Over the past decade, researchers from a variety of scientific disciplines have shown remarkable interest in how the human brain works. Gamification, psychology of influence, psychology of emotions, and many other technologies offer more and more new ways to influence human behavior. Still, at the heart of each of these methods lies the same goal – changing an individual’s habits. Habits are automatic or semi-automatic behaviors that are triggered by specific stimuli. Thus, to build a habit, one needs to come up with an effective trigger and repeat the needed action multiple times. Understanding how to form good habits, as well as how existing ones work, is critical to health, happiness, and overall quality of life. In this study, a single system intervention was applied to an individual in order to change behavior and achieve the target goal.
Background
Jason is a 26 years old Caucasian male who works as a product manager for a large company. Recently, he began to live independently from his parents, which they did not like, as they think he could not manage his expenses. Jason also has two older sisters, who are independent as well, and his parents always make an example of them to Jason. His target goal is to buy himself a car, which he would like to achieve in 6 months. Jason wants to buy a car because he lives in the suburbs and spends almost two hours every day getting to and from work. Moreover, he also wants to prove to his parents that he can manage his money properly. The intervention has the potential to succeed due to Jason’s high level of motivation, as well as his strong desire to prove himself to his parents and sisters.
In order to buy a new car, he needs to start saving money – it is the behavior associated with his goal. The intervention that will help him adapt to this behavior is the implementation of a financial plan. The measure that will be used for the evaluation of the intervention’s effectiveness is the amount of money he will be able to save each week. Finally, the means by which the data for the research will be collected is the Excel spreadsheet that Jason will use to plan his budget. The time period for this intervention is six months: Jason has to have the amount of money to buy a car by the time intervention ends.
Literature Review
The topic of money saving has become increasingly more interesting for researchers in the era of digitalization. Sussman et al. (2018) performed two studies about the relationship between the expectations in changes in wealth and the tendency to save money in their research. Both studies proved that people who had positive expectations about changes in their wealth in the future were less likely to save money. The authors suggest that these results show that the expectations of one’s wealth changes factor significantly in the intertemporal decisions. Garbinsky and Mead (2018) study the saving behavior further, attempting to shift the mindset of their research subject to a one of spending salience. The authors (2018), after conducting two studies, claim that “prompting people to see themselves as spenders rather than as savers can facilitate saving in the present moment” (p. 325). The research concludes that changing one’s self-perception in regards to spending and saving money might improve financial decisions.
Another study was conducted by Salisbury et al. (2018), focusing on the effects implemental mindset – setting clear steps to achieve the target – has on the consumer’s goal pursuit. According to authors (2018), an implemental mindset creates positive illusions of the goal achieving process, which can backfire on the low-knowledge consumers. The results from 3 studies clearly indicate that this type of mindset can, indeed, stagger the process of achieving the goal by creating a false illusion of progress. This primarily affects consumers with a low level of financial literacy.
Donnelli et al. (2018) investigate another process related to spending and saving: the trade-off that occurs during the process of spending money. This trade-off takes place when the consumers decide whether the utility of the item bought today overcomes the utility of the one that they might be able to buy in the future. Authors state that experiences, in general, are more valuable for consumers than material goods, thus facilitating saving for them. According to Donnelli et al. (2018), “relative to material goods, experiential purchases connote greater pre-purchase savoring, which helps explain why they foster a stronger interest in saving” (p. 326). Thus, it is safe to say that people would rather save for an experience than spend on a material item.
Lep et al. (2021) provide another valuable insight into the topic of saving money by investigating the patterns and antecedents of financial behavior in Slovenian students and their families. The authors’ hypothesis that the prerequisites of healthy financial behavior and tendency to save money in students lie in the examples provided by their parents was confirmed. Lep et al. (2021) state that “the students whose parents saved tended to save themselves, and the saving motives of parents and their emerging adult children also showed similarities” (p. 1). Moreover, the authors emphasized that nationwide interventions to promote healthy financial behavior could be of great importance, especially today.
