Delayed Gratification: Retirement Saving

One of the greater challenges we face every day is delayed gratification. Our brains are hardwired to take what is available to us today in lieu of saving it for later.

Thinking back to less modern times, you can imagine how eating whatever food was available to you today must be eaten. You couldn’t afford to save for tomorrow, since there might not be a tomorrow. These behaviors are ingrained in our human minds.

In today’s modern society, it is extremely difficult for our brains to accept the fact that a small sacrifice today will be worth the larger payoff at a later date. Here are a few examples to paint a better picture:

If we do not eat the candy bar before dinner and leave room for a salad instead, we will be healthier.

If we do not lay on the couch and go for a run instead, we will be fitter.

If we do not watch the new show on Netflix and read a book instead, we will be smarter.

If we do not purchase the expensive car and save for retirement instead, we will be wealthier.

You can imagine how this affects our financial life. Every day we are faced with deciding between making a seemingly small purchase versus saving for our future retirement. This is an extremely difficult task, as we feel the urge to spend money in order to impress our friends, coworkers, family members, or ourselves.

Now we must ask, can we train ourselves to behave properly (delay gratification)? We know it will be better for us in the long run, but we still struggle with it on a daily basis.

By putting the proper systems in place, we can take the daily decision making out of the process and set ourselves up for success (get out of our own way).

Here’s how I suggest you put a system in place in order to succeed at saving for retirement:

  1. Start Small - I mean really small. Make an improvement to your saving habits today in such a small fashion that you can’t say no. If you are just getting started, start by saving 1% of your paycheck to your retirement account (this can be a 401(k), Roth IRA, or something similar).

  2. Automate your savings. As we have talked about, the fewer good decisions you need to make on a regular basis, the better. By setting up your emergency fund, house fund, and retirement fund for automatic monthly contributions, the fewer opportunities you have to slip up. After a few months you’ll be so used to the process you won’t even miss the money going toward these goals.

  3. Increase your savings by 1% every month. There is great power in incremental improvements. By increasing your savings 1% each month, you will be up to a 12% savings rate one year from now, well on your way to a successful retirement. This process will give you time to adjust your monthly budget, providing room for the additional retirement savings.

  4. Stay consistent. By staying consistent in our efforts, we eventually can form good habits. When we create a habit, we get so accustomed to our new way of life, we do not miss our old ways. Jerry Seinfeld’s advice to aspiring comedians is to not break “the chain.” He suggests buying a big wall calendar and marking a red X through each day they write a new joke. Do this day after day, and you begin to see a chain. Your goal is simply not to break the chain of monthly saving to your retirement accounts.

By putting in the proper systems, we will get out of our own way and be able to ward off the challenges of delayed gratification.

 

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