4 Easy Ways to Control Spending and Save More

Inflation continued to soar 8.5 percent in July, so here's how to stay on track financially, with tips from behavioral researchers

Savings concept Illustration: Getty Images

Finding ways to rein in spending and funnel more money into savings is always a challenge. And as inflation continues to soar—up 8.5 percent in July from a year earlier—it has become harder and harder to save money and stay on a budget.

Rising prices are causing many consumers to pile on debt. As a recent report by the Federal Reserve Bank of New York found, U.S. household debt grew to $16.5 trillion in the second quarter of 2022, a 2 percent increase over the previous quarter.

Fortunately, there are ways to boost savings that are relatively painless. The key is to use strategies based on behavioral research that take advantage of your mental quirks and emotional responses to avoid making poor financial decisions.

“By understanding your own behavior, it can be easier to stick with a long-term financial plan,” says Meir Statman, professor of finance at Santa Clara University in California and author of “Finance for Normal People.”

To help you to stay on the path to your savings goals, consider these four guidelines.

Take the Long View

The recent surge in inflation is scary, but don’t let those fears push you into risky investment choices or discourage you from saving.

“People often make the mental mistake of representativeness, which is thinking that recent past will extend into the future,” Statman says.

More on Saving and Inflation

Instead, take a longer-term perspective. Although inflation has surged recently, soaring prices have not been the historical norm. The average annualized inflation rates over the three, five and 10 years ending in 2021 were 3.53 percent, 2.92 percent, and 2.14 percent, respectively, according to Morningstar Direct, an investment data provider.

Inflation is expected to slow eventually as supply chain problems ease, which has been the case with gas prices. And in the near term, if prices continue to climb, the Federal Reserve will raise interest rates higher, though at the risk of recession and high unemployment, Statman says.

Just remember to stay focused on your long-term financial plan, which should be designed to ride out these kinds of economic upheavals. And keep close tabs on your budget and spending, to make sure you are continuing to save.

What to do: As a hedge against rising prices, keep a stake in I Bonds, which automatically adjust for inflation and are backed by the U.S. government. And for additional assistance, consider working with a certified financial planner, who can offer expert guidance.

Set Small Savings Goals

“When you’re seeking to build savings, it’s often easier to break down your goals into smaller steps,” says Hal Hershfield, professor of marketing and behavioral decision-making at the UCLA Anderson School of Management in Los Angeles.

In a recent study, Hershfield and fellow researchers Shlomo Benartzi and Stephen Shu looked at the impact of suggesting to new users of a financial app that they save small daily amounts of $5 vs. a monthly amount of $150. Presenting the saving option as a smaller sum led the number of consumers enrolling in the program to increase fourfold, the study found.

“There’s a disconnect between our present selves and our future selves, which makes it hard to sacrifice in the present for our future needs,” Hershfield says. “But framing the savings in small amounts makes it easier to do.”

What to do: Whether you use a financial app or a 401(k) plan to save, automate your savings, even if you start with a few dollars a day. Chances are, you won’t miss the money. And you can gradually increase the amount—many 401(k) plans will do that for you automatically, so the money really gets stashed away.

Put Away Your Smartphone

With the rise of smartphones, apps, and other digital innovations, it’s simpler and more convenient to manage your finances and everything else, which is why people check them constantly. But there’s a downside to these devices: Having a smartphone is distracting. Even having one nearby can impair your mental abilities.

That’s the finding of a 2017 study published in the Journal of the Association of Consumer Research, which measured the impact of smartphones on cognitive tasks. The researchers conducted two tests, assessing memory capacity and problem-solving ability. The subjects’ smartphones were placed at different distances—on their desks, in their pockets or bags, or in another room. The findings showed that, in general, the closer the smartphone was to the subject, the worse the performance on the tasks.

“The nearby smartphone demands attention, even when it’s not in sight—and resisting that demand puts a drain on people’s cognitive capacity,” says the study’s lead author, Adrian Ward, a psychologist and assistant professor of marketing at the University of Texas at Austin. “That can leave people more susceptible to making impulsive choices, rather than analytical ones.”

What to do: When shopping, managing your finances, or doing anything involving concentration, try to put your device away. “When I’m doing hard work or preparing to teach, I put my phone in a corner, out of sight,” Ward says. 

Focus on Your Cash Cushion

The biggest hurdle to saving is that it requires sacrifice—you must give up spending now to achieve rewards in the future. But once you start putting money away, there are immediate rewards—you have the benefit of having a cash cushion that can help in financial emergencies.

“People often don’t realize that there’s an emotional benefit today to having money in the bank,” Statman says. “You don’t have the embarrassment of having to ask your brother for money, or going to a payday lender because your car breaks down.”

If you are saving in a tax-sheltered retirement account, such as a traditional IRA or pretax 401(k) plan, you can also take satisfaction in knowing that you are getting a tax break from the government. A 401(k) may also have an employer-matching contribution, which will help you reach your goals faster. 

What to do: Turn your starter savings plan into a habit. “Once you start saving, it builds on itself,” Statman says. As you see your balance grow over time, it will become easier to stay with the program.