Focus on the Future to Save More Money
According to research by Sarah Newcomb, a behavioral economist at Morningstar and HelloWallet, people who are future-minded and think ahead have more savings than those who do not. In addition, two simple areas of inquiry can accurately gauge the status of a person’s financial health:
How far in advance do you make plans?
How much control do you feel that you have over events that happen in your life?
Studies have shown that “time is money.” In other words, people who focus on the future and feel that they create their own financial destiny tend to save more than others for retirement and other financial goals. When people focus on the future, they tend to be less impulsive (e.g., spending habits), regardless of their level of financial literacy.
Newcomb found that the strongest predictor of good financial decisions is not financial literacy but, rather, a focus on the future. High levels of impulsiveness and materialism, on the other hand, were associated with poor financial decision-making. For short-term thinkers, risk is not as painful as waiting.
In addition, Newcomb’s research found that “power is happiness.” Empowered people are financially happier than others. Conversely, people who don’t feel in control of their personal finances have been found to exhibit negative emotions about their financial status up to those earning a six-figure income.
Newcomb’s research, which is summarized in her book, Loaded, has found that, the farther away something is in the future, the less people care about it. The secret to fostering future-mindedness by yourself and others is to trick your brain to think that “the far away is close.” When this happens, people care more about the future because the “Here and Now” is clear and intense while the “There and Later” is vague, abstract, and unemotional.