How To Save More Money If you're not good at saving money, it's not your fault: Humans are hard-wired to focus on the present. But there's a way to beat evolution and build for your future. This episode explains how to make saving automatic and painless.

It's A Good Time To Save More. Here's How

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We are going to start in caveman times. All right. You are a cave man - just go with me here - or a cave woman. Either way, you're pretty hairy, you know, attractive in your own way. But we are roaming around the savannah. You're fighting for your life every day. You're foraging for food. I mean, danger is everywhere. It's kind of exciting, but it's also kind of scary because there's wolves and saber-tooth tigers, and they're creeping up behind you all the time. And it's like, whoa.


ARNOLD: Now, is this the best time to be thinking about saving and your 401(k) retirement account and stuff like that? I mean, no, of course not. Cave men don't think about that stuff. You need to survive the day and eat food and don't get eaten yourself. And OK, we're being stupid and corny here. But this is, in fact, a good lesson about saving money because the point is that we are hardwired to focus on the presence and immediate gratification. And it's been that way for a very long time. And this is like the opposite of what your brain has to do to focus on saving money.

BETH KOBLINER: Behavioral economists call it discounting the future. We basically say it's hard for us to wait. We don't want to wait. We want to get it right now at this moment. And we discount the importance of what we'll need in the future.

ARNOLD: So, actually, to save money for the future, you have millions of years of evolution to fight against. But there's a way to win the fight.


KOBLINER: Oh, sorry. That was me.


ARNOLD: This is your NPR LIFE KIT for saving and investing. And in this episode, we're going to be talking about how to start saving money. And it's going to be worth it because, you know, going on vacations is fun. And I want to retire with a nice cabin and a fishing boat and be super happy down the road. And to do that, you have to actually start saving money and sticking it away somewhere. We're going to learn how right after this.


ARNOLD: I'm Chris Arnold. And I've reported on personal finance for years. And there's just so much about money that we need to know and that we don't learn in school. And in this episode, we're going to give you some really good, practical tips - things that have been researched and proven to work - to help you save more money. And OK, call this big takeaway number one - if you want to save money, you have to make it automatic. I'm making a dramatic pause here - automatic. Get that in your head. Remember it. It's really important. This gets back to the cave man thing. Our brains are just not going to focus on a lot of the, oh, you know, it's Tuesday. I guess this is the day I need to transfer some money to my savings account. Let's do that right now. I mean, no, that's just not going to happen.

KOBLINER: The most important thing you can do right now is automate your savings. I mean, right now you should be putting on autopilot your 401(k) at your job or your 403(b) at your job or your bank savings account.

ARNOLD: That's Beth Kobliner. She's a financial expert. She wrote a book called "Get A Financial Life." And she's spent her career helping people make sense of their money.

KOBLINER: It's true. And I know how it can seem so overwhelming. You're not alone.

ARNOLD: And for some people - look. If you're living paycheck-to-paycheck or supporting a relative, or you're a single parent, saving can seem really impossible. I mean, I started out freelancing at public radio. I drove a $600 car. I know that, sometimes, you can't save any money. But when you get to the point where you can just save anything, something - that is better than saving nothing. And there are good strategies to make it a lot more doable. And if money is really tight, here's one thing you can do. You can just start with, like, 2 percent of your paycheck and start auto-depositing that into a retirement or a savings account.

KOBLINER: People always feel like, oh, I can't save. It's too hard because our lifestyles adjust to our paycheck. But as best as you can, put that 2 percent, 3 percent to start. And then start increasing it every year.

ARNOLD: And then, Beth says, the goal should be to save between 10 and 15 percent of your salary, whether you can do that right away or sort of inch it up over time. You know, if you get a raise or inflation goes up, and, usually, your paycheck comes up a bit, you know, every year or so, you bump it up another 2 percent, another 3 percent. And 4 or 5 years out, you're saving a significant amount of money. And then you want to get that auto-deposited into a savings account, so it's not just sitting in your checking account.

KOBLINER: You don't want to be able to touch the money. You don't want it to be there because once you touch that money, you spend it. Automatically putting at least 10 to 15 percent of your salary into these accounts makes sense.

ARNOLD: To me, this is the biggest takeaway. This is the most important thing. There's a behavioral economist named Brigitte Madrian at Harvard. And she did this research that found that if you automatically enroll someone in a retirement plan...


ARNOLD: ...Like, the company does it...


ARNOLD: ...Ninety percent of people - and these are the same people who will say, oh, I've got student loans. I can't save.

KOBLINER: Right. I can't afford it.

