Financial planners tend to have firm ideas about the most important goals: You should save for retirement, pay off debt and build an emergency fund. Buying a pair of $200 sneakers or an ultra-high definition TV is probably not on that list.
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But maybe saving for something you really, really want isn't frivolous. It may be exactly what you need to get your financial life on track.
Researchers who have studied the role of savings in financial health say what's important is the habit of putting aside money and having a plan for that cash. People who have a planned savings habit are four times more likely to be financially healthy than those who don't, according to a report by the nonprofit Center for Financial Services Innovation. That habit is more important than income, age or other demographic characteristics, the report found.
Saving even small amounts can help people avoid the high cost of being broke. A few hundred bucks saved may help bypass credit card debt, payday lenders, rent-to-own stores and bank overdraft fees. It can help avoid eviction, or losing a job because the car broke down. Even a thin financial cushion can help people become more financially stable.
"That ability to be resilient in the face of ups and downs is a very important component of financial health," says John Thompson, senior vice president and head of research consulting at the Center for Financial Services Innovation. "It also helps people avoid high-cost financial services when they face a short-term challenge."
But saving a small amount, only to see it wiped out by an unexpected expense, isn't satisfying. Saving up to buy something we want, on the other hand, can feel like a real win — and it's the winning that matters to our brains. Each time we anticipate getting a reward, our brains are treated to a shot of dopamine, the chemical that makes us want to repeat a pleasurable experience.
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Recalling our small wins also can help us learn to persist when difficulties arise, rather than just giving up, says Michael Thomas Jr., an accredited financial counselor who advises clients at the University of Georgia's free Aspire Clinic.
Remembering the times we've achieved a money-focused goal helps counteract the "negative automatic thoughts and catastrophic thinking" that keeps people from seeing progress, says Thomas, who has studied psychology and is getting his Ph.D. in financial planning and who also co-hosts "Nothing Funny About Money ," a public radio program in Atlanta.
If people aren't already in the habit of saving money, their goal doesn't need to be lofty — and perhaps shouldn't be. Being told to save $1 million for retirement or three months' worth of expenses for emergencies could cause them to give up in despair.
"When I'm starting from zero, those seem like magical, fantastical, unattainable sums of money," Thompson says. "How would you begin is a daunting challenge."
What may be worse is telling non-savers that they need to put aside money for retirement and emergencies and a host of other goals. Researchers at the University of Toronto's Rotman School of Management found people were much more likely to save money when presented with a single goal. When contemplating multiple goals, people considered the trade-offs and put off taking action, the researchers found.
Letting people set their own goals also may goose savings habits. WiseBanyan, a digital investing site, found the percentage of customers who set up automatic savings plans increased about 50 percent after it allowed them to create their own milestones or goals, whether retirement, a trip around the world or a new wardrobe, says chief operating officer and co-founder Vicki Zhou .
"When you personalize it, the way you think about it changes," Zhou says.
That's not to say people should save only for the fun stuff and ignore their long-term financial health. But the fun stuff can be a powerful motivator.
"The behavior of savings is what we're trying to encourage," Thompson says. "It's not that we're suggesting (saving for emergencies and retirement) isn't important, but before that comes the behavior."
This column was provided to The Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist at NerdWallet, a certified financial planner and author of "Your Credit Score." Email: email@example.com. Twitter: @lizweston.
NerdWallet: Pay off your debt
Center for Financial Services Innovation: Understanding and improving consumer financial health in America