What Is Temporal Discounting? This Mindset May Be Ruining Your Savings Account

Ever wonder why it feels like you're always broke? Even if you put your best effort into saving money, you might look at your bank account and wonder where it all vanishes. Interestingly, research suggests that a concept called "temporal discounting" may be the culprit behind your inability to save money. What is temporal discounting, you might wonder? The term is not super common, but luckily the concept is pretty simple to grasp. It comes down to common sense and perhaps looking at your budget and money saving techniques from a different perspective.

As James Dennin explained recently at Mic, when you experience temporal discounting, your brain is basically prioritizing smaller, immediate happiness over long-term savings. And while I don't believe money actually buys happiness, it can certainly buy lattes, concert tickets, and shopping sprees, which definitely deliver a certain buzz of euphoria in their own right.

Of course, depending on your personal budget and income, spending at random like this can really drain any extra money you had wanted to put into your savings. Why? Because it's more gratifying to enjoy an afternoon splurge today than see money in your account tomorrow (or next week, or next month, or next year, and so on).

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So, what can we do to work around temporal discounting when it comes to saving money? Check out the following methods to help curb your short-term spending and help you in your long-term savings.

1. Pay With Cash Instead Of A Card

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If you know you technically have the money in your account, or technically have the room free available on a card, it's really easy to spend more than you anticipated by simply swiping your card. If you make a choice to carry cash with you, though, it can really cut down on the amount of little purchases you make throughout the day — those "one time only" splurges you find yourself falling into, which tend to add up over time. How come? The logic here is that when you only have so much money in your wallet, you are less likely to blow it on something right now and then risk not having it later when you need it.

2. Automate A Percentage Of Your Income Into Savings

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As Dennin explained at Mic, when you get paid, it's a great idea to have a certain percentage of your paycheck go directly into savings. This could be something you work out through your job, like a 401K plan, or a decision to simply direct a portion of your income right into a separate savings account. The idea here is that because you're not actually "seeing" the money, your mind doesn't think of it as money you have to spend at will. It's also extra effort to withdraw money from a savings plan early, or switch it into a more easily accessible account — which, in turn, urges you to think, "Do I really need this?"

3. Give Yourself Little Splurges To Prevent A Binge

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If you're prone to "binge spending," such as going on massive shopping sprees or ordering a million things from online retailers at night, a good way to nip the habit in the bud is to allow yourself a certain amount of "little" splurges throughout the week or month. Depending on your own budget and interests, this could mean a fancy coffee from your local shop on a specific day of the week, a trip to the movies with your friends, or buying a new outfit from your favorite place. The idea here is that if you know you can look forward to these things, and budget for them, you will be less likely to breakdown and spend a ton out of nowhere.

4. Motivate Yourself With Specific Long-Term Goals

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For some people, it's really difficult just to get by with month-to-month expenses, much less building a savings account. If you have enough income to create a savings for yourself, however, it can be really beneficial, especially in the case of a medical emergency, if you lose your job, and so on. Saving money can also be for fun stuff, though, such as a road-trip with friends, going on vacation, or treating yourself to a home renovation. Whatever your specific goals and interests are, sit down and budget how much you actually need for them and use this as motivation for saving.

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