ARNOLD: Oh, this is impossible for me. Ninety percent of people will stick with it. And they'll save, and they'll do it.

KOBLINER: Absolutely, yeah.


ARNOLD: OK, our next takeaway - call it tip number two - you want to split this money that you're saving up into several different accounts.


ARNOLD: All right. Here's how this is going to work. If we have that 15 percent that we're ideally saving, Beth maybe 8 or 10 percent of that goes into just your retirement investment account, especially if your employer matches what you put in. Then you just have to put in enough to get the full match. I mean, that's free money.

KOBLINER: You put in a dollar. You get a dollar. Who would say no to free money? If you walk into - you know, you see a few hundred dollars on the street, you pick it up. You know, this is free money that people are passing up. So it is so important, no matter what your age is. You must put the most your company will match up until. Some companies say 7 percent, 10 percent. Put that into your retirement savings account. You're making a smart financial decision. And you're really also providing for yourself down the road.


ARNOLD: We've actually got another whole episode specifically on how to set up a retirement account and invest it in a really smart way. So check that out. And then, Beth says, the rest of the money that you're saving - she says you can set up on auto-deposits every paycheck into an emergency fund. Or some people call it a buffer account. And then take some and put it in just a savings account for fun stuff that you want to do or the things that you really want to spend money on.


ARNOLD: Tip number three, how do you prioritize saving versus paying off debts? And a lot of people get confused by this. And they just don't know what to do. And it gets in the way, which is understandable because, you know, you might think, I have these student loans, and I have these credit cards, and I need to pay them off. How can I be saving? Beth says a good way to think about this is to compare the amount that you could be earning by saving and investing versus, what is the debt costing you? And then prioritize it that way.

KOBLINER: I say it's just go by the numbers. So putting money into a retirement account is earning if you have matching, like, 100 percent on your money. Then what's the next interest rate? Paying off a credit card that's charging you 17 percent is the equivalent of earning 17 percent on your money. That's the next-best. And that's where you should put your money - paying off that high-rate debt and then paying off the lower-rate debts like the student-rate debt. And then, finally, you want to have a little bit of money set aside for a plain, old bank account, bank savings account that maybe only pays 2 percent, which isn't great. But it's emergency money, money you know will be there. So when I said you save in total 15 percent of your paycheck, you divide it up among those priorities. And you look at the numbers. And you put it in order of what makes sense mathematically. That's one way to do it.


ARNOLD: We've been doing some heavy lifting here with percentages and accounts and accounts and all this stuff. I've got some good news. The next big step is - and call this tip number four - sometimes, it makes sense to just blow the money on yourself, especially if that gets you to actually do these things that we're talking about. So Beth says think of something that you'd like to do or something you want to buy that costs, say, $200 or $300. Maybe it's a weekend yoga retreat or a trip someplace with a beach. And then this week, get all this done. Get the accounts set up, the auto-deposit, all this different stuff. And then do it. Go ahead. Buy the trip. Give yourself the reward.

KOBLINER: Giving yourself a small award can be really motivating. This is actually known as mental accounting. We give our money a particular purpose. And that helps us keep from spending it randomly. And so that's absolutely a great idea. And it's interesting - studies have found that people who are good at delaying gratification. They're not necessarily self-deniers, and they don't give themselves anything - they're actually just better at distracting themselves. So one good way to distract yourself - yeah, I'm putting 10 percent in a, you know, retirement plan. But then I have this trip I'm looking forward to. I'm going to save this $200 for the flight.


ARNOLD: Now I want you to close your eyes and imagine your future self 20 or 30 years from now, whatever it is. You totally crushed it. You saved a lot. You've invested smart. You don't, like, going to Vineyard. Let's be a little realistic. But where are you? Are you, like, in the desert? You got this adobe house? You're painting like Georgia O'Keeffe. For me, I'm on someplace like Cape Cod, maybe not quite that expensive. It is public radio. But I've got an awesome, cabiny (ph) kind of house for me and my wife. And my kids and friends come and stay because, you know, it's beautiful. I got a fishing boat. OK, so the simple act of doing this can actually make you better at saving money.

KOBLINER: Research shows that envisioning your future self can actually make you more likely to save. Stanford did this very cool study, and they had two groups of students. And they gave each of them avatars. They made computer avatars for them. But one group of avatars were the same age as the students. And the other group of avatars were avatars in their 70s. And then after the students interacted with their avatars, they asked them, what would you do with a thousand dollars? And those who saw themselves at age 70, who sort of got to know their 70-year-old selves - they saved twice as much in their retirement accounts. They said they would put twice as much in their retirement accounts than those who didn't meet their future selves.


