We as Americans have a problem – we don’t save enough. In fact, a recent study by Bankrate.com reported that 18 percent of the U.S. was saving virtually nothing from year to year. Of those who were saving, only about one in four Americans were saving more than 10 percent of their paychecks each year. If you find yourself as one of the under-saving majority, I’m not here to berate you, I’m here to give you hope with a simple solution. Save more… tomorrow.
Most people have a hard time taking money out of this month’s budget to stash more into their 401k – it all gets spent. The solution is to save more tomorrow. Here is what I mean. What if you made a commitment today to put any raise into your 401K. Your paycheck would never go down, and you wouldn’t have to cut anything out of your budget. Yet, over time, your savings in your 401K would steadily climb, year after year, almost effortlessly.
The idea, first popularized by professors Richard Thaler of the University of Chicago and Shlomo Benartzi of UCLA’s Anderson School of Management, seems incredibly simple. Yet, studies consistently show that the program works. In one study the average savings for plan participants more than tripled from 3.5 percent to 11.6 percent over the course of 28 months. If you want it to work for you, here is a simple way to get started.
Make the commitment today to save more tomorrow. Because of the success of the Save More Tomorrow concept, many 401K programs now can automatically add any raise into the 401K. That’s right, you can go into your 401K right now, and request that any raise that you receive will automatically increase your 401K savings rate. Since it won’t impact today’s budget, there is no reason to put it off. Since the money will never hit your paycheck, you will never feel like you are missing anything. Don’t know if your 401K offers the program? Check with your Human Resources department.
One of the biggest problems with savings is procrastination – it is just hard to get started. Today’s demands on the paycheck are pressing and it is easy to put off saving for the future. After all, the future isn’t here yet. Yet, the future catches up all of us, and there will be a day that you will be glad that you took some simple steps to secure your future. If you aren’t saving enough, don’t beat yourself up about it. Simply make a commitment today to save more tomorrow.
*A version of this article was first published May 10, 2015
Skowronski, Jeanine. "America's Best Savers Are Not The Wealthy." (March 30, 2015).Bankrate. Retrieved from: http://www.bankrate.com/finance/consumer-index/americas-best-savers-are-not-the-wealthy.aspx.
Soergel, Andrew. "Almost Half of Americans Aren't Saving Nearly Enough." (March 30, 2015). USA News. Retrieved from: http://www.usnews.com/news/articles/2015/03/30/almost-half-of-americans-arent-saving-nearly-enough.
Thaler, Richard. "Save More Tomorrow." (2002). Capital Ideas Vol 4. No 1. Retrieved from: http://www.chicagobooth.edu/capideas/summer02/savemoretomorrow.html.