Commit Your Future Self to Saving

We swear we’re going here

“Going to the gym wouldn’t be on my list of favorite things to do.”
–Kate Moss

There’s a reason that the term “12 oz. curls” is readily understood. Most people don’t like to go to the gym. We make New Year’s resolutions to work out more this year and we swear we’re going to diet before the summer bikini season. Yet, in reality, there’s a lot more talk and thinking about it than there is actually doing it.

Sometimes we even go so far as to buy gym memberships, thinking that if we pay for a membership, we’ll actually go. The owners of gyms everywhere thank you for this, because the reality is that we significantly overestimate how much we’ll actually go to the gym, as an experiment at Cal Berkeley proved. Furthermore, even though we’re not going, we’ll continue to keep our memberships – this is going to be important later. But first, why do we engage in this financially detrimental behavior? This is a case where Monkey Brain, our amygdala, wins over our rational brain, the frontal core. The rational brain thinks it has won the battle – it makes the argument, persuasively, that we need to go to the gym and get in shape. That treadmill isn’t going to run itself, after all! Monkey Brain, realizing that this time, it can’t just make the rational brain go away, agrees to go, but not today. It’s cold, the couch is comfortable, and there’s a whole bag of Doritos with Monkey Brain’s name on it. So, instead, we join the gym and get a membership. Tomorrow comes, and rational brain says that it’s time to go to the gym, and Monkey Brain counters that it’s raining, the game is on, and the car needs gas, but it’ll gladly go tomorrow. Alas, tomorrow, in this case, rarely comes, and we don’t go to the gym as much as we planned. However, when the gym membership is up, we also don’t take the time to cancel the membership. We rationalize that we’ll go more next year, and, boy, it’s a pain in the rear to call and actually have to confront someone at the gym to break the bad news. So, we auto-renew, and we start the cycle over again while the owner of the gym thanks you while sipping his protein-enhanced champagne.


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How Does Monkey Brain Take Over Our Retirement Planning?

Life isn’t always a battle of making Monkey Brain behave and living the Spartan lifestyle. There are times when we can use Monkey Brain’s own desires to benefit ourselves in the long run. We can use the propensity to commit to something tomorrow and our inertia to not cancel automatic payments to commit ourselves to increasing our savings. A program developed at UCLA which some 401(k) and defined contribution plans are starting to enact is the Save More Tomorrow (SMarT) plan, where you agree to contribute a percentage of your future pay raises to your 401(k). Over time, people who enroll in this program invest more than people who simply choose their own amounts to invest in a 401(k).

The owners of gyms everywhere thank you for buying memberships. – Click to Tweet About It!

What if you don’t have access to a SMarT plan or you are self-employed? There’s a simple solution. Using your bank’s automatic bill pay or transfer system, set up a larger contribution to your retirement account, investment account, or savings account on February 1 of next year. Make it a recurring transfer and make it last twelve months. Then increase the amount for the following year and repeat. Keep doing this for five years and set an appointment in your calendar four years from today to do the same thing.

Are you worried that you’re going to forget that you set up this program and bounce a check? The reason I recommend February 1 is that it will give you enough time to have a pay raise kick in so the money will be there to invest. If there’s no pay raise, you’ll see the transfer and adjust your budget, and chances are that the same inertia which prevents you from canceling your gym membership will prevent you from canceling your increased investment amount. Worried that if you get laid off, you’ll forget this transfer? Chances are pretty good that if you lose your income, you’re going to look at everything to make sure that you minimize expenses and you’re going to remember and cancel the transfers. You can always go back and reinstate the program when you get another job. The idea is that you want to delay the “pain” of investing more but commit yourself to doing it so that you don’t have the ability to hop on the hedonic treadmill with your raise.

It’s a plan even Monkey Brain can agree to.

Have you joined in a SMarT plan with your employer or tried to do this on your on? Join the discussion and tell us about it!

About Jason Hull, CFP®

Jason Hull, CFP®, is the Chief Technology officer of myFinancialAnswers, an online comprehensive financial planning service.

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