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How to save money and take control of your finances

Financial planning and learning how to save is not always an easy task. There’s a lot to consider when it comes to what to do with your money and how to spend it without blowing the bank. So what can you do?

Dr Campbell Heggen, lecturer in Financial Planning at Deakin’s Faculty of Business and Law, knows a thing or two about learning to save. He suggests looking at things one at a time. ‘In reality, focusing on incremental behavioural changes and forming good habits for the long-term is often more effective’.

Dr Heggen indicates that humans are hardwired to think more in the here and now, as opposed to in the long term. ‘This means we find it easier to prioritise smaller, more immediate rewards over larger, slower ones – like long-term savings,’ he explains. So how can we make sure we take control of our finances for good?

Using Dr Heggen’s expertise in finance planning and behavioural science, we’ve compiled a list of top six tips to help keep you in control of your finances.

1. Create a plan

‘Creating a financial plan is as much about the process as it is about the outcome. It allows us to identify both the opportunities and risks which may impact on our ability to achieve our financial goals,’ Dr Heggen says.

He suggests even though budgets can be tedious to adhere to, being mindful of your spending can be empowering. ‘Understanding where your money goes is a great start in identifying opportunities for saving,’ he explains.

2. Set realistic goals

While having big, audacious goals is fine, breaking them up into smaller, more realistic targets makes them easier to achieve.

In order to keep yourself motivated, create goals that may be reached within a matter of weeks or months. Consider savings goals that can push you to work a little harder toward putting your pennies in the bank or somewhere it will work for you. And when you reach those goals, don’t be afraid to reward yourself.

3. Share your goals

Talking about money with friends and family need not be taboo. Just like having a workout partner can help you achieve your personal fitness goals, talking through your financial goals can help keep you motivated and accountable to stay on track.

Dr Heggen explains that sharing your financial goals ‘with friends or family can create a social contract and help you regulate your behaviour. It also helps to let others around you know why you’ll be skipping out on some of those expensive social engagements.’

'Many of us start out the year with the intention of making revolutionary changes to our lives. In reality, focusing on incremental behavioural changes and forming good habits for the long-term is often more effective.'

Dr Campbell Heggen,
Deakin University

4. Focus on goals, not on losses

Dr Heggen believes we are loss averse, meaning we tend to prefer avoiding losses more than acquiring equivalent gains. ‘We would generally feel better to not lose $5 than we would to find $5,’ he explains. This makes for a dilemma when considering saving.

‘When we think about saving, we have a tendency to focus on the immediate sacrifices required to achieve our long-term goals,’ he explains. One way to help overcome this is to focus on what you are saving for, rather than what you are missing out on.

5. Automate your saving

Another way to not feel the burn of saving all the time is to automate payments into your savings account. ‘One of the biggest barriers to achieving our financial goals is our lack of self-control,’ Dr Heggen says.

He suggests that ‘paying yourself first’ is one way to ensure that the habit of saving becomes more than just temporary. ‘Rather than waiting until the end of the month and saving whatever is left, committing to a regular, automated savings plan can help remove the temptation to overspend.’

Many employers offer the ability to deposit a certain percentage of your pay cheque into a separate account, which can be a great way to automate the process.

6. Be more mindful of your spending

The tap-and-go economy is designed to make it easier to separate you from your money – buy now, pay (and think) later. Research suggests that people who pay by credit card instead of cash increased the amount of money they spend.

Why? ‘The pain of paying’ is far stronger with cash than with credit cards for two reasons. First, cash is more ‘real’ than the idea of paying with a card. Second, the pain is immediate versus delayed, so we care about it far more.

Try withdrawing a set amount of cash each week to cover your day-to-day expenses. Your cash allowance then becomes your self-imposed pre-commitment to spending.

So with these tips in mind, there’s no time like the present to turn your financials around. Whether you’re saving to save for a house or even just some extra coin, Dr Heggen’s simple everyday strategies can help us all work towards any financial goal. 

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Dr Campbell Heggen
Dr Campbell Heggen

Lecturer, Faculty of Business and Law, Deakin University

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