Most of us save for two reasons. One, our active income will stop some time in the future. We then have to depend on savings to sustain our lifestyle. Two, saving every month will enable us to buy high-value assets even during our working life. Yet, savings does not come naturally to us; we need to put processes in place that force our hand.

Here’s how you can overcome your savings inertia.

Commitment devices What you need is a device to make you commit to savings. A commitment device is one that you create to bind yourself to a defined course of action in the future. Behavioural scientists call such devices Ulysses contracts, named after Ulysses of the Trojan War.

An example of a Ulysses contract would be to ask your friend to withdraw a certain amount from your bank account every month if you do not exercise regularly. The thought of your friend or spouse partying at your expense may prompt you to exercise regularly! But why do we need such commitment devices?

The reason is because most good things in life do not offer instant gratification. Exercising and eating healthy food offer long-term benefits. But you have to sleep less and give up tasty food now. The same argument holds true for savings. Saving now can buy you a better lifestyle in the future. But it reduces your current spending.

Regular savings This is where Ulysses contract helps you to commit to saving diligently for the long term. The first such commitment is the systematic investment plan (SIPs), which you are familiar with. You can create an SIP on equity funds or even bank deposits. An SIP helps as, after setting up the plan, the auto debits to your bank account ensure that you save each month. It takes the monthly savings decision out of your hands.

Yes, you do have the choice of terminating the commitment. But that would require some effort and with bank deposits, you may have to pay a penalty. So, you will terminate such commitments only if you face cash flow stress. You can also go one step further and set up a forward SIP — an SIP that you can set up now to begin at a later date and align with your salary increase. A forward SIP is a binding commitment to increase savings.

The second device is in the form of repayment of loan used for buying an asset. A home loan, for instance. Many parents encourage their children to buy a house just after starting their career. Buying a house on mortgage requires you to repay your loan every month. And that is a commitment you cannot easily renege on.

This helps you build your equity (ownership) in the house. But such a commitment is not for everyone.

If your income is unstable or if your work requires you to relocate quite often, you should, perhaps, wait till mid-career before buying a house.

A Ulysses contract works well if it becomes difficult to terminate the contract, as you are saving towards certain goals.

Reneging on commitment

But terminating the commitment should not be impossible because you should be able to renege on it if you face temporary loss of income or any emergency. You should involve your spouse or friend or hire a financial adviser to help you create and manage your commitment devices.

The writer is the founder of Navera Consulting. Feedback may be sent to portfolioideas@thehindu.co.in

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