We know we’re supposed to save for specific financial goals and for the general future, however, it’s not always easy sticking to our goals. Why do we aspire for all these goals only to fall short? Where’s the willpower, where’s the motivation? Well, the discouraging news is that we are human and this is just what we do. No matter what we want for our future selves, our brains are wired to focus on the present and the immediate future. So how do we overcome human nature?

Automation

Let’s say you decide that you want to max out your Roth IRA this year, which is $5,500 for most in 2018. You tell yourself “Okay, $5,500 divided by 12 months is $458.33 per month. I’m going to put $458.33 in my Roth IRA every month. This is the year that I’m going to max it out!” You do great the first few months but what happens around month 3 or 4? Something has inevitably come up. You had car repairs, you had to buy new soccer uniforms for the kids, you spent a little too much at Nordstrom’s this month. However, if you automate your pre-defined savings goal of $458.33 per month (or $105.77 per week) you don’t have to think about it. You’re essentially tying your hands from taking yourself off course and you’re not giving yourself the choice to spend the money elsewhere.

Mental Accounting

A dollar is essentially worth a dollar no matter where it is saved but sometimes our brains assign a higher value to a dollar depending on where it is. For example, I had a case where a couple had a savings account specifically designated for their son. It was just a general savings account with their bank but when they had an out of the ordinary home repair come up that depleted their modest emergency fund, they questioned where they would get the money to cover the remaining cost. They could either pull the money from their son’s account or resort to credit cards. Any guesses as to how they covered the remaining expense?

For some reason, because their brains had already tagged the savings account as their son’s, it felt so very wrong to spend that money! And because our brains naturally do this, why not take advantage of this? One of my favorite tricks is to open several savings accounts for specific goals. Of course, this only works if your bank lets you open free accounts, but I have seen much success with this exercise. If you have a target goal of $5,000 to spend on vacations every year, open an account specifically for your vacation fund. When vacation time rolls around and you’ve only saved $3,000, well now you know you can’t go on that cruise but maybe you can go to the lake. The bonus here is that you’re not raiding your other savings because you fell short in one area.

Reverse Engineering

It’s tough to save for our 65-year-old self because who knows what life will be like then? We don’t know where we are going to be 5 years from now let alone in 25 years. You ask yourself “why am I putting $1,000 a month into my 401k when I could instead be taking my family to Disney this year?” Again, this is just our natural inclination to focus on the immediate future so to overcome this short-term way of thinking, try doing this: close your eyes and think of the month you were born, imagine yourself many years from now retiring during that month. Let’s say it’s a Friday in September. How does the weather feel? Where are you going? What are you doing? What does your house look like? Are you playing with the grandkids?

When you look back on today, how do you work your way backward from the future to today? You don’t want to be asking yourself “why didn’t I just have the willpower to save more? Why did I carelessly use credit cards?” It’s hard to connect with the future but when we visualize it in detail, it makes it much more real and tangible for us.

Putting It All Together

Instead of changing human nature, we use these tools to our advantage. I’m sure you’ve heard of people putting their credit cards on ice or when they are trying to lose weight they drive a different route to avoid the fast food restaurants. For me, that’s avoiding the ice cream aisle at the grocery store! We never know what our emotional reaction is going to be to something and we can’t always count on ourselves to do what is in our own best interest. So again, automate savings, open accounts for specific goals and practice visualization. You’ll be tricking your brain in no time!

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