Americans like to spend. Nearly half of us are saving no more than 5 percent of our incomes, while 18 percent are saving nothing at all, according to a new report. The average American family savings account balance is $3,950, 40% of working Americans are not saving at all for retirement and 25% have no savings at all. We all need to save more money!
Unless we change our spending habits and learn how to save, we will soon be facing a full blown retirement crisis. 24% of Americans have already postponed retirement and only 18% are confident they can retire.
What’s the solution to the problem? Most people know of dangers of not saving, so education isn’t necessarily the issue. While there is no quick fix, there is a new psychological tip toward reaching your financial goals that doesn’t require willpower!
When we think of retirement, it seems far away. The further away the goal, the less urgent it seems. As a result it becomes difficult to stay on track, especially when short-term wants come up.
Researchers Neil A. Lewis Jr, from the University of Michigan, and Daphna Oyserman, from the University of Southern California, published in Psychological Science an easy way to keep yourself motivated to work towards your goals, whatever they may be.
When we think of reaching our goals in years, it seems far off and that we have plenty of time to make up for it. But if we look at our deadlines in smaller units of time, it can help us better able to mentally stay on track. Instead of thinking of just one year, think of it as 365 days, or one month as 30 days.
The researchers “primed participants with either one of two time metrics for three randomly assigned scenarios. Participants filled in the blank for when they should start saving, cued by units of either days or years to match the scenario given. For example, they were asked to say when they would start saving for college that started in either 18 years or in 6,570 days, for retirement starting in 30 years or in 10,950 days, or for retirement starting in 40 years or in 14,600 days.”
When the participants thought in terms of days, they planned to start saving money four times sooner than those that used years. Why is this? Psychologically, when we use the smaller unit, the time seems closer.
The study found that “events seemed an average of 29.7 days sooner when considered in days instead of months and an average of 8.7 months sooner when considered in months instead of years.”
Even though the actual time to meet our goals doesn’t change, we feel more connected to our future selves when using smaller units of time. This makes it easier for us to forego current rewards (spending) for future rewards (saving). So investing for the future doesn’t seem as big a sacrifice!
You can click here to get more simple tips to help you save and invest more! Going forward now, you don’t want to see retirement as 20 years away, but as 7,300 days away.