24 August 2016

5 ways to add more to your savings account

Ever wondered how your colleague manages to get away for so many luxurious breaks or afford a sports car when they’re on the same wage as you? Instead of secretly envying them as they tuck into their homemade lunches, take note: you might be able to learn from their saving style!

Even with the best intentions, dragging yourself out of bed at 5.30am to squeeze in a pre-work gym class is tough until it becomes part of your routine. Saving is no different.

This theory was explored by renowned psychologist Daniel Kahneman in his 2011 game-changing book on behavioural economics – Thinking, Fast and Slow. He highlights that understanding the types of things which influence your financial decision-making could mean you manage your money better.

Five ways to become a supersaver

To be a supersaver, you’ll need to focus your efforts on five important areas, which Kahneman describes in his book as “behavioural economic biases”.

1. The bigger picture

We all know that our morning coffee or shop-bought lunch adds up over the working year, but it’s difficult to remember that when you’re dreaming about warm hands as you shiver on the platform or are facing sandwich-making late in the evening.

Daniel Kahneman, and his fellow researcher Amos Tversky, have published research in this area and called this “Present Bias”, where more emphasis is placed on immediate rewards than long-term goals such as saving money.

For example, that tasty looking sandwich in the café window will take precedence over keeping the money and putting it in a savings jar at home for your Christmas or holiday fund.

calendar with date marked

Tip: Focus on how you’d spend a full year’s worth of lunch money, rather than the immediate rewards. With the average cost of lunch in London coming in at £6.60, according to iZettle, this could give you an extra £2,000 each year just by making your midday meal or taking your leftovers to the office. Just think of the holiday you could enjoy – or the deposit that you could save over the years!

calendar with date marked

Tip: Focus on how you’d spend a full year’s worth of lunch money, rather than the immediate rewards. With the average cost of lunch in London coming in at £6.60, according to iZettle, this could give you an extra £2,000 each year just by making your midday meal or taking your leftovers to the office. Just think of the holiday you could enjoy – or the deposit that you could save over the years!

2. Are you too comfortable?

It’s easy to stick with the energy provider that you’ve always used instead of shopping around. But according to uSwitch, comparing and switching suppliers could save you as much as £679, while turning your thermostat down by 1 degree could trim £60 off your annual bill.

This can also be an issue with financial products such as insurance too, so note down your renewal dates and make sure that your policies don’t renew automatically before you have the chance to look around. It’s also a great opportunity to check that they still meet your needs or that there isn’t a better deal elsewhere.

screen with magnifying glass

Tip: It’s a good idea to check how other providers compare, but don’t forget that haggling with your existing supplier is also an option. According to MoneySavingExpert.com, it could actually save you hundreds of pounds.

screen with magnifying glass

Tip: It’s a good idea to check how other providers compare, but don’t forget that haggling with your existing supplier is also an option. According to MoneySavingExpert.com, it could actually save you hundreds of pounds.

3. Don’t be seduced by sales

The behavioural bias of “framing” is a powerful sales tool which, Kahneman’s research tells us, means we’re more likely to believe that “20% off” is a better deal than paying “80% of the full price” – despite them being exactly the same. No matter where you do your shopping, remember that 20% off is still an 80% cost.

shop front

Tip: Plan your shop in advance and go with a list, then ask yourself whether you’d have bought discounted items had they not been on sale. Dodging the big brand deals and buying own-brand products is also usually still cheaper, so why not see whether you notice the difference?

shop front

Tip: Plan your shop in advance and go with a list, then ask yourself whether you’d have bought discounted items had they not been on sale. Dodging the big brand deals and buying own-brand products is also usually still cheaper, so why not see whether you notice the difference?

4. Look to the future

After a well-deserved pay rise or other change to your income, it’s tempting to improve your standard of living. But if you can keep to your existing budget and save the difference, you may be able to reach your savings goals a lot quicker. Alternatively, split the difference between savings and your current lifestyle.

piggy bank

Tip: Arrange automated deposits into your savings accounts on the day that you’re paid to help make it easier to commit to your long-term savings.

piggy bank

Tip: Arrange automated deposits into your savings accounts on the day that you’re paid to help make it easier to commit to your long-term savings.

5. Room for improvement

Of course, even supersavers can keep improving the way that they manage their money. If you’re competent, overconfidence can actually prevent you from saving more.

The “Overconfidence bias”, says Kahneman, involves looking at “known knowns” you’re already familiar with. If you have always saved in a certain way, for example, it doesn’t necessarily mean it’s the most effective or financially beneficial way for to you save in the future.

pad and pencils

Tip: Use spreadsheets or simple lists to monitor your financial performance to see how it measures up against your budget and how it compares to past months or years. It’s a great way to help highlight unnecessary spending that you previously got by without.

pad and pencils

Tip: Use spreadsheets or simple lists to monitor your financial performance to see how it measures up against your budget and how it compares to past months or years. It’s a great way to help highlight unnecessary spending that you previously got by without.

Whatever it is that you’re saving for, our range of savings accounts could help you to make the most of your money.

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