27 September 2023

Rich rewards: How a ‘reward’ system can help us boost our savings

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Jandra Sutton* and her partner use a savings ‘ladder’ strategy, setting a savings goal and providing a reward when the goal is reached.

Before we moved in together, my partner and I had our first serious conversation about money.

We knew that we shared a propensity for saving (and a decent amount of student debt), but we wanted to create a plan of attack from the beginning that would allow us to pay off debt, increase our savings, and enjoy a certain quality of life at the same time.

While we were both comfortable making certain sacrifices for the sake of retirement (yes, we’ve intentionally gone years without Netflix), we didn’t want to end up hitting retirement age, miserable, having spent our younger years saving so much that we couldn’t enjoy life.

On the flipside, we also knew that we didn’t want to be frivolous with our money to the point where we couldn’t afford a down payment, an emergency fund, and more.

Our solution?

A savings ladder.

Our savings ladder is a fairly simple concept.

Instead of simply saving as much as possible, we set a goal amount (or rung) that we want to achieve; when we get there, we get a reward.

Every rung helps the number in our savings grow higher and higher, and the action of earning a reward — something tangible (and sometimes frivolous) — keeps us engaged and excited about saving money even when our daily lifestyle might seem hyper frugal.

First, start by setting a reward

My partner and I start with something small enough to be attainable quickly(ish), but large enough to be more than we could find ourselves accidentally spending on Amazon.

Since neither of us spends money on clothes or shoes, one of our early rewards was a $400 shopping trip, half for each of us.

It might not seem like much, but our brains thrive off rewards.

Research suggests that using rewards can help increase the probability of a behaviour (in this case, saving money), especially when there’s a direct correlation between the event (giving yourself a reward) and that behaviour.

While some people view the rising number in their bank account as a reward in and of itself, not all of us are that lucky.

That’s why small, regular, and compounding rewards can be so valuable to increasing your savings over the long term.

Next, decide how much you want to save to ‘earn’ your reward

Instead of saving up $400 to spend $400, we double (or triple) the amount that we need to save in order to “earn” the opportunity to receive our reward.

In this case, we set the savings goal to be $1,200 so that — even after we spent the $400 on our reward — we still had a decent amount in our savings to help us feel good about what we’ve accomplished.

Use a high-yield savings account to maximise savings and keep it separate from your cheque account

To take this a step further, my partner and I also maximise our savings by using two high-yield savings accounts to manage (and maximise) the entire process.

They help us keep everything clear as we manage our saving — and our spending.

Once we set the initial amount we want to save, we record the starting “target” amount in our primary savings account.

If we have $500 in savings before we begin, that means we’re aiming for $1,700 in savings to reach our goal.

For shorter-term goals, the interest accrued on our savings might not seem like much, but it definitely adds up over time — and it ensures we’re earning dollars (not cents) on our hard-earned money.

Set your next goal before you achieve your first one, so you don’t lose momentum

The moment we hit our goal savings amount, we immediately transfer the amount of the reward over to our second high-yield account — one that is connected to our cheque accounts.

This allows us to be firm about not using our primary savings (making it relatively “untouchable”) while also giving us the ability to move quickly from one goal — or rung of our savings ladder — to the next.

It might seem like an unnecessary extra step, but we’ve discovered that separating the two savings accounts has prevented us from accidentally overspending on rewards.

Plus, if you’ve earned a reward but haven’t been able to spend it yet (like $500 on a weekend away), you don’t have to worry about remembering not to include it in your new savings goal.

While it can sound complicated, the process has served us well.

We purchased a new house in November 2019 — leaving us with $6,000 in savings after a hefty down payment — and we’ve since passed the $34,000 savings mark.

In the meantime, our rewards have been motivating us to keep increasing our earning potential through freelancing and smart budgeting practices without sacrificing on overall quality of life.

Sure, we might say no to expensive nights out, regular shopping trips, and the convenience of having two cars, but the shopping spree, future vacation, and $2,000 worth of new tech gadgets has been worth it.

* Jandra Sutton is a writer, entrepreneur, host of The Wildest Podcast and co-founder of The Paid Well Society. She tweets at @jandralee.

This article first appeared at www.businessinsider.com.

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