Investing

The little nudge – what marshmallows have to do with saving

With the sweet American foam kisses, psychologists in the 1960s and 1970s demonstrated how difficult it is for people to do without something that is right in front of their noses. How difficult self-control is for him and thinking into the future. Even if he is promised a much bigger reward, if he manages to hold back himself and not succumb to the temptation that is obvious now.

The experiment went like this: The researchers put children in a room where there were no distractions, no pictures, no toys – just a table and a marshmallow on it. Then they said to them, “I’m going out of the room now. If you manage not to eat the marshmallow until I come back, you will get a second one. So if the marshmallow is still here in ten minutes, you can both eat. ”Then the adults left the room and watched what happened.

Many children did not resist the candy. Despite the prospect of double the reward after just ten minutes. They preferred to stuff the foam kiss into their mouths immediately – or after only a short time – and grin. After all, who knows if the adult was telling the truth? And whether he will keep his promise with the double reward at all? Nobody knows. So it could have been a trap. But what you have, and if it’s just a marshmallow – you have.

We are fixated on the present

This is the attitude people often act with in life: they would rather choose the small reward now than wait for a bigger win later. Because nobody knows what the future will bring. We often succumb to this thinking, especially when it comes to financial investments and old-age provision: Pay even more money into the statutory pension fund or put it aside for some pension fund? It hurts. After all, we could very well use the money now: To live carefree, to enjoy, to buy a home furnishings or to go on vacation. On the other hand, who guarantees me that the savings that we are now stuffing into any coffers can expect any return later at all? Nobody guarantees me that.

Behavioral economists call this thinking fixation of the present, which is also one of the small human weaknesses that we have to overcome when saving and investing: We overestimate the value that things have for us today and underestimate what value they could have for us tomorrow. It’s all too human behavior – but it’s not that clever. At least not if you assume that you will experience many more years yourself and that you could use a higher income in old age. If you find it easier to control yourself and your impulses and if you can at least put off spending money, then that is a very good prerequisite.

At this point a basic question pops up: How high should this “certain amount” actually be that we would have to save every month? So how much can we save? And how much is on the one hand enough to turn it into a respectable sum in a few years – but on the other hand not too much so that we can keep saving in the long term and not give it up again soon?

Learn from Goethe

Many people actually find it difficult to find the optimal savings amount for themselves. This is one of the most common reasons why they often leave it the same. Why is that? It is because we often have a hard time assessing how much money we even need to finance our standard of living. We are like Goethe: The ingenious poet lived pretty big at a young age. Already as a student and later also in his first years of employment in Weimar, he took part in many social events, went horse-drawn carriage rides, went out with friends, dined like a prince and dressed in stylish clothes. In short: he enjoyed life. And he also got a good salary as a privy councilor. Unfortunately, it wasn’t enough for his lifestyle. So it happened that he earned 3,100 thalers a year, but spent around 4,000 thalers. The rest of the money had to be paid by his father from his inheritance.

Goethe’s handling of money is not really a model. At least not during this time. Later he got his finances under control – and not just his. After all, as the Duke’s finance minister, he was also responsible for the Weimar state budget and was supposed to rehabilitate it. To do this, he set up a financial reform that even bore his name. For many years the great poet lived with constant financial worries, but later – despite countless expensive trips and a few authors’ fees for which he was cheated – he also amassed a considerable fortune, even built up a collection of art objects and he has houses for himself and his Family bought.

How did Goethe manage that despite his cocky lifestyle? He was helped by the habit he had picked up from his family, and also by his writing talent, which he demonstrated on a slightly different level: he wrote household books. And he let his servants guide them meticulously. A remarkable 20,000 pages have come together that tell us today how things were going with Goethe’s income and expenses. And what we can learn from it. One thing above all: if the prince poet had read his household books more often himself, he might have saved himself some financial bottlenecks.

Budget planner per ap

Now the word “budget book” sounds a bit out of date, admittedly and like from Goethe’s time. But that doesn’t change the fact that it’s still a pretty useful tool for financial planning even in modern times. Because with such a good old budget book we get a good overview of how much money we get into our account every month – and how much of it we spend each month on which items. Is there anything left at all? And if so, how much? That is the exciting question that we must first answer ourselves before we can think about any further questions about money.

And today we don’t have to write a lot anymore, because there are now even budget planners via app that are very easy to use, with which we can even photograph receipts and which show us every month in colorful diagrams how our expenses are based on individual items distribute – and how much of our budget we may have already used up. Even more practical, however, is that experiments have shown that those who keep a budget book also save more.

So, get to the numbers. We should fill out the list honestly – even if it takes some time. We first collect the data for one month, maybe also the values ​​for the last three months or the next three. At the end we will recognize our typical spending behavior. First we note: What comes in every month? All income, so of course the net salary. But maybe we will also get government grants or regular money from other sources. All of this belongs on the left.

Then it becomes more detailed: What do we give out regularly? Here all expenses are asked, starting with the rent and the living expenses for electricity, gas and telephone (they will be the biggest chunk for many). Is there any insurance (for example for the car, or maybe even other contracts)? We should estimate food at a fixed amount. Expenses for mobility as well, i.e. bus, train or car costs for commuting to work. Then there are the approximate budgets for clothing, leisure and hobbies (i.e. dining out or the fee for the gym and club). Are there other regular expenses that we definitely don’t want to do without? Books, magazines or other things? Then we enter that as well and then add up the items depending on the category. That’s the right side. By the way, adding up according to categories is very important. Because this is the only way we can find out not only how much money we have spent in total over the course of the month, but above all: what we have paid how much money. This is important so that we can find out how the individual items relate to one another.

Now we subtract the total expenses from the income. Ideally, the bottom line should be a positive number, so there should be something left over. The bottom line is our own freely available budget and the maximum possible savings rate.

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