Why Saving Never Goes as Planned. And What I Try To Do About It.
On Biases in Financial Decisions
The other day, I found myself knee-deep in my budgeting Excel sheet—yes, I’m one of those people. At the start of the year, I had meticulously mapped out my financial game plan, estimating all the usual suspects: income, expenses, and (in an ideal world) savings. You know, that magical leftover category where money is supposed to sit patiently, waiting to be invested, safely stored, or—let’s be honest—spent on a much-needed vacation (although my travel fund has been suspiciously empty… donations welcome, by the way).
With everything neatly balanced, I thought, Yes! This year, I’m going to save so much money. The numbers check out. It’s foolproof! Fast forward to today—just a month into the year—and let’s just say my savings account isn’t quite growing at the rate I expected. Instead of sticking to my plan, little surprises keep popping up, nudging my numbers in directions I hadn’t accounted for. Which got me thinking: Why is budgeting so hard to get right? I mean, I know myself well in most areas of life. Yet, when it comes to finance—the very topic I spend most of my time on—things always take an unexpected turn.
Weird, right?
So, instead of diving into another investment piece today, I want to talk about savings—or rather, the frustrating struggle of actually holding onto money. My thoughts are inspired by a brilliant article from a fellow Substack writer and my current read, Animal Spirits by Akerlof & Shiller (highly recommend it if you’re curious about how emotions shape financial markets). But fair warning: don’t expect groundbreaking revelations. If this topic doesn’t excite you, I totally get it. In that case, there’s plenty of content from the past few days to dig into. My co-author Milan has been on a roll, publishing not one, not two, but three deep-dive articles on sectors he picked using a quantitative analysis. If you haven’t checked them out yet, here they are:
Sector 1 - What No One Is Telling You About the Semiconductor Market
Sector 2 - Why Waste is NOT a Waste of Time
Sector 3 - The Healthcare Play No One Talks About
We’re Just Humans - With Human Biases
At the root of every financial struggle we face is a simple truth: we’re just human. Despite all our modern advancements, our brains still function as if we’re navigating life in the Stone Age. They’re wired to conserve energy and take mental shortcuts, just like they did thousands of years ago. These shortcuts, or cognitive biases, once helped us survive—but in today’s world, they often lead us astray, especially when it comes to money and decision-making. Whether it’s making a purchase, skipping a saving opportunity, or opting for instant gratification, our brains aren’t always on our side.
I see this in action all the time (luckily, the person I’m referring to doesn’t read this blog). Every week, I watch them jump on impulse-driven decisions, chasing short-term rewards while completely ignoring the long-term benefits of saving. But let’s be real—we all do this to some degree. Some just fall into the trap more often than others. So, what exactly is driving us to make these suboptimal (or sometimes downright stupid) financial decisions?
Let’s break it down.
One major force shaping our financial decisions is culture. Different societies hold vastly different views on saving, which in turn influence personal habits. As Akerlof & Shiller highlight in Animal Spirits, in the U.S., saving for retirement early on is almost inappropriate. In contrast, in China, saving is deeply embedded in societal norms. Even though the book was published in 2010, the numbers still back this up. According to the Fed, the U.S. personal savings rate for Q3 2024 was around 4.3%, whereas Eurostat reports a household savings rate of 15.3% in Europe (differences in calculation methods aside, that’s still a big gap). And China? It blows everyone out of the water, with a gross savings rate of around 45%.
The effect on individuals is obvious: if the people around you save more, you’re likely to follow suit. If your American friends convince you to buy tickets to “just one more concert,” chances are, you’ll cave and join them. On the other hand, if your Chinese friends decide to skip a night out to save money, you’ll probably do the same. The cultural environment we’re in shapes our financial habits, often without us even realizing it.
Beyond culture, our own brains are working against us. We rely on cognitive biases to make decisions quickly, but sometimes they backfire. When it comes to saving, three biases play an especially big role.
1. Present Bias
Present bias makes us favor immediate rewards over future benefits, which is why spending now always feels more satisfying than saving for later.
