Having trouble saving for the future?
Instead of “tightening your belt(s)” to save more money today, why not make a commitment to save more money tomorrow?
The Save More Tomorrow (SMarT) Technique, pioneered by Shlomo Benartzi & Richard Thaler, boils down to saving more money when you get an increase in pay.
I encourage you to do your own research, because there is far too much to write down, but the SMarT technique uses natural human psychology to your benefit, you maintain your standard of living while meeting your savings goals.
Now, off to Math Land! Let’s use an example to prove this simple point.
Assume John Doe and Jane Doe, both make the same, get 4% pay raise each year, and have a Goal to save 15% of their income. John doesn’t have a plan, so he inevitably sticks to only saving 5% of his income (what he started out with) because when he goes to the store, there are nice watches to buy and shoes that match his fancy new car!
Jane on the other hand commits to increasing her savings by 3%, every time she gets a 4% raise. This will still give here take home a 1% bump, because she has earned it, and it is short term pain for long term results. Can you guess what happens?
| John D | |||||
| Year | Income | Take home | Savings / year | % savings | |
| 0 | $100,000 | $95,000 | $5,000 | 5% | |
| 1 | $104,000 | $98,800 | $5,200 | 5% | |
| 2 | $108,160 | $102,752 | $5,408 | 5% | |
| 3 | $112,486 | $106,862 | $5,624 | 5% | |
| 4 | $116,986 | $111,137 | $5,849 | 5% | |
| 5 | $121,665 | $115,582 | $6,083 | 5% | |
| 10 | $148,024 | $140,623 | $7,401 | 5% | |
| 20 | $219,112 | $208,157 | $10,956 | 5% | |
| 30 | $324,340 | $308,123 | $16,217 | 5% | |
| 40 | $480,102 | $456,097 | $24,005 | 5% | |
| Grand total Saved | $499,133 | ||||
| Jane D | ||||
| Year | Income | Take home | Savings | % savings |
| 0 | $100,000 | $95,000 | $5,000 | 5% |
| 1 | $104,000 | $95,680 | $8,320 | 8% |
| 2 | $108,160 | $96,262 | $11,898 | 11% |
| 3 | $112,486 | $96,738 | $15,748 | 14% |
| 4 | $116,986 | $99,438 | $17,548 | 15% |
| 5 | $121,665 | $103,415 | $18,250 | 15% |
| 10 | $148,024 | $125,821 | $22,204 | 15% |
| 20 | $219,112 | $186,245 | $32,867 | 15% |
| 30 | $324,340 | $275,689 | $48,651 | 15% |
| 40 | $480,102 | $408,087 | $72,015 | 15% |
| Grand total | $1,474,667 | |||
Notice that, both of these people are in some seriously high paying careers! Second, in the first 4 years, Jane’s take home still increases but it is not a substantial enough to impact her standard of living, making her savings goal easier to reach.
Q: So what is the message here?
A: When you get a raise, commit to increasing your savings. Even a small increase over a number of years will yield DRASTIC RESULTS!
~Enjoy MMT~
PS
Again, this is scribble that I scrabbled on a white board 5 years ago but for me, was the start of a theory that money (as in how it is used) is not a mathematical argument as many people would lead you to believe.
At the heart of every financial decision is YOU, and the math is not wrong, it is how you apply it, the lens you see it through, the twist of the tale you tell yourself that can have an impact on the results.
To begin to fix your finances, you have to fix yourself first, and at times that does mean you have to hijack or “life hack” your own ideals or routines you find yourself trapped in.
Hence why save more tomorrow is such a SMarT and easy thing to start doing, even right now. It worked for me, it has worked for over 15 million people, and it sure can work for you!
-MMT