Economics, as a social science, analyzes the behavior of individual agents. Behavioral economics too studies the emotional, cognitive and social factors so to understand the economic behavior of different economic agents such as consumers, producers, lenders and borrowers. In fact, behavioral economics tries to assimilate neo-classical economic theory with psychological insights. This assimilation is found in various disciplines of Economics, including the Financial Economics. In personal finance also, your typical psychological nature matters a lot in your money saving behavior.
The psychological analysis of economic decisions dates back to the classical era. Adam Smith, the Father of Economics, offered psychological elucidation of individual behavior in his book The Theory of Moral Sentiments. Famous English philosopher Jeremy Bentham preached about the psychological underpinnings of utility. The neo-classical economists, however, vehemently tried to shape Economics as a natural science. The theories propounded by neo-classical economists are based on certain rational assumptions about the nature of economic agents. Despite the wide acceptability of these neo-classical theories, the role of unquantifiable psychological nature of economic agents in determining economic activities can not be ignored. Likewise, the impact of psychological behavior of individuals in their money matters can not also be denied.
In fact, human behavior matters a lot in personal financial matters. Different human moods such as willpower, desire, wants and instant gratification determine the money savings behavior of individuals. Many a times, it is seen that if you have strong desire to have something and if you have the means to obtain it, it will then require very strong discipline or willpower to hold it off. In majority of the cases, the joy of instant gratification comes in your way of saving for the future. For instance, say you have been gifted a certain amount of money and you have two options before you to use up that money. Let, the first option available for you is to use that money to purchase a laptop so that you can enjoy it in the current period and the second option is to save that amount so that you can enjoy it at a future period. However, if your instinct of instant gratification drives you, then you will never be able to save it for the future. Instead, you will buy the laptop for current consumption. Again, if you have a very strong will power and can wait for delayed gratification, you can save that amount for the future. In fact, if you can save that amount for the future, it could indeed be very special for you and you will surely enjoy it even more than instant enjoyment. Here it is also important to say that saving that amount for the future may or may not be an ideal purchase. It may be the case that a laptop is of huge necessity to you at the current period. So, it can not be unambiguously inferred that delayed gratification is always an ideal purchase.
The key to a successful saving plan is to work out a system that best fits your requirements. As a beginner, if you start saving huge amount of money initially, this will require you to compromise a lot with lifestyle. With this changed lifestyle, you may get very much frustrated which may in turn put your saving plan in peril. So, it is advised that you must start with saving very small amount of money at a regular basis. With very small amount of saving, you would not have to compromise much with your lifestyle. After you have been successful to save small amount of money for a while, the next step would be to gradually increase that amount. You can do this by giving up some unnecessary purchases. As your savings grow, you will be able to realize your dreams such as a college education, oversees trip, making down payment on a house, own a car and many more things. In a particular moment if you are struggling with your willpower you need to ask one question to yourself, whether you want the items at that moment or whether you want to fulfill your future dreams.
Well this is true but it is easier said than done. Money saving is indeed a very tough and painful process which requires to curb your temptation. It requires strong financial discipline, willpower and as well as you need to recognize the fruits of delayed gratification. You need to build up strong willpower to achieve financial glory. You have to be very realistic about applying your willpower to financial fitness. Here are some tips to enhance your willpower.
Make saving an automatic choice
It would be wise to make saving the default option. You can do so by setting up an automatic transfer to your saving account. Do not rely on yourself to make that money transfer. This is so because transferring money from the checking account to the saving account requires strong willpower and chances are there that sooner or later you may fail to do so. It would be wise to put in place automatic transfer method which does not hinge on manual effort.
Curb your temptation
Temptations can kill your prospects of becoming wealthier in the future. If you are planning to scale down your expenditures, desist yourself from frequently shopping in the mall or browse through the website of your favorite online retailer. In other words, contain yourself from such activities which can lead to wearing out of your willpower so that you indulge in impulsive buying.
Invest in a disciplined way
The huge opportunities offered by the equities market are indeed very tempting. You may be tempted to sell the stocks that you hold when the market collapses and vice versa. Instead of considering investment in the stock market as short- term money making avenue, consider it as long-term money making avenue. In fact, it has been seen that over the long run, returns from stock market investing outweigh all other forms of investments.
If you can imbibe these above mentioned psychological traits, you will surely be able to exert more control over your willpower, which in turn will help you a lot to secure a better financial future.
Jason Holmes is a regular writer with Debt Consolidation Care and is also a contributory writer with other financial sites. His expertise is woven around various aspects of the debt industry and with his e-books he tries to impart to people the different situations and simple solutions to get out of difficult situations. Some of his works include e-books like ‘Credit Score The Quintessential Therapy for a Happy Pocket’, Take Creditors and Collection Agencies to Small Claims Court’ and, My Story- From Depression To a Smile’. Follow us on : facebook
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One should have a skill of saving money for the future. For that he needs to sacrifice the present. Those are very important sides which said here. thanks for the post.