ARNOLD: This next thing we're going to talk about, tip number six, is a massive takeaway if you are young. And here it is. The money that you save early in life, if you invest it, can grow to just be massively huge. So you really want to start saving young. Like, if you manage to sock away, say, $30,000 by the time you're 30 or in your early 30s, that could realistically turn into half a million dollars when you're retired.

KOBLINER: It's the magic of tax-free compound growth.

ARNOLD: Tax-free compound growth. I mean, to me, that's actually kind of exciting. But this next thing is even more exciting because what we're going to talk about now is that if you do this, if you start saving, you start building up a retirement fund and doing all this stuff right, there might be an extra bonus in all of this, which is some relationship magic. OK. This is a final, big reason to start saving. It might just make you more attractive - kind of. I mean, OK. Beth says this stuff is a really big deal for people who are dating and looking for someone that they want to have a relationship with.

KOBLINER: I have a crazy poll question for you. Would you be more turned off by someone with a lot of debt or someone with a nonviolent felony record?

ARNOLD: So guess what most people pick? Yeah, nonviolent felony is way better.

KOBLINER: When we meet people and we find out they have a lot of debt, suddenly you think, hmm, are they irresponsible? Do our goals match? You know, I'm very careful with my money. And, well, this guy is, you know, charging up credit cards. And those are very important conversations to have with mates. But as you're looking for a mate, you might want to kind of get your finances in order to, you know, broaden your options.

ARNOLD: Yeah, and not just because if your finances are a disaster, it's going to be a turnoff.


ARNOLD: But if you meet somebody and it's like, hey, whoa, they got 200 grand in a retirement account?


ARNOLD: And they got all this stuff figured out. And they save and go on great vacations. It's, like, I mean - it sounds like boring dollars and cents, but it's really about lifestyle choices...

KOBLINER: Absolutely.

ARNOLD: ...Options. It's about...

KOBLINER: And it's about your mind over money. You know, what - where do you want to be? And thinking about that rather than the here and now and the nuts and bolts that can kind of bring us all down. Think about what you want in the future.


ARNOLD: You can do all of this stuff, right? And even if you just start saving a small amount of money and then that starts to add up, I mean, it's going to feel really good. And just so we can remember all this stuff we've been talking about here, here are the takeaways, starting with number one.

KOBLINER: Well, first, you need to automate your savings. You want to reach that goal of saving 10 to 15 percent of your salary.

ARNOLD: Tip number two is that you want to divide up what you're automatically saving into a few different accounts - so none of this is in your checking account. Where you're going to spend it on lattes. And you definitely want to take advantage of an employer match. OK. Number three...

KOBLINER: You want to prioritize what savings comes before paying off debt.

ARNOLD: Number four...

KOBLINER: Reward yourself. You don't have to deny yourself.

ARNOLD: Tip number five I like. This is envisioning your future self. It's fun, and it'll help you save more. And tip number six - this one's important if you're young - saving money early can add up to a huge pile of money later thanks to compound interest. And, finally...

KOBLINER: Make sure to get your money in order just so you can meet your future mate and not feel embarrassed. And so it's like, if you figure out a way to manage this, it will make your life happier.


ARNOLD: For more NPR LIFE KIT, check out our other episodes. Our next episode's about how to invest all that money you're saving. We talk to one of the greatest investors in the world. He's got, like, a cheat sheet about how to get set up for a great investment account. Honestly, this is like - I tell people about this all the time. It's super cool. Check it out. And there's also the Your Money and Your Life Facebook group that we've set up. We've got tens of thousands of people in there sharing ideas and suggestions. Talking about all kinds of personal finance topics. As always, when we wrap up here we have a completely random tip. This time it is from Griffin Rowell from NPR's marketing and branding team.

GRIFFIN ROWELL, BYLINE: So if I'm taking an Uber or Lyft and I want to get to a general area - I don't have a specific address or drop-off that I need to arrive at - oftentimes, I'll pick a few different locations and try them out and see if I can get a cheaper fare. Sometimes, the algorithm them kind of glitches and will knock a few dollars off, despite the location being too far off from the desired destination.

ARNOLD: LIFE KIT is produced by Sylvie Douglis, Alissa Escarce and Chloee Weiner. Meghan Keane is our fabulous managing producer. Our music is by Nick DePrey and Brian Gearhart (ph). Our project manager is Mathilde Piard. Neal Carruth is our wonderful general manager of podcasts. And the senior vice president of programming is Anya Grundmann. I'm Chris Arnold. And thanks for listening.


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