There are a number of studies and statistics that reflect what many of us already know: that many of us have trouble saving for our futures. And why wouldn’t we? Our financial well-being is constantly being challenged by the expenses right in front of us – whether these are student loan payments, unexpected emergencies, rising monthly bills, or the trips to the restaurants we take because we are being “spontaneous” or are simply too tired to cook. And this is not to mention the flood of advertising and consumerist messages designed to influence our need to have it NOW.
As it turns out, there are messages within us that can help combat all of this now-ness: we are hardwired to picture our “future selves” as more perfect versions of our “current selves.” And leveraging this simple notion can really help us put our future financial needs on more equal footing with our present ones.
Using Life Events
Upcoming dates and milestones are a great time to re-evaluate, set goals, and reset. We see it every new year when the gyms fill up. Research suggests that when people are asked to pledge to save a portion of their tax refund in advance, they commit to saving more than if they already have received it. When told their birthday is coming up, and would they like to evaluate their savings plans – they are more prone to increase their commitment. This is even more powerful when it’s a milestone birthday, like 40, 50, 60 or 65. Same goes for anniversary dates at work – it’s a great time to increase your 401k contributions. In these cases, the needs of your “future self” can be put in front of your “current self” – even if the trick lasts for only a moment.
Planning to Spend
At the end of a month, you might look back at your spending on, say, ride services, and wonder how you spent so much. But don’t be hard on yourself – after all you really needed that ride and it’s so easy when the app is tied directly to your credit card. You don’t even have to swipe your card to pay! Fact is, it’s too easy. Better to start at the beginning of the month. Give your future self an allotment of how much to spend – and stick to it by tying your app to a debit card with that amount only on it. Now your “current self” is beholden to your better “future self” – and you can trick yourself by making the commitment in advance. When the debit card is running low, you’ll have a strong reminder of your need to stick to your plan.
Paying Yourself First
By far the best psychological trick to play on your current self is to never show it your full paycheck in the first place. When you allow your future self to step to the front of the line (behind taxes of course) and take its share, the savings will take care of themselves. This tactic is most prevalent in company 401k plans – where you are able to commit to putting aside a percentage of your paycheck into the plan. This money is automatically deducted from your pay and is often tax deductible. And when you never see the money in your account, it’s simple to think, “out of sight, out of mind.” And with a little additional planning, you can have more of your paycheck carved off into additional savings accounts that can save for your future, or vacations, or other goals. Once your “current self” has looked ahead by setting up direct deposits, there’s an obstacle to spontaneous spending – making it easier to trick yourself into serving your more perfect “future self.”
With a more perfect vision of your “future self” on your mind, it’s easy to put these psychological tricks to work for you. Hopefully, this posting will inspire you to come up with additional ways to trick yourself into saving. Your future savings accounts will thank you.
Talking to your local banker can help you other tricks that work for you.