DHHDHHD
DJDJJJD
Last week I had the opportunity to interact with a young professional couple. They owned a business that provided a unique product. They were both very professional, well-dressed, and their business vehicle was clean and obviously expensive. By all measures, this young company was owned by competent and successful business people. However, our interaction was dampened because it became obvious that their cash flow was handicapped and they needed the money from this contract to pay their current bills.
It made me sad to realize that this young couple who should be successful was struggling “paycheck to paycheck”. It also prompted me to examine and consider the reasons behind their inability to thrive.
Why is it so hard for some people to save money?
My wife and I were both raised in homes where the philosophy of conservatism and saving was implemented. From an early age, we both learned the value of money, the value of saving, and the opportunities that having readily available cash could provide.
Like someone who is taught a second language at an early age, this conservative philosophy became part of our core values. One of these conservative values is the ability to delay purchasing things until you have the necessary money to buy them.
This concept of Delayed Gratification can be one of the big problems when establishing a saving mindset. It’s hard to save for an unknown “Future me” when it’s easier and more comfortable to spend on “Present me”.
gghjhh
One of the benefits (and there weren’t many) of being a student in a pre-dental curriculum was that it established a strong mindset of delayed gratification. I delayed or cancelled attending certain events because they interfered with study plans or curriculum requirements.
Poor grades or a poor score on the DAT (Dental Aptitude Test) meant my chance of being accepted at a dental school would be greatly diminished. I had to delay current desires in order to attain my long-term goal of attending dental school.
Once in dental school, I had to delay personal desires for an additional four years. While attending dental school I delayed present desires for greater future benefits.
The benefits of delayed gratification can become a problem. Pent-up demand can cause overspending once a student graduates from dental school and enters the workforce. Things that were delayed for many years are now available because the student is out of school and working. Recent graduates normally don’t have the money needed for purchases. Many young graduates, assume too much debt due to the downside of delayed gratification.
But it’s not easy to create a mindset that embraces saving versus spending.
The pathway to saving money can be very convoluted due to a combination of psychological, economic, and practical barriers.
Instant gratification, fear of missing out (FOMO), and the rising cost of living can make it challenging to prioritize future financial security over immediate needs and wants.
Let’s examine each of these philosophical barriers:
ssnsnnsn
Psychological Hurdles
- Instant gratification: In ancient times, food was vital. Nutrition was a matter of life and death, and food was consumed immediately when attained. People who found and consumed food had a better survival potential. The human brain is wired to prioritize immediate rewards over future benefits. This quirk of natural selection makes spending money now more appealing than saving.
- Financial anxiety: For many, discussing or managing finances can be a source of stress and worry. Anxiety can result from a lack of financial knowledge. Anxiety can lead to avoidance behaviors, such as not checking bank statements, which prevents people from gaining a clear picture of their financial situation.
- Lack of clear vision: It’s hard for people to visualize themselves as being older. It’s much easier to concentrate on “Present Me” than “Future Me” because Future Me will exist at some distant point in the future, or may not exist at all.
- Learned helplessness: If previous attempts to save have failed, people may believe they are incapable of saving money successfully, creating a self-fulfilling prophecy. A “What the hell” attitude takes over. Instead of trying to change their mindset, people become incapable of change.
- Money beliefs: Your attitude toward money can be influenced by your upbringing. Negative associations, such as viewing money as “evil” or believing wealth is for others, can create unconscious mental blocks to saving. An environment of conservatism provided positive values.
- The “scarcity mindset”: Worrying about not having enough money can lead to fear-based financial decisions, which often work against long-term saving goals.
hfhhhfhhf
Economic and Social Pressures
- High cost of living and inflation: Rising costs for essentials like housing, groceries, and education can eat up a significant portion of a person’s income, leaving little left to save. Having minimal income is also a problem. When I was a dental student, my wife and I lived very frugally. Her elementary school teacher’s salary did not provide much income. Every month was a struggle and often our checking account balance was a single digit at the end of the month.
- Debt: High-interest debt, particularly from credit cards, can create a powerful headwind against saving. It’s difficult to set any aside for the future when much of your money is being used to pay down debt and interest. Not all forms of debt are bad. But, generally speaking, debt is an anchor, not a sail.
- Lifestyle creep: As your income increases, your spending may rise to match it. This prevents you from saving the extra income you’ve earned. In an earlier podcast, I used the example of a friend who saved raises and bonuses instead of spending them. His lifestyle creep was minimal and he was able to retire in his early 50s.
- Social comparison and FOMO: The desire to keep up with friends and the lifestyles seen on social media can lead to overspending. Keeping up with the Joneses is a loser’s game. In most cases, the Joneses are no better off than you and spend unnecessarily to keep up with others.
fjjfjkfjg
Practical and Behavioral Obstacles
- Lack of budgeting: Without a clear budget, it’s easy to lose track of where your money is going and spend most of your paycheck before having a chance to save. This speaks to the old axiom: “Failing to plan is planning to fail”.
- Savings as an afterthought: Many people wait until the end of the month to save whatever is left over. By making savings a lower priority, there is often no money left to save.
- No emergency fund: Financial emergencies, such as unexpected medical bills or car repairs, can derail savings plans and even lead to high-interest debt without a dedicated emergency fund.
- Vague goals: Without specific, measurable savings goals, it is hard to stay motivated. A goal of “saving more money” is less effective than “saving $500 for a vacation in six months”. At the beginning of each year, I set my goals for the year, the next three years, the next five years, and the next 10 years. These goals include finances, work, and life. I have done this annually for almost 50 years.
hdhhfhhf
How to Overcome These Obstacles
To make saving easier, you can work to counteract these tendencies:
- Prioritize and automate: Pay yourself first by setting up an automatic transfer from your checking to a savings account on payday.
- Start small: If you have high-interest debt, focus on paying that off before saving aggressively. If your income is low, simply starting a habit with a small, consistent amount is better than not saving at all.
- Define your “why”: Give your savings a purpose by setting clear, meaningful goals that excite you.
- Shift your mindset: Reframe saving as an investment in your financial freedom and peace of mind, not a form of deprivation.
- Give it time: Create a cooling-off period before making impulsive purchases. For example, wait 24–48 hours to decide if you really need something.
fhhfhhfh
fhfhhhhf
Final Thoughts
Habits are hard to establish, but easy to maintain. Saving for an unknown future is one of those hard habits. Once established, saving for the future becomes much easier.
Paying yourself first and saving even a small portion of earnings will become a habit after several months. It doesn’t seem like the needle is moving much initially, but early savings provide the bedrock for future financial security through the magic of compounding.
Our kids are starting to understand the benefit of long-term investing and compounding. But, these effects are only becoming evident after 20 years of diligent investing.
Establishing a savings plan is one of those things that is very easy to procrastinate about. “I’ll start next month” becomes six months, then a year, and then many years. You wake up one day and realize you’re 60 years old with a much shorter time horizon. Now age works against you and you have very little time to benefit from compounding.
Staring early and saving even a small amount regularly is the key to future success.
chfhhfhf
fbfhbhfh
If you’d like to be a part of a free online retirement community, join us on Facebook:
COMMENTS