Psychological tricks for saving money

This article will outline pyschological tricks for saving money. It’s no secret that the strength of the American economy is due mostly to the American consumer (roughly 70%). Our consumption is insatiable. We’ve even invented efficient ways to consume our future dollars by way of credit cards. But our love affair with consumption is a double-edged sword. On the one hand, we can raise our standards of living. On the other, we continue consuming when it no longer makes sense. We consume impulsively on the highs and lows of our emotions. Worst of all, the bulk of our consumption does nothing to advance our well-being or prepare us for retirement.

Let’s create an assumption: The reason we spend more than we save is that it’s psychologically easier to do. It’s just easier and more pleasant because our desires are immediately gratified. I think there are ways we can ease the psychological aversion we have to saving to curtail our spending. I’m not promising that you will avoid all discomfort, especially if you’ve spent a lifetime developing poor spending habits. There are no short-cuts that work. It will take a degree of perseverance and mindfulness. These are strategies for you to focus on if you recognize that you spend too much and save too little.

Strategy 1) Financial Fasting (short-term challenges)

We’ve all heard of fasting. It’s not just for dieters. Fasting is deliberate self-denial that cultivates clarity of thought, and a stillness in your mind. It appears to be really effective with eating, but it’s equally effective with other things we consume. Financial fasting is a short-term challenge or game you play with yourself. You are challenging yourself to cut out certain expenses for a set period of time and using the savings to advance your goals, e.g. “for the month of August I will drink no alcohol and use the savings to pay down debt.”

You are free to play around with different intervals of times or regularly change the “vice” you are challenging yourself to abstain from during any given period. The goal is to commit to the changes you want to see in your life, but instead of taking the full plunge of complete abstention, you are just dipping your toe in. Challenges like financial fasting can help you to effectively build self-confidence in your ability to meet your savings goals.

How to do it: First take an inventory of what you believe are items on which you overspend. Maybe it’s eating out, or buying things on Amazon, or some other expensive habit; for me, it’s buying books on Amazon instead of borrowing them from the perfectly good library down the street. Next, decide on a period of time where you will avoid those purchases at all costs. It doesn’t really matter how long your fast is, but it should be a meaningful amount of time (i.e. not just a day or two). Fasting also shouldn’t be open-ended.

The point of this exercise is to show yourself what is possible. Show yourself that you do not need to eat out more than once every two weeks to maintain your happiness, and you are far more likely to succeed. But if you begin with an open-ended financial fast, you may be setting yourself up for failure. Worse still, if you do fail to adhere to an open-ended fast, you may conclude that you simply are not disciplined enough to save your money.

Be cautious if it feels too easy. it might be a signal that you’re not really making enough of a change in your finances to have an impact. The financial fast should definitely be noticeable; even slightly uncomfortable at first(emphasis on slightly, don’t put your family through hell just to save a few bucks; if you’re single, go for it). That’s how you know it’s working.

Advantages: The primary advantage is that you can make a temporary commitment which is psychologically easier than completely changing your lifestyle. Complete lifestyle changes can be daunting. If we fail to make them, they can affect our beliefs about our ability to make them in the future. You should recognize that the key to the new behavior is your belief in your ability to continue doing it. In turn, you will see the advantage in short-term challenges (i.e. financial fasting) that prove to yourself what you are capable of doing. Using these challenges, you can acclimate yourself to the new behavior over time.

Important point: Be mindful of your emotions when you forgo your purchases. It might be temporarily uncomfortable, but that’s the point. Over time, you will become accustomed to these emotions and they will exert less influence on you. You should also be mindful of rebound spending. If you save $200 by eating out less but then celebrate by spending an extra $400, you’re doing it wrong.

Strategy 2) Prioritize your cash flows (AKA Pay yourself first)

If building wealth is your priority, you need to make sure that the first thing that comes out of your paycheck each pay period is your savings. It should be automatic and it shouldn’t be optional. The very bare minimum should be 10% of your gross income per pay period. If you want to build wealth quickly, your savings needs to be substantially larger (20%-25%). 

How to do it: If you have an employer-provided retirement plan, take advantage of any payroll deferrals it offers. If you get paid monthly, have all of your fixed expenses come out immediately after your paycheck hits. These are expenses like rent or mortgage, phone bills, insurance, auto loan, etc. Be sure to include your savings as well, but note that your savings aren’t an “expense” in the true sense of the word. What’s left is for you to live off of and consume.

If what’s left is not enough for you to pay for necessities like food, then you’re living above your means. If you get paid bi-monthly, just do the same thing except assigning certain expenses to come out immediately after your first paycheck and others after your second paycheck. Break your savings in half and have them come out of each paycheck. If you’re paid weekly, just follow the same pattern.

Advantages: The primary advantage of prioritizing your cash flows is that you aren’t left with making the difficult decision of whether you should work towards your savings goals. This is because if your savings are quickly pulled from your paycheck (e.g. from payroll deferral through your employer or via an automatic transfer to a savings account), you’ll never miss those funds. It also makes spending during the pay period easier because you know exactly how much money you have left to spend. The most difficult part of this approach is getting into the habit of letting the strategy work. This strategy only pays off if you leave it in place for a long period of time. 

Important Point: This is especially important if you are a self-employed person. If you are self-employed, it could be the case that you also do not have an employer-sponsored retirement plan. If that is the case, you need to be making full use of tools such as Roth or Traditional IRAs. You should also keep in mind a SIMPLE IRA, SEP IRA, or solo-401(k) to aid you in your savings goals. Opening up retirement plans for the self-employed has become incredibly easy; don’t let the fear of the “unknown” deter your savings.

Strategy 3) A “Treat-yo-self” list

Nobody likes to tell themselves “no” when it comes to purchasing something they want. One strategy I use is to shift from telling myself “no” to telling myself “later.” I find it much easier to say to myself “you can purchase that thing at the end of the pay period when you know you’ll be able to cover groceries, etc.” vs. trying to buckle down and forbid myself from the purchase. I do this by writing down wanted items on a list that I reference at the end of the pay period.

Interestingly, most of the things that I write down on my list of wanted purchases never get bought; even when I have plenty of money at the end of the month to purchase them. Not only do you save money but you actually may end up owning less junk that you never truly wanted.

How to do it: The first thing you need to do when employing this strategy is to have handy a list of some sort that will always be around. For me, this is easy because I carry around a notebook everywhere I go. Next, whenever you want to purchase a non-essential item, just write it down on your list. Towards the end of your pay period you can decide if you have enough money left to purchase the item or just let it carry over to the next month. 

Advantages: There are a few primary advantages to this strategy. First of all, you are controlling your behavior in a way that is cognitively less taxing. I.e. it is easier to convince yourself of a momentary pause, then an outright “no”. Second, this pause in your purchase will allow you to make more rational decisions (i.e. the old “a vice delayed is a vice denied”). Lastly, you gain insight into how temporary emotions can drive the desire for purchases. This strategy will show just how much of an illusion that feeling is.

Important point: This strategy only works if you keep track of your list in some way. You should not try to keep track of your list in your head as you will not gain the insight we talked about in the last paragraph. 

These three strategies either by themselves or in some combination can work to increase the efficiency of your budget. Most of us make more money than we think we make; we just spend more than we think we spend. And a lot of this spending is driven by temporary emotions. Having strategies in places to circumvent your emotions will leave you with more money and less stress in your life.


The three strategies I have outlined here, financial fasting, prioritizing, and the “treat-yo-self” list can work for you. There is no easy way to reduce your spending without it being noticeable, but you can do it if you believe you can. A little bit of temporary pain now will leave you in a far better position in the future. Your future self will thank you.