Psychology of Saving: Getting Into The Mindset

Why does saving bring me so much pleasure? Since I was around 19 years old, saving money has been my drug of choice. When I saved my first $10,000 I thought I had made it and when I reached $100,000 I felt like Rockefeller. Reality eventually set in, but I felt great for about a week.  I have around $400,000 now, but the days of feeling  like a Captain of Industry have passed. I am still proud of what I have accomplished, but there is still plenty of work in front of me.

Growing up, my family was poor and having money in the bank account was rare. I often think about that experience and how that influenced  the psychological need to save. I hated the feeling of not having money. From an early age, I knew we were poor. When my mother had to ask family members for money, it brought embarrassment and a sense of not being equal to others. I just hated it. I know that my mother tried, but I never forgot that feeling. I use to tell myself that when I grew up, I would do things differently. In order to make that change I had to get in the right mindset.

So, how does an individual get started on the right track financially? First, do not procrastinate! You will get older and will inevitably want to retire one day. I know that 20, 30 or 40 years from now seems like a lifetime away, but it will happen and to truly build wealth you need time. Start young if possible because the stock market will have ebbs and flows. You need time to ride out the bad years, so in the end you will have a longer period of time to make up any loses during those turbulent financial cycles.

Second, you have to start slow. How many of you had this grand notion of saving over half of your income each month, only later discovering that you did not even come close. Just take it slow and find a realistic savings goal and build from there. For example, try to save 20% out of each paycheck if possible. If you take home $1,000 every paycheck you would save $200 each time. That is $400 per month if you get paid twice a month and would give you a total $4,800 a year. If that is too much you can reduce it. The idea is getting into the habit of saving something back each paycheck. Just start slow.

Third, and more importantly, stay in your comfort zone. I am no Warren Buffet. I do not have the time or resources to analyze every chart about a particular company. Focus on investing in strong blue chip companies or simply buy an index fund that captures the stock market like the Vanguard Total Stock Market Index Fund or Vanguard 500 Index Fund. Buying an index fund is great for people who want passive management, broad diversification and  low expenses. It is just a simple way to invest.

Building wealth truly starts with the right mindset. A person has to break the cycle of procrastination. Trust me when I say you will get older and if you want to retire, now is the time to start saving. All you need to do is start saving a little each month, so that you can get into the habit of saving money. By starting early and regularly, even a small amount can add up over time. If you do not know how to choose the right individual stocks or you just do not feel comfortable doing it, investing in a low cost index fund is the easy way to go.

What was your experience with money growing up?

 

2 thoughts on “Psychology of Saving: Getting Into The Mindset”

  1. Your comfort zone is an excellent place to start when you want to get to saving. After a while, though, I think there’s some benefit to stretching yourself. You just have to ease into it and dip one toe in at a time.

    1. I agree. A lot of people I know do not like investing because they are scared of the stock market. Just starting out small is a good first step. I believe when a person has more time to learn and invest in a few blue chip companies they will eventually become more comfortable. I find that buying index funds tends to be a popular way of investing now. Like anything, you just have to take one step at a time. Great comment. Thanks.

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