Want to see this bias in action? Just watch a kid. They want what they want, and they want it now. The classic Stanford marshmallow experiment is the perfect example: kids were given a choice—one marshmallow immediately or two if they waited 15 minutes. Many struggled to hold out, proving how tough it is to delay gratification.
Now, imagine applying that same logic to adult finances. Skip a concert now to be slightly more comfortable in 60 years? Yeah, not exactly an easy sell. Akerlof & Shiller explain that students find it difficult to imagine their older selves and what they’ll need in retirement. From an evolutionary standpoint, this makes sense—our ancestors benefited from immediate gratification (eating when food was available, not saving for some hypothetical future). Unfortunately, in today’s world, this instinct works against us.
2. Mental Accounting
Mental accounting makes us treat money differently based on where it comes from or how we categorize it, leading to irrational financial choices.
We’ve all fallen into this trap. Picture this: you book a $1,000 luxury penthouse, but when you arrive, the host tells you the jacuzzi with the city view is broken. Bummer. They refund you $300 for the inconvenience. What do you do with that money? Carefully invest it? Probably not. You head to a fancy restaurant and splurge because, hey, “it’s free money anyway.”
Except… it’s not. That $300 isn’t a bonus—it’s a refund. Rationally speaking, it’s no different from any other money in your account. But in your mind, it was already earmarked for “travel”, so spending it on a luxury dinner feels justified.
And if you’re thinking, “Yeah, that actually makes sense,”—that’s precisely why this bias is so powerful.
3. Status Quo Bias
Status quo bias makes us prefer sticking to what we know, even when change would be beneficial.
We see this all the time. At work, someone suggests a new process, and the response is: “That’s not how we’ve always done it.” The same happens with personal finance. People stick to old spending patterns because it’s familiar, comfortable, and requires less mental effort than re-evaluating habits.
From an evolutionary perspective, this makes sense. A stable environment meant survival, while an unstable one meant danger. Change required effort and adaptation—two things our brains would rather avoid.
This bias is why most New Year’s resolutions fail. According to a Forbes Health survey, the average resolution lasts only 3.74 months before people revert to their old ways. The takeaway? Drastic financial changes rarely stick. If you suddenly decide to cut 50% of your spending, chances are, you’ll revert back before summer. The key is gradual adjustments, not all-or-nothing extremes.
Some Things I’m Trying
Before I jump into the things I’m trying, let me emphasize just that: these are things I’m trying. I know I’m in a privileged position, and many people out there work much harder for far less. The reality is that not all financial advice applies to everyone, and I won’t pretend that mine does. I can’t offer tips for circumstances I’ve never experienced firsthand, and I won’t try to. Just keep that in mind as you read the following.
A big thank you to
—his 2019 article about a conversation with his friend Mark really inspired this piece (and me personally). So, thank you, Mark, too. Now, let’s get to it.1. Don’t Cut Small Expenses
Wait, what? That sounds completely wrong, right?
Read carefully: “Don’t cut” doesn’t mean “spend more.”
Here’s the thing—sometimes, I cave to my reptilian brain. I buy that overpriced gas station coffee or that ridiculous snack I don’t need. And for the longest time, it frustrated the sh*t out of me. I’d walk out with my mediocre, overpriced coffee and immediately feel guilty. “Damn, another unnecessary expense.”
So, I tried to eliminate these little purchases completely—pushing back every impulse, cutting every unnecessary expense. But that just made the whole experience miserable.
Now? I let it go. If I buy the coffee, I drink it, enjoy it, and move on. That $50 a month I might have saved? Not worth the mental energy. Instead, I consider it a cost for peace of mind—and that’s worth something.
Of course, if you’re the kind of person who has zero issues cutting these expenses, go for it! All the power to you. But personally? I’ve yet to meet many people who can effortlessly resist the little temptations in life (though maybe that just says something about my friends).
2. Budget for Future Expenses – Because They’re Just as Real
This one comes straight from Vitaliy’s article, and it changed the game for me. It answers the question:
Why do budgets fail?
