There is a term in business, economics and life in general known as ‘sunk costs effect’. The term refers to the psychological attachment we have to something relative to the amount of time, effort or money we have put into it. For example, spending money on restoring a car that will never recoup its value, but you keep on going because you’ve already spent a small fortune. Maybe there’s a project, proposal or assignment you have been working on where you are reluctant to change direction or delete, change or dispose of any work already done despite it being detrimental, because of the amount of time and effort already spent doing it. It may be possible, however, to use this sunk cost effect in your favour.
A lot of people tend to struggle when it comes to savings, with any accumulated funds being spent before you’ve really had a chance to call them savings. This is often because of the amount of time it takes to save, and the desire for instant gratification. This is where you can use the sunk cost effect to your advantage, and if you’re a person who struggles to save, then maybe try out this simple strategy;
That’s it. Simple.
The key is you must complete steps 2 and 3 continuously. If your making monthly savings deposits, visit your account at least monthly, if weekly deposits, then visit weekly. You want your savings to become familiar, like a friend that is always there, something that becomes a habit. Talk to it if you must, tell it to ‘keep going, you’re doing a good job’.
The concept is that if you can get over the initial tendency to spend the money and leave it in the account, then by consistently depositing and viewing your account, you will gain an appreciation of how much time and effort you have put into your saving and how long it has taken to accumulate. Then whenever you have the urge to withdraw and spend your savings, use the sunk cost effect’ to your advantage, think about all the times you’ve logged on to the account, seeing it slowly grow, remembering how long has it taken to get to this point and ask yourself: Is what I am going to spend this money on worth the sacrifice I made to save it?
The consistent viewing of the account keeps it fresh in your mind. The ‘set and forget’ strategy does not always work with savings because you do forget; forget the time taken, forget the effort made and forget the instant gratification sacrificed for that long-term gain. It’s a lot of time and effort to have to start again.
For help with maximising your savings, start a conversation today.
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Steve May, Luke Styles and May Wealth Pty Ltd T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guide and business/adviser profiles.
May Wealth Pty Ltd ABN 71 612 234 518 trading as Steve May Financial Services is a Corporate Authorised representative of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478.
Steve May and Luke Styles are Authorised Representative’s of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478