The Psychology Behind the Desire to Save Money

The importance of saving money has been woven into the very fabric of our society so much that it's often listed as a top priority by business owners and individuals. On every corner of the internet, you'll find advice, tips, and tricks for saving money, whether your goal is to build up your savings account, buy something expensive, go on vacation, or fund your business.

People generally save money for valid reasons, but sometimes it can be taken too far. For instance, extremely frugal people who save every extra penny beyond what it costs to merely survive will miss out on enjoying their life. Still, there are benefits to frugality that can't be overlooked.

At first glance, the psychology behind the compulsion to save money might seem like it's just what responsible people do, but it's a fairly nuanced topic.

Saving money is logical for those who seek long-term rewards.

There are times when saving every dollar possible makes perfect sense. For example, parents save for their child's college education, teenagers save money to buy cars and clothes, and businesses create strict budgets to preserve capital provided to them by investors.

Being frugal does pay off in the long run and the rewards can be sweet. However, it's a long-term game, and people most likely to save are those who can see further into the future and wait for their rewards. People who are impulsive are far less likely to save money because there is no instant gratification.

For instance, this case study shows that one trucking company increased their warranty reimbursements by 990% just by tracking (and following through with) their warranty reimbursement opportunities. Many business owners either forget about their warranties or don't bother filing claims because they don't think the savings are worth their time. However, the amount of money you can save increases over time and can add up to tens of thousands of dollars.

Not everyone is taught the importance of saving money for things like building a nest egg that can then be invested or used to fund their retirement and/or large purchases later on. This mindset isn't innate, and many business owners need to develop it on their own. When they do, they usually see rewards quickly.

The urge to save can be irrational.

People who save money aren't always acting rationally, despite outward appearances. For example, if you've known someone who went through the Great Depression, you may have noticed they are absolute masters at saving everything, from material scraps to leftovers from all of their meals. Sometimes, they'll search the refrigerator for something to eat and end up combining a bunch of leftovers to make the most delicious soup.

While it was important for them to save every scrap of food during the Great Depression, it's not necessarily something they need to do now. Unfortunately, many people who have experienced hardships tend to carry their extreme frugality with them for decades, even when it's no longer necessary.

They end up saving items, material scraps, food, and every extra penny. They often live in homes that need repairs, but they refuse to spend the money. They also avoid buying new clothes, going on vacation, and spending money on things they'd like to enjoy. Not because they're systematically saving their money but because it's a habitual, programmed response to trauma.

Even well into their retirement, extremely frugal people still won't spend much of the money they've saved on anything more than necessities despite having more than enough to enjoy themselves. These are the people who save money because they fear resources could become scarce at any time.

Some people are taught to save money.

On the other side of the spectrum, some people grow up being taught the value and benefits of saving money at an early age. Rather than being told to save out of fear, they're taught important financial principles that create calculated rewards in the future. Saving comes naturally to them because their parents are also big savers.

Life experience impacts each person's propensity to save.

Factors like a person's age, income, and individual life experiences all influence their propensity to save money. How much they save and what they do with their money is determined by a variety of other factors, like their self-control, trauma around money, childhood programming, and how much they gravitate to or avoid financial risk.

Everyone has different life circumstances, but the compulsion to save money is something many people share, whether it's out of necessity, fear, or the intention of reaping future rewards.