Savings goals and making them stick

The difference between people who save and people who intend to save is generally structural rather than a matter of income or willpower.

What the behavioural evidence supports

Consistent findings.

Automated transfers substantially outperform intentions to save what remains.

Labelled or named savings accounts are measurably less likely to be spent on other things, a phenomenon known as mental accounting.

Specific goals with amounts and dates produce more saving than general intentions.

Visible progress sustains effort.

Commitment devices — arrangements that make it harder to change your mind later — improve outcomes.

And separating accounts by purpose makes balances meaningful, which is what allows decisions to be made.

Setting a goal properly

The elements.

A specific thing rather than a general aspiration.

An amount, researched rather than estimated, including the costs people forget.

A date, which determines the monthly requirement.

A named account or pot.

An automated transfer on payday.

And a way of seeing progress.

The arithmetic — amount divided by months — is what converts a wish into a plan, and it also reveals when a goal is unrealistic, which is useful information rather than a failure.

Ordering multiple goals

Where people get stuck.

Saving for several things simultaneously is slower for each and is frequently more sustainable, since progress on nothing is demotivating.

A reasonable order: a small emergency buffer first; then high-cost debt; then the sinking fund for predictable costs; then specific goals; then the full emergency fund; then longer-term investing.

With the exception that any employer pension match should be captured throughout, since it is generally the highest return available.

And with the recognition that this is a framework rather than a rule, and that circumstances change the order.

The commitment devices

Which help.

Automated transfers, which remove the decision.

Accounts with notice periods or penalties, which add friction to withdrawal.

Different institution from your everyday banking, which makes the money less visible.

Named pots, which invoke mental accounting.

Telling someone the goal, which adds social commitment.

And pre-committing future increases, such as directing a proportion of any pay rise before it arrives.

Keeping motivation

Over long periods.

Break large goals into milestones, since a distant target produces no sense of progress.

Track visually, which sustains effort better than a number in an app.

Celebrate milestones in a way that does not consume the savings.

Review annually rather than obsessively, since checking daily produces no benefit.

Expect setbacks and plan for them, since treating one bad month as failure is what ends most efforts.

And connect the goal to what it actually means — security, a home, time, options — rather than to the number.

When to raid a goal

A decision worth making in advance.

The emergency fund is for emergencies: unexpected, necessary and urgent.

The sinking fund is for the predictable costs it was created for.

A specific goal fund should generally not be raided for something else, since doing so once establishes that it is available.

Deciding the rules before the temptation arises is considerably easier than deciding during it.

And if a goal is repeatedly raided, the structure needs changing rather than the resolve.

Adjusting when circumstances change

Which they will.

Reduce the transfer rather than stopping it entirely, since stopping is difficult to reverse and reducing preserves the habit.

Extend the timeline rather than abandoning the goal.

Reassess whether the goal still matters, since some do not.

And increase again when income recovers, which is where a written plan helps since the increase otherwise never happens.

The goals people neglect

Worth naming.

The emergency fund, which is not exciting and which prevents the most damage.

The sinking fund, which prevents the emergency fund being drained by ordinary life.

Pension contributions, which are the largest long-term goal and the least visible.

Replacement funds for things that will fail — vehicles, appliances, boilers — which are entirely predictable.

And a fund for optionality: the money that allows you to leave a job, a housing situation or a relationship, which is the least discussed and among the most valuable.

General information only, not financial advice. Consult a regulated adviser or a free advice service about your own circumstances.