Saving is the keystone to financial health. It’s the first step to many financial hopes and dreams and leads to greater security. In fact, per an Urban Institute study, as little as $250 in savings could make families less likely to be evicted after a loss in income. Most of us would like to be saving more (saving more was the most common financial resolution in a recent Fidelity study), so why is it is so hard to save money?
It turns out saving is uniquely hard for our human brains, so we shouldn’t beat ourselves up when we fall short. Instead, it helps to understand why it’s so hard to save money in the first place and how financial apps like Digit help us avoid some of our natural shortcomings.
Here are the four problems we deal with around money and how to solve them:
Problem #1: Bounded Rationality
In other words, thinking is hard and takes effort. Financial analyses like trying to understand compound interest or how much to invest are difficult. We only have so many hours in the day to think about the issues we face—it makes sense if we’re not all passing our time figuring out the perfect amount to save or how much extra we can afford to pay on our credit card debt. We might do nothing instead because it’s easier to make the minimum credit card payment, even though it’ll be worse for us in the long run.
Solution - A Smart Financial Assistant
A machine-learning-powered app like Digit doesn’t have the same kinds of cognitive limitations in tackling tough problems. Digit has no problem crunching numbers, again and again, to account for even the smallest differences in your income and spending--random bill, extra shift at work, friend finally paying you back. That way, Digit will always be able to save the right amount of money and make that extra credit card payment for you without ever getting tired.
Problem #2 - Self-Control
Most of us want to save more, but it takes a lot of willpower (and effort) to continuously move money “out of sight.” Whenever saving becomes a choice, there’s a chance we’ll make a worse choice when the time comes.
Solution - Effortless Willpower
Digit members really only need to make one good choice by signing up for Digit. All the other financial health steps are willpower free. And by keeping your cash savings in a separate FDIC-insured account, Digit sets the default to making a positive financial choice. More discipline, less impulse spending, all with less work. After all, you can’t spend what you don’t see. Or as we like to think about it—Digit saves your money faster than you can spend it.
Problem #3 - Procrastination
This tendency probably won’t be news to anyone who put off working on a school assignment only to pull an all-nighter, but as humans, we generally want to avoid unpleasant tasks. That sometimes makes sense—there probably are some things that, if we put them off long enough, we might never have to do them!
Unfortunately, if we’re talking about personal finance, procrastinating doesn’t do us any favors, and it’s even used against us. Since budgeting out how much we can save in a month is uncomfortable, we might avoid doing it altogether and instead fly by the seat of our wallet, getting pulled into impulse buys.
We tend to postpone unpleasant tasks, like calculating how much we can save (or even saving anything at all).
Solution - Automation
Digit saves automatically. Instead of a monthly process of figuring out how much you can save (definitely procrastination-worthy), Digit gets your approval to save in the smartest way possible and moves money without you having to do anything. It’s especially smart because Digit’s using that resistance-to-boring-things for your benefit. You’re not itching to play around with your saving settings, so you can feel good knowing that you won’t sabotage your savings goals on a whim. And Digit’s responsive savings means that even if you’re trying to save money on a tight budget, Digit can still help.
Even better, Digit takes just a minute to sign up for, so there’s no reason at all to put it off.
Problem #4 - Nominal Loss Aversion
We generally adjust to the amount of money we have on hand to spend. Then when we try to save more, we usually feel that drop in disposable income as a loss. Since this budget pinch feels bad, we tend not to aggressively save more, even though we’d soon adjust to a higher savings rate as the new normal.
Solution - Save More Later
By moving small amounts at a time, Digit can constantly adjust how much you save based on your changes to income and expenses. And by automatically scaling savings up when you get a raise, Digit helps you avoid the “status quo bias” so you can save more without ever feeling a pinch.
Saving isn’t something that humans are wired to do well, which is why Digit is so helpful. Digit is wired to save in all the ways people aren’t, and not only can it help you save, but it can make investing and paying off debt just as easy. That’s why no matter your money situation, Digit’s a perfect companion for your wallet. Want to see how easy Digit can make it for you to save money? Sign up for Digit now and take Digit’s 30-day Saving Challenge.