I’ll admit it. Sometimes I put off saving money. I justify it like many other twentysomethings by thinking to myself that I won’t be retiring until I am seventysomething – which amounts to almost fiftysomething years down the road. So what difference will one month make? I’ve got plenty of time!
Well, as many people know, it’s easy for a bad habit to become a trend. And before you know it…BAM! You’re 45, married with children, having your second mid-life crisis (possibly balding), contemplating how you are going to pay for the kid’s college, and all the while knowing that you’ve barely contributed to your own retirement.
People get caught up in the habit of paying bills, but not paying themselves (myself included). Bad savings habits translate into other problems, like never having enough cash for other things such as unexpected expenses, large purchases, or even a vacation (all work and no play is bad). So what happens? People finance these things – leading us into a situation that’s more cumbersome and expensive (after the bill is paid) than if we had saved for it like we were supposed to and paid for it up front.
Unfortunately, we cannot finance our retirement.
So what do we do? Sometimes it is harder to visualize money that we need down the road as being an important goal. So we procrastinate. Breaking that habit is hard. But we still have savings goals that we need to meet.
Some people decide to set up an automatic savings plan with their bank, while others will set up 401k’s, IRA’s, and a slew of other automatic investments to save money before they can spend it. But these things don’t work for everyone. And they can get incredibly complicated (although some are very beneficial). The idea is to make it easier on yourself and try to keep it simple.
In the September 15th issue of BusinessWeek, I came across what may be the simplest solution (I can’t believe that I hadn’t thought of it myself). A study done by the Houston’s Rice University, in conjunction with Old Dominion University found that “those who planned savings for the next month did far better than those who tried to plan further out.”
In short, the study found that we are better at planning for next month than for next year (or fifty years down the road) because we are no longer overly optimistic about how long we have to save. So, in order to meet your long-term goals, break them down into monthly goals. You may find that you are able to save more money than you needed to because you have less time to meet the goal.
~K
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I agree, as someone who is a recent grad, all my savings are for the short term. It is easier for me at least to save for that new purchase months than the road compared to a potential house 10 yrs down the road. I think a lot of it is mental in the fact that because things are in the short term, they are realistic, so you are more enthusiastic about saving for it. Down the road stuff doesn’t even factor in our minds right now.
Craig
http://www.budgetpulse.com
True, it is a psychological thing. But I do not think that we are any less enthusiastic or that we don’t factor in saving for things down the road… I think we just procrastinate. We know we have to save for it, but because we have “time” on our side, we put it off.
If we have a shorter time period by breaking down our ultimate goal into many smaller ones, I think that makes it seem more imperative, so we are more prone to meet the smaller goal - and in turn, the ultimate.
Does that sound about right?
~K