Save and Invest

Why saving $5 a day is better than $150 a month

Twenty/20

While traditional financial advice typically frames saving and investing in terms of monthly goals, a more effective savings strategy might be to think daily.

People are four times more likely to start saving if they focus on saving $5 per day, rather than $150 each month, though they add up to the same amount in the end, research from Shlomo Benartzi and Hal Hershfield of the University of California, Los Angeles and Stephen Shu at the City, University of London finds. 

That's because people are more likely to view the larger monthly number as an impossibility, while the smaller number feels more manageable, the researchers write. A "loss" of $5 in one day is more appealing because, well, it's smaller. It is more painful, psychologically, to "lose" a large sum of $150 to a savings account.

The researchers also found that framing saving in these more granular terms narrowed the participation gap between lower and higher income savers.

Saving small amounts

Saving small amounts of money each day can help you build an emergency fund, but it's also a good tactic to use while investing or saving for another major financial goal. 

To make it easy, you can try an app like Albert, Digit or Acorns (which is what participants in the research cited above used to save). Albert and Digit prioritize liquid savings: The apps analyze your spending habits and automatically pull money from your checking account into a savings account. Acorns rounds up your purchases to the nearest dollar and invests the difference.

If you don't want to go the app route, you can also set up automatic transfers to different savings accounts at your bank.

One word of caution: If you're new to saving or investing, be careful not to get too ambitious too quickly. Watch your spending habits and bank account balances for a month or so, so that you don't overdraft your account when you set up transfers.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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