The Psychology of Saving

Caylee Smith, Marketing Coordinator

As your typical millennial, I like to question everything. Why do I still go out to eat when I’m trying to save money? Why do I even go to Target when I know very well that I will spend too much? Some might say I have no self-control, and others will say I have a fear of missing out. Both of which are slightly true.

I’m not alone here, though. According to a recent survey by Bankrate, 19% of Americans have no savings at all, and 21% save less than 5% of their income. Savings guru, Dave Ramsey, says that you should save at least 15% of your paycheck for retirement alone (that doesn’t include emergency or travel savings either).

So how do we fix this? How do we re-wire our brains to make saving a priority?

First, you need to make saving money a habit. This is what they tell you when you start working out for the first time, too. The same logic applies here though. In order to make any type of lifestyle change, you need to build it into your routine. You need to make it a habit.

The 3 R’s of Habit Change

According to Charles Duhigg (author of The Power of Habit), every habit you have, both good and bad, follow the same 3-step pattern.
1. Reminder – The trigger that initiates the behavior (ex: reminder on your phone once a week)
2. Routine – The behavior itself; the action you take (ex: transfer money to savings)
3. Reward – The benefit you gain from doing the behavior (ex: savings – yay!)

Step 1: Create Your Reminder

The first step in creating your savings habit is to create a reminder, something that is automatic or that you do every day without hesitation. Since transferring money to your savings isn’t something that someone typically does every day, we can start with creating a habit to simply check your account balance every day. This isn’t technically saving money, but watching your account and monitoring your spending is always a good habit to create anyways. To give an example, create a habit of checking your account by downloading your credit union’s mobile app, and checking your account from your phone first thing in the morning before you get out of bed. The trigger/reminder here could be turning off your alarm clock.

Step 2: Get in Routine

It is easy to create a routine when it is something that you can’t say “no” to. What harm is there in checking your account balance? Hit the snooze, and pick up the phone. Once your hand is in motion, eventually your fingers will begin to automatically hover towards your credit union’s app.

“How will checking my account save me money?” I’m glad you asked! There is an area of our brain called the insula, which is stimulated when it experiences something unpleasant. The more stimulation in the insula, the less likely you are to keep doing what you are doing. According to a study in the Journal of Consumer Research, individuals who viewed expensive buying decisions had increased insula stimulation. Whereas individuals who saved and had cash in an account brought intense pleasure. Therefore, seeing yourself spending too much money every day will eventually cause you to stop spending so frivolously, and seeing your savings build up will cause you to save more.

Step 3: Reward Yourself

People do things that make them happy. Your reward doesn’t have to be something big. It could be something as simple as getting to write a checkmark on the calendar for that day. Or simply telling yourself, “good job!” It may seem silly at first, but go a whole month with writing checkmarks on a calendar, and see how you feel after missing one day.

In addition to viewing your account every day, you also need to create a paycheck habit. Something similar to your checking your account habit, but one that only occurs once a week or whenever you get paid. To make it even easier, you could set up an automatic transfer to your savings account, this way you don’t even see it. For those that don’t like setting up automatic transfers, create a weekly reminder on your phone to transfer money instead. The process is the same.

Remember, building a savings takes time. I like instant gratification just as much as the next person, but that isn’t something that happens with saving money. Create your habit, and watch your savings grow.


Three Steps in Habit Change:
Journal of Consumer Research: