In my last column, I warned about the hazards of lifestyle inflation. Today, I’ll give you a few tools to prevent spending more than you earn and start automatically saving for your future.
Lifestyle inflation can creep up on us, especially after we pay off debts and feel like there’s extra, “free” money in our budget. This tendency to increase spending can compromise our retirement, financial goals and dreams.
Saving money shouldn’t be an exercise in willpower with every paycheck. That’s asking too much.
With that in mind, I turned to Professor Nudge, Richard Thaler, for solutions. Thaler, author of Nudge: Improving Decisions about Health, Wealth and Happiness, offers this lesson in behavioral economics: “... people only save if it’s automatic. If people just put away what’s left at the end of the month, that’s a recipe for failure.”
Thanks to technology, automating your savings is easier than ever. Here are a few apps that can do the work of building your savings, and if the idea of combining technology and money unsettles you, I’ve got a DIY solution, too:
Clarity Money, https://claritymoney.com, can automate your savings and suggest ways to eliminate overspending by, for example, canceling unused recurring charges, such as the gym membership you don’t use.Digit, https://digit.co, automates your savings by learning your habits and trying to move money daily from your checking account to your Digit account. Don’t worry: They are so confident in the app’s ability to not overdraft your account they’ll pay the overdraft fee if it happens.Rize, https://rizemoney.com, is on a mission to help you eliminate spending more than you make. Rize automates saving and pays an interest rate on that savings to help accelerate you toward your goals. Plus, Rize is building a community of support to foster conversations about money. Stash, https://stashinvest.com, is an automated investment platform that allows you to start investing with as little as $5 and build over time. Stash offers a variety of portfolio options and personalized guidance.Finally, the DIY option. Open a savings account at your bank and set up a monthly automatic transfer of funds, a “nudge,” from your checking account. You’ll save before you even knew the money was in your account by setting the transfer date for the day after you get paid.There are many more automatic saving and investing options thanks to the proliferation of smartphones and decision-making algorithms. Choose one that works for you and start building your savings.
Whatever you choose, take this advice from Professor Nudge:
Get off your ass and start saving.Save more tomorrow and ramp it up one or two percentage points a year until you are at least up to 12 percent.Invest using a diversified portfolio.Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoaching.com.