add-headingDo you have a savings account? If yes, how much are you saving per month?
You’re a lucky one if you have a savings accounts since 8 out of 10 Filipino households are unbanked[1] according to Monetary Board Member Felipe M. Medalla. Out of these 2 households, there was a median balance of P5,300 in 2014. That’s only equivalent to 10 medical consultations considering the usual rate of P500 per doctor’s appointment today.

Contrary to popular belief, most Filipinos are not liquid due to keeping their cash in the house instead of the bank because there is no cash for keeping to begin with.

But what’s stopping Filipinos in saving despite having an increase in salary or knowing that they should be saving for their retirement? Why aren’t we handling our money logically?

This may be because the notion of saving for the future makes your financial goal too distant. Saving for retirement will do you good 30 – 40 years from now but you derive pleasure from spending in present needs and wants such as that new Samsung S8.

But you make the money appear when saving for your overseas trip in 6 months’ time. There are a lot of short-term goals that make you find concrete ways to make the money come in. Have you also wondered how you didn’t have money to spare for saving before having credit card debt and now that you’re knee-deep in credit card charges, you now find a way to pay P5,000 per month to avoid the interest charge and late fee payment? Yes, it’s happening because of the same phenomenon.

Behavioral economics suggests that despite how people know the logical way of handling money, we still go the pleasurable route of fulfilling our short-term goals. This is why in Saving in Cycles: how to get people to save more money[2], a 2014 study of the University of Wollongong in Australia, it was found out that most people tend to save money based on cyclical patterns and not on long-term hauls.

As stated by Prof. Leona Tam, a co-author of this study:

“A cyclical mindset leads to more concrete and detailed actions when implementing their plans, whereas a linear approach results in the planning of the savings task in more abstract terms.”

This suggests that people should save with the mindset of thinking how much they think they should be saving today and not next month or next year.

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Chopping your saving cycle into past, present, and future will make you think that you can make it up in the future for time lost in saving money. This mentality stems from the Optimism Bias that we get because we feel that there will be positive life events in the future such as work promotions or getting a quarterly bonus that will help you pad your savings.

Here are ways on how you can shift your mindset to adapting cyclical ways of saving money:

pexels-photo-164497Determine your target savings for the month.

Putting aside your mandatory expenses for the month such as rent and utilities, determine how much of your paycheck can you set aside. Also, determine where you can reduce spending so you can hit your target by the end of the month.

people-woman-hand-desk-6360Write it down where you will see the amount most of the time.

Visual cues will make your goals stick in your mind and will help you achieve your goal instead of just keeping it on your head. Write the amount you want to save and put it at places you usually look at such as your bedroom mirror or inside your wallet so every time you have a glance at those areas, you will get reminded of where you want to achieve.

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Enroll in an automatic savings account.

You can reduce the friction of saving money through enrolling in auto debit for your savings account. This will make you set aside your money instead of having access to it in an instant once your paycheck is debited to your payroll account.

Here are some helpful links on how to enroll in automatic debit for your accounts in the following banks:

  • Banco de Oro (BDO)
  • Bank of the Philippine Islands (BPI)
  • Union Bank of the Philippines
  • Land Bank of the Philippines
  • Philippine National Bank

pexels-photo-210599Don’t think of savings as money lost for spending.

It’s our natural tendency to think of our savings as an expense that takes away our spending money. If you set aside P4,000 for this month, you will feel that this is money lost instead of money saved. This sounds so basic but this is an aspect of our thinking that we should look into.

Get financially ready to fund your dreams by taking small steps and acting on the present when saving money. Your future self will thank you later.