Commitment Mechanisms

I read an interesting article about how the human mind works when it comes to spending and saving. The article basically noted that while most people genuinely want to save they can't because they only see immediate gratification and saving is years down the road while spending is immediate. The article noted that the best savers were those who had a mechanism in place to save without thought. Such as having direct deposit set up to immediately save an amount of money so it's out of sight, out of mind rather than an action. I thought it was interesting because I do this myself and realized how much harder it would be to actively move money to a savings account rather than save out of habit. An example of this is a retirement account such as a 401k, traditional IRA (individual retirement account) or Roth IRA. Many employers will set up contributions to assist in retirement planning and early withdrawl is subject to penalties so the accounts encourage saving rather than spending.

Many people have commitment mechanisms for things such as tv shows (recording on the DVR to watch later) or a calendar event (to remind of an event) but what about an ongoing system for paying yourself?

If you're not saving money you're essentially paying everything except the most important person.... yourself. At the end of the month after all your bills are paid, food is consumed and your gas is empty you want something to show for your hard work and that's your personal net worth.

My advice, look to open a savings account at a bank that's not exactly easy to get to. Then setup direct deposit into that account with a manageable amount of money and don't look back. This should be money that you touch only for emergencies...actual emergencies. Otherwise don't touch it and look back at it every few months and bask in your accomplishment. If you can do this you're on your way to stabilizing your finances and increasing your net worth.