my two cents

How Can I Save Money When I Have No Self-Control?

Photo: H. Armstrong Roberts/Getty Images

Corinne, 29, works for a branding communications firm in New York and is terrible at saving money. She’s always felt guilty about it, but assumed that she’d get her act together at some point — namely, the next time she gets a raise or a promotion. But now she’s 30 and, despite making significantly more money than she did in her early 20s, she still can’t manage to stop blowing her paychecks on rent, food, travel, clothes, workout classes, and all the other fun (and expensive) things to buy and do in New York. She’s generally responsible in other areas of her life — and knows she has to be more disciplined. How can she get ahold of her finances when she has no self-control?

Structured money habits don’t come easily to many people. Just like you, Corinne, I find spending infinitely more fun than saving, and I need as much help as I can get to counteract my impulses.

That’s where automating comes in: By pushing financial decisions off my own plate entirely, I minimize the risk of making bad ones. Which is great, because I don’t want to make them anyway! Who gets ahold of their paycheck and cackles, “Ooh, now I get to figure out how much of this to put in my IRA?” Not me, that’s for sure. I used to feel awash with icky uncertainty every time a deposit hit my bank account, because I knew I should set some of it aside, but then the “Ooh, money!” would kick in and I’d spend it.

There are many ways to go about automating your savings, depending on how extreme you want to get, but first, a little history in behavioral economics: The concept of setting ‘defaults’ to your own advantage is born from the notion that humans naturally err towards stasis. In other words, our deep-seated habits (along with our desire for instant gratification) often override rational decision-making. Brad Klontz, a financial psychologist and the co-founder of the Financial Psychology Institute, puts it this way: “Most people know that they should save more and spend less, and the fact that they can’t seem to do it makes them feel crazy, lazy, or stupid.” Instead of whirling around in a shame spiral, outsource the solution. “When you automate a savings strategy, you’re more likely to continue it,” he says. “We’re all cognitively lazy, and we have a status quo bias — if you set something in motion that requires more mental effort to change, you’re less likely to change it.”

The most obvious first stop on the automation train is to make sure you’re siphoning money into your 401(K), especially if your employer offers a matching program. You should put in at least the percentage of your salary that will be matched — usually somewhere between 4 and 6 percent. Ideally, you’d max out your contributions every year (you can put in up to $18,000 annually), but be realistic — it’ll be counterproductive if you put in too much, can’t pay your bills, and wind up in debt. While you’re at it, open an IRA, too. These are basic tools that, once you’ve deployed them, will take care of your retirement savings for you to a certain degree (more on that here).

The 401(K) model is a good example of how you should configure the rest of your savings strategy: Set up your direct deposit so that a portion of every paycheck disappears into a separate savings account before it hits your checking account. Combat your self-control issues by making that account difficult to access — I use a setting that hides it from me. A friend of mine actually keeps hers at a completely different bank and cut up the ATM card so that she can’t make withdrawals. Putting these protective measures in place will take some maneuvering (and potentially some time on the phone with someone at your bank), but block off an afternoon and make it happen.

Another friend of mine, Annie, enlisted a financial adviser to save her from herself. “At first, I tried saving with an account I could access, but it didn’t work — instead, it gave me false financial confidence that I could afford that direct flight or that dress or that gift, etc.,” she told me. “Now, I save $500 twice monthly by having my financial planner automatically pull it from my checking account (where my direct deposits are made) to a savings account. I purposely don’t even know how to access this account or have it linked to any of my other accounts, so I’m not tempted to use it for purchases or even remember it’s there.”

Kristin Merrick, a financial adviser at Raymond James Financial Services, is often on the other end of this tactic, and says it works well. “I have clients who create separate savings accounts with me and, when they need that money, they have to call me,” she says. “This creates an extra step in order to access that money and, believe it or not, it keeps them from accessing the money until it’s really necessary.”

How much should you deduct? “Start with a small notional amount — perhaps $25 or $50 per paycheck,” says Merrick. “If you find that you’re not missing that money over the course of the month, increase the amount slightly. Continue to do this until you reach the ‘pain point’ — the point at which you actually start to need the cash to stay cash-flow positive.” While you’re groping around for that magic savings window, Merrick also suggests envisioning the things you eventually want to buy with it. “Use this ‘forced savings’ as a way to organize and target your specific financial goals,” she says. “For example, you can create carve-outs like a vacation fund, an emergency fund, a car fund, or a house fund.”

Yes, it costs money to insert a financial adviser into the equation (somewhere between $1,000 to $2,000 for a full comprehensive plan, if you go the fee-only route), but if your self-control is really as bad as you say it is, then you’ll recoup the money in savings. However, if you don’t have that kind of cash lying around or want to take a more DIY approach, you can also look into online financial-planning tools on websites like Mint, Learnvest, and Ellevest, which are either free or relatively less expensive. (Learnvest is the closest thing to a traditional financial planner, and costs $299 up front plus $19 per month for ongoing support.)

Speaking of technology, a number of smart people in Silicon Valley are hard at work inventing new ways for machines to save for us. One app I’d recommend is Digit, which I stumbled upon about a month ago. It functions like a sneaky savings elf that tiptoes into your wallet and hides a few dollars every couple of days. You just hook it up to your bank account and it removes small amounts (usually somewhere between $2 and $27 per week) that you won’t miss, based on an algorithm that tracks your spending and income patterns to figure out when and how much to remove (it’ll never overdraw your account). That money is then transferred to a separate, FDIC-insured bank account that you don’t see unless you want to. You also receive periodic text messages asking if you’d like to save more or less.

Two minor caveats: (1) You can access this money whenever you want, so you’ll have to exercise some discipline in that regard, and (2) Your Digit savings won’t accrue interest, so you may want to move it to your personal savings account — ideally, another one that you never see — every couple of months.

When I reached out to Digit founder Ethan Bloch to ask how he got this brilliant idea, he cited the findings of psychologist Daniel Kahneman — a leading figure in behavioral economic theory, and the author of Thinking, Fast and Slow — as a major influence on the company’s goal: Harnessing the aforementioned power of “default” modes to help people improve their financial health. Their philosophy is that with a little bit of groundwork, you can avoid bad decisions (i.e. not saving money) by not having to make them at all — the personal finance equivalent to Steve Jobs’s black turtlenecks. Once you lay that groundwork, Corinne, you can go back to doing what you do best: spending what’s left over in your checking account on whatever you want, guilt-free.

How Can I Save Money When I Have No Self-Control?