singapore) or have a financial planner (singapore), that’s fantastic. You should be proud that you have taken the first step. However, there are many still unaware of this. We will like to offer our readers (even if you have a plan already or not) a free program Financial Wizardry Program (<—click here) to push your finances to the next level.
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Here are 7 more psychological money saving tricks for you.