Look in the mirror. In 30 years, will you look like your mother or your father do today? What do you want to say to your future (presumably retired) self about the decisions you made today?
Do you want apologize to your future self for procrastinating on saving and financial planning? Or is your future self reaching through the mirror to congratulate you on ensuring the kind of retirement you wanted?
The more concrete tomorrow feels, the more motivated you will be to stick with your savings plan. According to multiple studies and new evidence from the Stanford Institute for Economic Policy Research, the technique of envisioning specific, concrete results for today's decisions can be a powerful motivator, and it's a technique anyone can deploy.
"We want to think that the motivation to save is intellectual and academic, but it isn't at all," says Richard Peterson, a Westport, Connecticut-based psychiatrist and investment psychology coach who works with professional money managers.
"Money provides security and satisfaction," Peterson says. He adds that achieving goals is "not about the numbers," even for quant-driven finance professionals. "It's about what money will buy for us and about imaging the life you want to live and the person you want to be [in retirement]," he says.
Gopi Shah Goda, a senior research scholar at the Stanford Institute for Economic Policy Research, released results of a recent study she designed to replicate the effect of communications materials on employees' actual savings rates. She found that more details about the future impact of today's decisions cause employees to save more.
The study was prompted by big-picture policy discussions about how much information employees should be given regarding how their current savings rate maps into future assets and income.
When people don't fully appreciate the exponential effect of compound interest, they are less motivated to save early and often, Goda says. But when they were given specific projections about how a small amount saved now can rapidly grow, they saved more -- a lot more: People in the study who changed their habits saved $1,000 more annually. Those who expected to retire sooner saved more, too.
Tony Krance, president of the advisory firm 401k Plan Advisors, in Green Bay, Wisconsin, detects an additional disconnect: Fantasy investment competitions that start as early as elementary school actually teach Americans that investing is equivalent to gambling, and that it is all about short-term return, he says. That perception is counter to the realities of long-term investing, but it's hard to break that mindset.
He often finds himself first neutralizing new clients' point of view that investing is mainly speculation. "I show them that there's a scientific approach to investing. As you get older, you take less risk. The market is not a game. If you teach them a prudent process and keep them disciplined, they will succeed," Krance says. "They don't have to speculate. They can control their risk."
Krance observes that envisioning the future payoff for today's financial self-discipline is a technique best suited to those who have at least 20 years to save and capture the advantages of investment strategies and compound interest. Envisioning isn't much fun when the future is right around the corner for a 60-year-old who hasn't saved enough.
At that point, he says, fear is a powerful motivator, but the action plan is different. The plan likely involves rescaling retirement expectations and the timeline. For example, instead of retiring from work altogether, a near-retiree with little saved might instead concentrate on "finding a life they love with income coming from several sources, not just more of the same job," Krance says.
Build your own motivator. Goda's research relied on customized tools that illustrated specific financial outcomes. You can capture the motivational power of "future visioning" by using online calculators to see how much money you will have in the future by saving various amounts today.
Advisors recommend experimenting with various "what-if " scenarios to envision the lifestyle you want and how much you will need to support that lifestyle. "Different assumptions led to different behavior. The assumptions really matter," Goda says.
Factors might include:
-- fitness and preventive health
-- technology allowance
-- giving to children, grandchildren and causes
Savings factors include:
-- how much you put aside in various accounts
-- whether or not you expect to pay off your house
-- how long you will work and when you will start to rely only on investment income
If today's pressing priorities make saving feel impossible, break the inertia by setting up a couple of accounts and directing $100 a month to them, Peterson says. The simple act of setting up the accounts creates expectation -- and a little guilt -- that can help you move in the right direction.
Envisioning your future is mainly about reframing saving as a carrot, not a stick, advisors say. Peterson says paying it forward to yourself starts with "little beliefs that change your perspective, because you don't want to see your future self in pain or disappointment."
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