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When it comes to saving successfully, it’s all in your head.
Sound simple? Newcomb knows for many people the future is just too far away to worry about. But the report on her latest study, “Overcoming Impulsiveness,” suggests if you can paint a vivid, detailed picture of your future, you’ll be less likely to spend money impulsively and more in step with socking away savings you can spend later to fulfill your big dreams or retire comfortably.
She’s presenting her study Aug. 4 in Denver at the American Psychological Association’s 124th annual convention. The study focuses on filling the retirement savings deficit — the result of people saving less and living longer. It’s a big problem: More than half of all Americans report having less than $25,000 saved for retirement.
“The U.S. government has invested hundreds of millions of dollars into financial literacy programs, but these findings suggest that financial literacy alone may not be the answer,” Newcomb said.
Thinking ahead means building for retirement, but it can also mean — if you’re, say, a 20-something — that you picture yourself in five years with “the financial freedom to go backpacking around China.”
“Behind every financial decision there’s a story we’re telling ourselves. You’re not going to plan for a future you can’t picture,” says Newcomb, author of the book “Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind,” a crash course in financial planning for laypeople.
If you’re highly impulsive, changing the way you think of the future can affect your behavior now, she said.
“When you shrink the psychological distance between now and the future, you’ll feel those future needs are more important. You can use your mind to shrink the distance,” Newcomb says.
She offered Money Talks News readers tips on how to make the future seem not so far away:
1. Don’t wait
“The younger you are, the shorter ahead you think. It’s natural,” Newcomb said. “When we’re young, we’re filled with uncertainty. We don’t know where we’re going to live or if we’ll be married. If we don’t think we can create an accurate picture, we don’t create any picture.”
Time passes faster when you’re older. You’re in touch with the consequences of your actions. Maybe you’ve got a family, home and kids to think about.
“The problem is that it doesn’t happen fast enough,” she said.
So if you plan one week ahead now, try planning two weeks ahead; if one year is your horizon, try to look out two years. Extend the time and add as much clarity as you can.
“We know the picture will be different than what we imagine,” Newcomb said.
2. Facing retirement
Take a look at yourself — only 20, 30, 40 years older.
Investment firm Merrill Edge will show you an age-progressed version of your own face online here. It could help you come face-to-face with the reality of aging. Researchers have shown that people who interact with their virtual future selves exhibit an increased tendency to accept later monetary rewards over immediate ones.
However, Newcomb cautions, if seeing your aged self freaks you out by making you think about death, you may put off thinking about the future.
3. A day in the life
Think through in great detail what a typical day of your life would be in a comfortable, happy retirement. From the time you wake up until you go to bed, what type of life are you having? Are you in a retirement home or your own house? Is your house in the country or the city? Are you alone or with family? Just a spouse? Children? How do you spend your time?
As you create your picture, you start to see actual details, which shrink the psychological distance. You can start to place a price tag on what you want your retirement to be.
“It gets you further down financial planning road,” Newcomb said.
Just picturing a positive future often is not enough. Gabriele Oettingen, Ph.D., a psychology professor at New York University and the University of Hamburg, goes a giant step further. Her book “Rethinking Positive Thinking” introduces mental contrasting, a four-step process called WOOP — Wish, Outcome, Obstacle, Plan.
Picture your positive future, then picture an obstacle that you have the power to overcome. You will be more successful reaching your goal when you connect success to jumping over a hurdle, Newcomb said. The exercise not only shrinks the distance but gives you a sense of the effort it will take to reach your goal.
One caveat: If you do not believe you can overcome that hurdle, or you’re not sure, it will work against you.
5. Cut the cards
The biggest unexpected finding in the study, Newcomb said, was that impulsiveness disappeared among people who do not use credit. Further research will be needed to see if non-credit users simply were the types who weren’t impulsive in the first place or if they were denied credit, leaving them without the opportunity to exercise negative financial behavior.
Either way, if you can cut up your credit cards, you’ll likely make fewer impulsive purchases.
See which exercises work for you. The goal is to help make you a better decision maker, Newcomb said.
What is your experience saving (or not)? Share your thoughts in comments below or on our Facebook page.