Fool yourself into saving smarter
When it comes to saving, the spirit is willing but the flesh is weak. A recent TD Ameritrade survey shows that 40 percent of people who make New Year's resolutions cite saving more money as a goal. However, the same poll also found that nearly half of those who resolve to stash away more bucks abandon that plan within a month. And that's a problem because saving is the single most important thing you must do to have a shot at a comfortable retirement. That disconnect isn't surprising. "While some parts of our brains are geared for rational decision-making, others are hard-wired for immediate gratification," says Harvard University behavioral economist Brigitte Madrian. The result is a sort of ongoing war inside your mind, with the rational part nagging you to save and the gratification side spurring you to buy a new car. When you consider that you can drive the car today but don't get to spend your retirement savings for decades, well, you can see what has the edge. There are ways, however, to improve the rational side's odds of winning. Adopting one or more of these strategies will help you boost your savings and enter retirement with a larger nest egg. startclickprintexclude--> You can. Sign up to have money automatically transferred from your checking account into a mutual fund each month. Most fund companies offer this option, with many allowing you to start with $250 a month or less. I can testify to the effectiveness of this approach. A little more than 10 years ago, I began auto-investing $300 a month (later raised to $500) in a stock-index fund. I'll admit that I felt a squeeze at first. But after a few months I no longer missed the money or, for that matter, felt that I was "saving" anything. But I was. To date I have more than $100,000 in that account. say, investing $500 a month -- with the condition that you'll incur a penalty each time you don't follow it. Maybe you can't watch your favorite TV shows for a month or you have to forgo eating out. Your spouse or a friend can be the enforcer. Or up the ante even further and make the penalty cold hard cash. A new website called Stickk.com, created by a Yale economics professor and two colleagues, allows you to create "commitment contracts" for resolutions ranging from losing weight to saving more dough. If you don't hold up your end of the deal (as verified by a designated "referee"), you pay an amount that you've agreed to in advance -- $100, $1,000, whatever. The idea is that you'll be more likely to stay the course if you stand to lose real bucks (or suffer in other ways) for breaking your resolution. This money can go to a friend or a charity or, in a clever twist, you can stipulate that the payment go to a nonprofit whose goals aren't simpatico with yours. So, for example, if you're an advocate of gun control, the National Rifle Association Foundation might get a donation each time you lapse. promise yourself that you'll start socking away more as soon as you've bought that fancy sports car you can't live without. I just wouldn't expect to retire on that money. |