Ponchio et al. (2019) conducted a similar study in Brazil; however, their research targeted a mix of consumers. The authors explored how the perceived financial well-being is affected by consumer spending self-control (CSSC), personal saving orientation (PSO), materialism, financial knowledge, and time perspective (TP). Ponchio et al. (2019) state that “the two dimensions of financial well-being – current money management stress and future financial security – are predicted by CSSC, materialism and TP; PSO also predicts future financial security” (p. 1023). Thus, it can be concluded that personal awareness of the impact of day-to-day spending should be promoted among the customers to ensure their financial well-being.
Finally, Steinhart and Jiang (2019) provide research on how threats to one’s self-image affect their saving intentions. According to authors (2019), “when individuals experience a self-image threat, they generate negative expectations about their future, and, consequently, show a greater propensity to save money compared with non-threatened individuals” (p. 741). Individuals who believe that money is an instrument rather than a goal are more likely to feel this effect. Moreover, positive future expectations, strong social connections, and attention to non-threatened aspects of life can mediate this effect, resulting in lesser willingness to save money.
Research Question
The research question here is: does budget planning help with saving money? Jason states that he often runs out of money before the end of the month, despite having a good salary. He claims that from time to time, it seems that it is impossible to live on his income. Now, Jason also wants to buy himself a car, which is a big goal. The hypothesis is that he needs a financial plan in order to reduce impulse buying and unnecessary spending. With his budget planned, he will know exactly what the money is spent on, will be able to plan large purchases, and understand how to save and increase money.
A financial plan is a long-term forecast of the person’s financial flows – with it, Jason will plan how much money he will earn over a certain period and how he will spend it. The financial plan will help Jason understand how to distribute income and expenses so that he can save money. It will help him determine whether he will be able to accumulate the entire amount for the set period or how his expenses will change if he has to get a loan. The plan will be useful to keep in mind strategic goals and opportunities for increasing income.
Methodology
The most important and, at the same time, the most difficult thing in financial planning is to start entering data into the table and do it regularly. This habit, however, is the most important to develop, and during the first month, Jason had to make a conscious effort to maintain it. The intervention provided him with a simple yet useful table where he could keep track of his daily, weekly, and monthly expenses. There were the following sheets in the table:
- Everyday – these are the usual daily regular expenses: for food, supermarkets, cafes, taxis.
- Large – there, Jason had to enter the costs of irregular large purchases. For example, a gym membership, airline tickets, expensive clothes, and other large expenses.
- Apartment – there, Jason had to account for the costs associated with the apartment: housing and communal services, mortgage payments, and occasional repairs.
- Savings – this was the most important sheet, as it showed Jason his progress with saving money for a car. Jason decided to put 15% of his every salary into his bank account to save them, or more if he manages to have some free money at the end of the month.
For analysis and optimization, it was important to take into account the day-to-day costs. They often hide small expenses that are invisible during the day, but in the end, they add up to a significant item of expenses for a month or more. Large one-time expenses can greatly affect the whole picture as well, thus they were tracked separately. Expenses for an apartment, such as renovations, furniture purchases, and early mortgage payments, are also usually irregular and have to be closely accounted for. For Jason, it was recommended to create no more than 10 daily expense categories. For expense groups “Large” and “Apartment” – no more than 5-6 categories. The more categories there were, the harder it was to track payments, while the goal was to keep expense accounting simple so that it becomes a habit.
Then, a pivot table was used to build a general schedule of expenses per week and per month, dividing them into daily, large, and apartment expenses. If in some month the expenses stand out strongly against the background of the rest, first Jason had to look which of the groups of expenses had a strong deviation. Then, he would go to the corresponding tab and figure out why this was occurring.
