In one of our surveys, 80% people responded that they need to keep money aside for important lifestyle aspirations in their life.

So why do people need to keep money aside from their regular saving accounts? I can think of following reasons

Discipline of saving for a goal

: Bank savings account is actually not a savings account but spending account for most of us. Because of easy accessibility of money, we tend to spend it even if it is for less important things.

Psychology of commitment

: Once you set up a separate account with a target date in mind, you commit yourself for a certain goal. Once we commit, we have subconscious urge to fulfill it.

Complexity of bucketing:

Imagine you have Rs 1.5Lac in your savings bank account and you have multiple goals – buying a bike, going for a vacation and saving for a big party. How do you keep account of what portion goes to which goal? While you sit down and do that on a piece of paper, it still needs lot of effort to go over such mental accounting.

Low returns on savings account:

Bank savings accounts are the worst way of saving your money because of the low interest rate they provide. Most of the banks provide 4% interest on savings account – so net net you are actually losing money after adjusting for inflation.

Joy of guilt-free spending:

Imagine going on a vacation when your house needs a renovation badly. When you have a separate account with your small savings, you will not feel guilty about going on vacations – this is your account that you created for a specific purpose.

Motivation for goal fulfillment:

As human beings we have a tendency to work harder if we have a vivid goal in front of us. We can imagine yourself having good time vacationing in Europe – this nudges to save more to convert our imaginations into reality.

These are small psychological facts but they have big impact in your lives. If you are interested more in such facts, please read this wonderful book –

Nudge

by Richard Thaler.

So have you opened your vacation account yet?