One unfortunate fact of our psychological make-up is that humans, by nature, aren’t exactly wired to save. Blame our caveman ancestors – we prioritize the here and now over the future. Why pass up a current opportunity in favor of what seems like the distant possibility of retirement in 10, 15, even 20 years?
That’s why, if given a chance, many of us will buy the new shoes or the new handbag or the new television today, rather than put that money away for a rainy day. Deep down, you know that you should be saving. It’s just a matter of forcing yourself to do it.
Luckily, there are strategies – tricks, gimmicks, mind-games (call them whatever you like) – that can help you. These are ways to bypass your spending impulse and get money in the bank in spite of your instincts to do otherwise:
Make it automatic. If you have a 401(k) at work, you know how this works – money is pulled out of your paycheck before it ever lands in your bank account. You’re not given the opportunity to spend it instead. Jan says this is how she saves, because, in her words, she’s “very much like a dog.” If she sees the money, it’s there for the taking. If she doesn’t, she doesn’t think about it. You can mimic this 401(k) strategy with your other savings accounts by setting up automatic transfers every single month or every single pay period – have your savings account reach into your checking and swipe a set amount of money, before you can spend it instead.
Lock it up. This goes hand in hand with the first point, and is again one of the reasons why saving in a 401(k) or even an IRA is so successful. That money is barricaded until retirement, and if you want to pull it out earlier, you’ll be penalized – heavily. There’s a 10% fee for tapping the money early, plus income taxes. Put it together and you might lose 30% to 40% of your money. It’s just not worth it. You can again mimic these barricades with other accounts – CDs, 529s, and health savings accounts to name a few.
Visualize the future. This tip sounds a bit kooky, but it works: You have to put a picture on your goals. You’re not saving for retirement; you’re saving for a three-bedroom house on the beach with a hot tub and swimming pool. Cut out magazine pictures. Then tape one to your fridge and wrap one around your credit card. Making the goal concrete means you’re more likely to get there.
Finally, take small steps. Struggling to start? Just do a little bit – put away 2% of your income for a few months. I promise you won’t notice it’s gone. Then, once you realize that I’m right, you’re not missing it, bump up your savings a bit more. Add more every time you get a raise, or receive a windfall (like a tax return) and you’ll be well on your way to a hefty nest egg.