Saving for Tomorrow, Today

If you could go back in time and sock away some money for a rainy day (maybe today), would you? Sure you would. Who wouldn’t want a fatter savings account?

So why didn’t you?

The answer is pretty simple, and it’s because of something called “present bias.” Basically, we’re wired to spend for enjoyment in the present, not save for the future. In fact, the difference between how we treat money short-term and how we treat money in the future is dramatic.

Getting Real Results

In an experiment, people were asked if they wanted $200 in 11 months or $240 in 12 months. Most people decided their future selves could wait a month for the extra money. But when asked if they wanted $200 today or $240 in a month, most said they wanted the $200 now.

It’s exactly the same financial proposition, with the only difference being time. So why does time make such a difference? The theory is we react emotionally in the shorter term, and so we want instant gratification. We want to go out to dinner tonight, we want concert tickets for this weekend, and we want the getaway weekend ASAP.

And, to think of saving money for our future selves, we need to switch from the emotional to the logical part of our brain that allows us to weigh future possibilities. We also have to ignore the pain of savings. Yes, not spending that money for pleasure now and deciding to save it for the future has some psychic pain attached to it.

You don’t even need money and months to see how this tradeoff works. In another experiment, a group of people were going to meet again in a week, and they were asked if they’d like bananas or chocolate for a snack at that meeting. Most—about 70 percent—made the healthy choice for their future selves and chose bananas. Over the course of the week, their preferences gradually changed, and on the day of the meeting, about 70 percent chose chocolate.

Helping the Future You

So given that we’re wired to spend now, and it’s actually painful to save money, how do we save for the future?

The easiest way is never to make the decision to save at all. Do this by signing up for automatic deductions to a savings account to start at a future date, and be sure you’re in your company retirement savings plan, if available. That way, money is automatically transferred to savings, and the painful decision to give up pleasure today isn’t an issue. Most banks and credit unions offer auto-saving capabilities. Navy Federal Credit Union offers a variety of savings accounts with automatic transfers from your checking account, giving you the ability to set it and forget it.

But, you say, you need to make the decision to save to begin with. True, but remember the chocolate and fruit example? It’s easy today to make a virtuous choice for your future self, and you won’t be making the decision every time you should be saving.

And, by recognizing how our brains work, here’s a trick that’s been proven to work to increase saving: When you come into money, spend some to make your short-term brain happy, and save some to do the right thing for your future self.

For example, say you get a 2% raise. Keep 1% in your paycheck and defer the other 1% to your 401(k) or other savings plan. Think chocolate-covered bananas—the best of both worlds.

You can also use “commitment devices” to help you save. There are other tricks to help give your willpower a boost. Publicly announce your goal to friends and family and let peer pressure work its magic.

Learn more about saving for short- or long-term goals, and try saving more with some of these tricks: the future you will appreciate it.