Jason accounted for expenses every weekday at the end of the day. Seeing as he mostly uses a bank card, he had to transfer expenses from his banking app. On average, he had 4-6 purchases per day, so it took him no more than a couple of minutes to enter them into the file. If he spent cash, then during the day, he would write expenses in notes on his phone, and in the evening, he would transfer them to his budget spreadsheet. Weekend expenses were usually accounted for on Sunday evening, and at the same time, he would sum up the results of the week, add missed expenses, and add categories if needed. The whole process took him about 10 minutes every time, as he himself reported. At the end of each month, Jason analyzed his expenses: he looked at how the month affected the overall dynamics, whether he exceeded the budget, and in which categories were the largest expenses. Most importantly, he would look at his Savings spreadsheet and see his progress for the month.
Results
Jason stated that in the process, he made a lot of interesting conclusions: for example, he found out that the first five most expensive categories in everyday expenses make up 75% of all everyday expenses. These five categories are dining, bars, hangouts, transportation, and gifts. In the third and fourth months of the experiment, Jason managed to halve his transportation costs and cut his spending on bars and alcohol. This allowed him to put 20% of his salary on his savings account instead of 15%.
Moreover, he has developed a habit of transferring the money to the savings account immediately after receiving his salary. If he had earned more due to unplanned bonuses at work, he increased the amount that he sent to savings by 5%. Additionally, if Jason received money from his family as gifts, he did not spend more than half of this amount so that he would both buy something fun for himself and save the money.
Because of the intervention, Jason was able to save 15% of all the money he earned monthly for four months and 20% for two months, as is shown on the chart below. Overall, he had saved enough money in 6 months to buy a car. Moreover, he also found out where a significant part of his income goes and learned to take control of his expenses. During the time of the intervention, he developed a persistent habit of saving and began to save for his future travel plans, as well as for investments.
Discussion
For a long time, Jason could not start keeping a budget because he was always repelled by something. However, when Jason got tired from arguing with his parents about his financial attitude and decided that he truly needed a car, he got a clear motivation to start tracking his spending. The secret of success was precisely this: until he had a sufficient reason, attempts to manage the budget failed. Now, Jason states that he is very happy that he has developed a habit of keeping track of his expenses. Even if everything in life does not go according to plan, he still definitely keeps the costs under control. Jason claims that he stopped worrying about the money spent because he always sees what he spent it on. His expenses have become more transparent and predictable, as well as gained a reliable structure and consistency. It became easier for him to save money, make a decision to buy a particular thing, or compare products and services based on his spending history. Jason even states that he began to think a little differently: he now sees how much money he needs and thinks about how he can satisfy his needs, which motivates him to earn more.
References
Donnelly, G. E., Ksendzova, M., & Norton, M. (2018). Saving for experiences versus material goods. NA – Advances in Consumer Research, 46, 326–327.
Garbinsky, E., & Mead, N. (2018). When perceiving oneself as a spender increases saving. NA – Advances in Consumer Research, 46, 324–325.
Lep, Ž., Zupančič, M., & Poredoš, M. (2021). Saving of freshmen and their parents in Slovenia: Saving motives and links to parental financial socialization. Journal of Family and Economic Issues.
Ponchio, M. C., Cordeiro, R. A., & Gonçalves, V. N. (2019). Personal factors as antecedents of perceived financial well-being: Evidence from Brazil.International Journal of Bank Marketing, 37(4), 1004–1024.
Salisbury, L. C., Nenkov, G. Y., & Zhao, M. (2018). When implementation intentions backfire: Illusion of goal progress in financial decisions. NA – Advances in Consumer Research, 46, 325–326.
Steinhart, Y., & Jiang, Y. (2019). Securing the future: Threat to self-image spurs financial saving intentions. Journal of Personality and Social Psychology, 117(4), 741–757.
Sussman, A., Urminsky, O., & Desiraju, Sh. (2018). The role of expectations about changes in wealth in discounting decisions. NA – Advances in Consumer Research, 46, 323–324.