In a recent Smart Money poll the majority of people responded that they do not save because their futures are uncertain.
Economists will tell you that when people are feeling uncertain then they save more, not less.
So this not saving because you are uncertain seems counter-intuitive. However, what people may mean about an uncertain future is that they simply cannot picture their future rather than that it is uncertain.
This raises a very important point about the importance of having a goal or dream when it comes to saving.
Dr Merle Friedman, a behavioural finance psychologist says many people perceive saving as a loss of immediate spending, in other words a sacrifice. We know from behavioural finance studies that loss is twice as distressing to someone as the positive feeling you get from a gain (which is why people tend to invest very conservatively even if they know in the long-term they could make more money from a risker investment).
This feeling of savings as a loss makes it difficult for people to accept the sacrifice today in order to receive the benefits later.
The best way to overcome this emotion is to have a clear picture of what your future looks like. If you cannot see your future or do not know what you are saving towards then it becomes more difficult to motivate yourself to save.
Friedman says it is important not to get caught up in “numbers”. Everyone wants to know what the magic number is for retirement, but what you should rather be asking is how you see yourself living the in the future. What do you want that future to look like, what kind of lifestyle do you want?
It doesn’t always have to be about money, it could be fulfilling a dream to work a charitable organisation, manning a yacht around the world or being your own boss at the age of 50. Only once you have a picture of your future then ask how you will get there financially. We can make the sacrifices today because we feel we are gaining so much more tomorrow.
Friedman says when we have dreams we can cope better with the stress and challenges of life because no matter how bad today is going, you still have your dream to look forward to, something to live towards.
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