When it comes to cash on hand, many Americans are running surprisingly low.
According to Federal Reserve data, 44 percent of Americans don’t have enough funds to cover an unexpected $500 expense. And roughly 60 percent of Americans couldn’t cover an emergency $1,000 expense with their own money.
Even worse, a sizable chunk of Americans haven’t even considered their financial situation in a time of crisis. One in eight Americans would count on reducing spending from other (unknown) parts of their budget, while six percent would resort to “something else” and four percent just “don’t know.”
How do you buck the trend? Well, according to experts, it’s all mental. We’re hard-wired to prefer pleasure over pain. When we experience a moment of pleasure, our brains produce a chemical called dopamine, which motivates us to do what we find satisfying.
With that in mind, use a rewards system to motivate yourself to save. Here’s an example: After saving $500 in a given month, buy a sports ticket to reward yourself. After saving an extra $1,000, treat yourself to a dinner at a fancy restaurant. While you should aim to cut unnecessary expenses, don’t hesitate to reward yourself if you’re saving more than you’re spending. It may help you keep going when the going gets tough.
You should also consider an emergency fund, where you allocate a set fraction of your income every month. Even if it’s only $100 a month, redirecting new income into a savings account will dissuade you from reckless spending and keep you prepared for an emergency. (The money will also grow because it accumulates interest.)
Just remember that saving is a mind game. If you can master your mind, you’ll be able to master your finances.