When it comes to saving for a long-term goal -- like college -- sometimes we can be our own worst enemy.
In my last column, “Your College Savings Plan: How to Keep it Real,” we explored some practical ways to put together a savings strategy that will truly work for you. The fact is that there are lots of tips and tools that make a big difference once you’ve committed to a savings plan.
But what do you do if you just can’t seem to get started with saving?
If that’s your problem, you have lots of company. In the last few years, Americans generally have been pretty poor savers. The U.S. personal savings rate – the percentage of their disposable income that Americans sock away each year – was as high as 10.8% in 1984. But the rate had plummeted to 1.4% by 2003, and had even slipped into negative territory –- minus .5% -- by late 2005, meaning that people were actually spending more than they were making.
Lately, with many families eager to re-build their savings in the face of so much economic uncertainty, the rate has climbed back up to 6.9%. But there’s no guarantee that we won’t return to our big spending ways once economic conditions improve.
It's All in Your Head
The fact is that fundamentally, human beings aren't "hardwired" to save for the future – spending on something we want now is what really turns us on. This phenomenon has actually been demonstrated as part of the emerging field of neuroeconomics, which examines the basic role that the brain plays in our financial decision making.
Neuroeconomists have discovered that when a person contemplates buying something really great, right now, their brain literally "lights up" with pleasure. But things like college and retirement are too far away and too intangible to arouse anywhere near the same amount of interest, at least as far as the brain's "pleasure centers"are concerned.
Saving in Spite of Yourself
Saving is hard enough, without our brains getting in the way. But there are ways to overcome what the brain wants and instead get going on what you really need -- like a good college savings strategy.
Get that college sweatshirt today: To save effectively for the long-term, your future goal has to be more attractive than things that might sap your savings today. Try to make the goal of college tangible – by seeing it, touching it, developing a great mental image of it to carry forward as a defense against your spending impulses. You can start reinforcing the excitement of college early with little visual reminders – like perusing the brochures and Websites of great-looking schools, or picking up a sweatshirt or cap from a college that's caught your interest (maybe they just have a really stylish logo!). Later, you and your undergrad-to-be can talk to college students you know about their experiences, visit prospective colleges if you can, and investigate how college can help your child turn personal passions into satisfying life's work. Transform the mere idea of college into something you and your child can virtually see – and you'll build some excellent motivation to keep reaching for the goal.
Let someone else do your saving: It's clear that our brains, left to their own devices, will try to sabotage our savings efforts at every turn. Don't give your brain the chance – instead, make sure that someone else is pushing the button on your savings every month. I've put all my discretionary savings accounts – including my savings for college and retirement – on autopilot, by taking advantage of withdrawal features that direct assets into those accounts automatically every month. That ensures that my monthly savings targets are met before anything else -- like a "gotta have it now" expenditure -- happens to my money.
Start enjoying your savings journey: Maybe none of us will ever get quite the "rush" from saving that we get from spending. But over time, as I've learned better and better ways to save, I've found that I'm getting more and more pleasure – pure and simple – from sticking to my savings plan, even with all the market's recent speedbumps, and watching my accounts continue to grow. That doesn't mean obsessively monitoring your 529 or 401(k) balance. For me, it just means a once-a-month or even a once-a quarter account check that tells me that, steadily but surely, I'm making progress toward the things that really matter: higher education for our kids and financial security for our later years. Share your enjoyment with your college-bound kids as well, by letting them know you're actively saving toward the goal – and pulling it closer every day.
Good saving is about making good choices – something that, unfortunately, doesn't come naturally. But once you learn about the hurdles to good financial decision making, your decisions will get easier – and that's a pretty good feeling, too.