Huston55
Thinks s/he gets paid by the post
I just read an interesting article by Anne Tergesen (WSJ), which I would link here but, it requires a subscription. If you have one, that's great - go directly to the article. But, if you don't, no worries; I've included a few excerpts below.
I wanted to discuss some points made in her article that resonated with me, and see if they resonated with other E-R.org members. And, perhaps (well, almost certainly around here) get posts on other behavioral finance strategies that have worked for you. The article 'thesis' and three excerpts, with some discussion, are below.
Thesis:
Given a choice between satisfying our immediate needs and desires or focusing on the future, the here and now typically wins out. That impulse doesn’t bode well for retirement savings.
Behavior #1: Think shorter term.
Excerpt: In one of the studies, the researchers divided participants into two groups, instructing one to imagine retiring in 30 years and the other to think of their time horizon as 10,950 days. Even though the time periods are the same, the participants told to think in days reported plans to start saving four times sooner, on average.
Comment: Although I don't remember every having "daily" financial goals, we did have "monthly" goals, which helped quite a bit; it was particularly helpful with after tax savings, as we saw our (old) 'Sharebuilder' account build up.
Behavior #2: Break Down Long-Term Goals
Excerpt: The closer we get to a goal, the more motivated we become, according to the so-called goal gradient hypothesis. First documented in a 1932 study that showed rats in a maze run faster when a reward is in sight, the hypothesis explains why runners pick up their pace as they approach the finish line. To harness the motivating power of an imminent deadline, researchers recommend dividing long-term goals into shorter subgoals.
Comment: This 'finish line' mentality worked very well for me. For the last ~10yrs before FIRE, we measured our NW against an annual goal that would support FIRE at our goal age. The 'Great Recession' happened during that last 10 yrs, and the annual goal was very motivational for us. It prompted us to supercharge savings to help make up for the market losses.
Behavior #3: Monitor Your Progress
Excerpt: Individuals should automate their savings to reduce the temptation to spend. But they should also periodically remind themselves to check their progress toward their subgoals and overarching goals. In a 2011 study, Derek Koehler, a psychologist at the University of Waterloo in Ontario, and two co-authors found that those prompted to monitor their progress are more successful. Among a group of University of Waterloo students with jobs, almost 70% who tracked their progress toward their savings goals when prompted by biweekly emails achieved success, versus 57% in the group that didn't receive the emails.
Comment: Having monthly and annual savings goals that we knew we'd have to measure ourselves against monthly/annually, was a great motivator. For us, this affected primarily after tax savings (which was highly discretionary) because, tax deferred savings was already on autopilot & maxed out. This is related to #2 above.
So, how about you? Did any of these (or other) strategies work for you on your path to FIRE?
I wanted to discuss some points made in her article that resonated with me, and see if they resonated with other E-R.org members. And, perhaps (well, almost certainly around here) get posts on other behavioral finance strategies that have worked for you. The article 'thesis' and three excerpts, with some discussion, are below.
Thesis:
Given a choice between satisfying our immediate needs and desires or focusing on the future, the here and now typically wins out. That impulse doesn’t bode well for retirement savings.
Behavior #1: Think shorter term.
Excerpt: In one of the studies, the researchers divided participants into two groups, instructing one to imagine retiring in 30 years and the other to think of their time horizon as 10,950 days. Even though the time periods are the same, the participants told to think in days reported plans to start saving four times sooner, on average.
Comment: Although I don't remember every having "daily" financial goals, we did have "monthly" goals, which helped quite a bit; it was particularly helpful with after tax savings, as we saw our (old) 'Sharebuilder' account build up.
Behavior #2: Break Down Long-Term Goals
Excerpt: The closer we get to a goal, the more motivated we become, according to the so-called goal gradient hypothesis. First documented in a 1932 study that showed rats in a maze run faster when a reward is in sight, the hypothesis explains why runners pick up their pace as they approach the finish line. To harness the motivating power of an imminent deadline, researchers recommend dividing long-term goals into shorter subgoals.
Comment: This 'finish line' mentality worked very well for me. For the last ~10yrs before FIRE, we measured our NW against an annual goal that would support FIRE at our goal age. The 'Great Recession' happened during that last 10 yrs, and the annual goal was very motivational for us. It prompted us to supercharge savings to help make up for the market losses.
Behavior #3: Monitor Your Progress
Excerpt: Individuals should automate their savings to reduce the temptation to spend. But they should also periodically remind themselves to check their progress toward their subgoals and overarching goals. In a 2011 study, Derek Koehler, a psychologist at the University of Waterloo in Ontario, and two co-authors found that those prompted to monitor their progress are more successful. Among a group of University of Waterloo students with jobs, almost 70% who tracked their progress toward their savings goals when prompted by biweekly emails achieved success, versus 57% in the group that didn't receive the emails.
Comment: Having monthly and annual savings goals that we knew we'd have to measure ourselves against monthly/annually, was a great motivator. For us, this affected primarily after tax savings (which was highly discretionary) because, tax deferred savings was already on autopilot & maxed out. This is related to #2 above.
So, how about you? Did any of these (or other) strategies work for you on your path to FIRE?