Saving is the first step towards accumulating wealth for the future. But spending comes most naturally to us. Marketing strategies that the modern-day supermarkets employ only prompt us to consume more. Why do we face difficulty in saving and what can we do about it?
If you are like most others, you are already saving some proportion of your monthly income. But you are most likely unhappy with the amount. Despite the increase in your monthly income, you have been unable to substantially increase your savings. Why?
To answer this question, we turn to eating. Delaying gratification does not come naturally to us because of lack of self control. That is why we devour junk food every year. We enjoy the food today without considering the health-related issues that we will have to face in later years.
In financial parlance, we perceive the present value of benefits from eating junk food to be much more than the present value of the health-care costs due to eating such food.
Emotion wins
Whether you have junk food or a healthy diet, and whether you spend lavishly or save enough for the future depend on which part of your brain wins the decision-making battle — your rational brain or your emotional brain.
Your rational brain can drive you to save for the future. Your emotional brain, on the other hand, wants instant gratification.
The problem is that your emotional brain often hijacks your rational brain. This happens when the latter is tired. And your rational brain can be tired because of (work-related) stress. Your expenditure, therefore, often rises to meet your income, especially if you shop after a stressful day.
Picture this. You walk into a supermarket to buy some groceries. But inside the store, you cross the aisle that displays the latest electronic products, cosmetics and home decorations. What do you do? You have to, therefore, change your spending habits to save or to increase your savings rate. Decide on the amount you want to save, and give an automatic-debit instruction to your bank to take out the money from your savings account every month. You can spend the rest of the money using your emotional brain!