Simple. Most people only budget for current expenses and completely forget about the big ones coming later. Then, when that expense arrives, they’re caught off guard.
Here’s how to fix it: create sinking funds.
Say you know you’ll need to spend $1,000 in 10 months—whether it’s a trip, a gadget, or an annual bill. Instead of scrambling when the time comes, set aside $100 a month for it now. As Mark puts it:
“Think of a sinking fund as ‘syncing’ the future with the present.”
Start broad—list out everything:
Basic needs (rent, food, healthcare)
Fun stuff (travel, luxury, experiences)
Future savings & investments
No, you don’t need separate bank accounts for every category (except your investment portfolio, obviously). Track it in a spreadsheet, or if you’re old-school, write it down. But if your bank allows easy category-based savings, it can be a nice bonus.
Now comes the crucial part:
Prioritize. Prioritize. Prioritize.
Once you have your list, start ranking expenses by importance. Your must-haves come first—non-negotiables like rent and food. Then, move to the nice-to-haves—the fun stuff. Some people will prioritize travel, others will prefer high-end dining or luxury goods. Whatever matters most to you, list it out.
This approach gave me absolute clarity on what I do and don’t want to spend money on. It’s also dynamic. If I suddenly get a windfall (say, a bonus or a random donation from a generous reader—wink wink), I already know exactly where that money should go.
Likewise, if I ever need to cut my budget, I know what gets axed first—no stress, no second-guessing.
A quick tip: Don’t overthink it. Some things will be equally important, and that’s fine. The goal isn’t to rank every single expense against each other—just to have a clear roadmap.
3. Put Systems in Place – And Stick to Them
Having a clear vision of your spending is great. But the real question is:
How do you actually stick to it?
Simple: systems.
If you remember the Status Quo Bias, you know that humans love autopilot mode. So, use that to your advantage. Make saving and investing automatic so it doesn’t rely on your willpower.
The system I swear by?
Pay Yourself First.
It’s the first rule from The Richest Man in Babylon, and let me tell you—you don’t truly get it until you actually implement it.
The idea is simple: save before you spend.
Before paying a single bill, before touching a dollar of your paycheck, move a set percentage straight into savings & investments.
I don’t know if your number is 10% or 50%, but you’ve already budgeted for it—so whatever you planned for savings, pay it first.
This was hard to do in Babylonian times. But today? You can automate it with a few taps. Set up an automatic transfer with your bank. Or, if you prefer manual control, build the discipline to do it every month.
Now, some people feel like this constrains them—like they’re immediately losing a chunk of money they “can’t touch.”
Well, that’s the point.
You’ve already prioritized your spending—so you know exactly where your money is going. And trust me, you’ll always have less left over at the end of the month than you expect.
How do I know?
Because I tried it the other way around—the “let me enjoy my money first, and I’ll save whatever’s left at the end of the month” method.
Spoiler: There was never anything left.
Final Thoughts
At the end of the day, personal finance isn’t about being perfect—it’s about being intentional. You don’t need to obsess over every coffee or force yourself into a budget that makes life miserable. Just focus on what actually moves the needle: prioritizing, planning ahead, and setting up systems that work for you.
Some months will go better than others. Some expenses will sneak up on you. And sometimes, yeah, you’ll buy the overpriced coffee. That’s fine. As long as you have a system in place that keeps you moving in the right direction, the occasional detour won’t derail the whole journey.
So, don’t overthink it. Set your priorities, automate what you can, and keep tweaking until it works. Progress beats perfection—every time.
What do you think? Do you agree, or do you have a different approach to saving and budgeting? Let me know—I’d love to hear your take! 🚀
If this article made you rethink your savings approach (or at least feel a little less guilty about that overpriced coffee ☕), you’ll probably enjoy what’s coming next.
I loved your point about budgeting for future expenses through sinking funds. What advice would you give to someone trying to balance saving for future needs while still enjoying life today? Also, are you an excel spreadsheet budgeter because budgeting apps are lacking in the tools you want? Interested to hear what you prioritize in a budgeting tool.