The Psychology of Saving More Money And Planning For Retirement, With Professor Hal Hershfield

Money can be a hard topic to tackle: We have to consider ways to spend less, save more, and plan for retirement. But the truth is, we only need to follow a few rules to live a healthy financial life.  The rules are: Spend less than you make, build up an emergency fund, set aside money for retirement, and invest the rest. It sounds simple — and it is. But we know that the reality is a lot more complicated — because people are complicated, and life gets in the way. 

We all know, for example, that we should save more for retirement, yet we procrastinate on doing the basics, like contributing to our 401(k)s. (And when we do this, we might even be missing out on employer matching dollars, which is free money!) Twelve percent of Americans have access to a workplace retirement plan but leave matching funds on the table, according to a survey by MagnifyMoney. 

Yes, it can be incredibly hard to save more money for the future when we have bills and unexpected emergencies to pay for today. But building long-term wealth means we have to plan ahead. And that doesn’t have to mean completely overhauling your budget or cutting out every unnecessary expense. Hal Hershfield explains how some of the most powerful tools we have for financial success are just simple mindset shifts. 

In his new book,  “Your Future Self: How to Make Tomorrow Better Today.” he found that the key to sticking to our goals is being able to imagine our future selves. (In HerMoney’s book for young savers, “How to Money,” we called this concept “future you!”) Hershfield is also a professor of marketing, behavioral decision-making, and psychology at UCLA’s Anderson School of Management who spent his career studying how we can improve our long-term decision-making. 

For example, it’s easy for us to spend half our paycheck on that Taylor Swift concert ticket because that’s what we most want to do with our money today…But it’s far less easy for us to imagine ourselves at 80 and what kind of life we’ll be leading. Hal says the reason for this is that we live in the present. His research has found that “we sometimes even think about our future selves as if they are other people.” But we all know we want to be financially stable to be able to do things that bring us happiness later in life. So how do we better picture that person, plan ahead, and make decisions for them now? 

When we are able to think more deeply and vividly about the person we’ll be at age 70 or 80, we’re more likely to save more money for the future and prepare for that person now. (Funnily enough, when we can actually “see” the person we’ll become, we’re more likely to save for them. Apps like Aging Booth  can help, by showing you what you’ll actually look like in 20 or 30 years!) “When people are exposed to these older age-progressed images, they’re more likely to want to make a contribution to a long-term savings account or retirement,” Hal says. Interesting.

So, when you picture yourself in retirement, do you see yourself sitting on a  beach in the Caribbean with a frozen margarita in hand? Perhaps you’re enjoying that little mountain chalet you’ve always dreamed about. Start with whatever it is you want most, then work your way backwards to determine what it’s going to take to get there financially. You got this! 

More from HerMoney:

• HerMoney How-Tos: Where to Open an IRA and How to Open an IRA
• How to Use an HSA to Boost Your Retirement Savings
• Make Sure Your 401(k) Is On the Right Track

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