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Abstract

cue suggest that people increase their savings by an arbitrary amount without providing any information as to why they should increase their savings by this amount.The idea behind this type of cue is that arbitrary numbers, or anchors, can shift people’s judgments and willingness to spend on certain items.#2 — Savings threshold cues.This type of cue mentions a savings threshold created by the 401k’s employer matching contribution rules or contribution limits.Many people pick how much they want to save for their 401(k) by following a general guideline based on the plan’s rules. For example, some plans suggest saving the most you can, while others suggest saving just enough to get the most matching contributions from your employer.The idea is to nudge people into saving enough to hit these thresholds.#3 — Goal-based cues.Research has shown that people who set specific goals that are difficult to achieve have much better results than people who choose vague or easy-to-achieve goals.A specific and ambitious goal would be “max out your 401k contributions.”A vague and unhelpful goal would be “to do your best to save more.”<h1 id="a753">How Do Savings Cues Affect Your Savings Choices?</h1>Unsurprisingly, ambitious goal-based savings cues helped people save the most money.Emails reminders with cues that presented people with a specific and ambitious savings goal increased 401(k) contribution rates by up to 2.9% of income in a pay period.That might sound small, but increasing your savings rate by 2.9% is huge.For someone making $100,000, these savings cues mean saving an extra$ 2,900 per yea

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r. If they have employer matching contributions, that could to $5,800 per year.After 20 years of earning 7% per year, that turns into$ 252,000 — and $589,000 after 30 years.For many people, that is a life-changing amount of money created by simply having periodic email reminders to set specific and ambitious savings goals.<h1 id="9899">I created an automated system to help you crush your savings</h1>After reviewing the research on the effectiveness of savings cues, I started looking to see which Fintech company offers a service to periodically send email reminders to help people set and stay on track with ambitious savings goals.I found nothing.So, I created the service myself — which is exclusively available to paid subscribers of Making of a Millionaire.If you a subscriber to Making of a Millionaire on Substack, <a href="https://open.substack.com/pub/benlefort/p/free-stuff-for-paid-subscribers?r=r7ti9&utm_campaign=post&utm_medium=web">head over to the paid subscriber perks page here </a>for instructions on how to set up your savings cue reminder email.<a href="https://open.substack.com/pub/benlefort/p/how-to-achieve-ambitious-savings?r=r7ti9&utm_campaign=post&utm_medium=web">A version of this article </a>originally appeared on <a href="https://benlefort.substack.com/">the Making of a Millionaire Substack</a>, the home of my most thoroughly researched articles designed to help you use money to live your best life.This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.</article></body>

How to Achieve Ambitious Savings Goals Based on Behavioral Science

I created an automated system to help you crush your savings

The average person has more than 6,000 thoughts per day — or 6.5 thoughts per waking minute.

With that much thinking, it’s a miracle we can stay focused enough to remember any non-essential task.

Our easily distracted minds are a major reason most people fail to stick with their savings goals. In this article, I review research that shows how simple savings cues can help you stay on track financially. Read to the end for an exciting new service I created to help you automate the process of sending yourself savings cues.

What Are Savings Cues?

A 2017 paper examined how providing people a cue to increase their savings through an automated email reminder helped people save for their retirement through their 401k.

Three different types of cues were used in the reminder emails:

#1 — Anchor cues.

The emails that used an anchor cue suggest that people increase their savings by an arbitrary amount without providing any information as to why they should increase their savings by this amount.

The idea behind this type of cue is that arbitrary numbers, or anchors, can shift people’s judgments and willingness to spend on certain items.

#2 — Savings threshold cues.

This type of cue mentions a savings threshold created by the 401k’s employer matching contribution rules or contribution limits.

Many people pick how much they want to save for their 401(k) by following a general guideline based on the plan’s rules. For example, some plans suggest saving the most you can, while others suggest saving just enough to get the most matching contributions from your employer.

The idea is to nudge people into saving enough to hit these thresholds.

#3 — Goal-based cues.

Research has shown that people who set specific goals that are difficult to achieve have much better results than people who choose vague or easy-to-achieve goals.

A specific and ambitious goal would be “max out your 401k contributions.”

A vague and unhelpful goal would be “to do your best to save more.”

How Do Savings Cues Affect Your Savings Choices?

Unsurprisingly, ambitious goal-based savings cues helped people save the most money.

Emails reminders with cues that presented people with a specific and ambitious savings goal increased 401(k) contribution rates by up to 2.9% of income in a pay period.

That might sound small, but increasing your savings rate by 2.9% is huge.

For someone making $100,000, these savings cues mean saving an extra $2,900 per year. If they have employer matching contributions, that could to $5,800 per year.

After 20 years of earning 7% per year, that turns into $252,000 — and $589,000 after 30 years.

For many people, that is a life-changing amount of money created by simply having periodic email reminders to set specific and ambitious savings goals.

I created an automated system to help you crush your savings

After reviewing the research on the effectiveness of savings cues, I started looking to see which Fintech company offers a service to periodically send email reminders to help people set and stay on track with ambitious savings goals.

I found nothing.

So, I created the service myself — which is exclusively available to paid subscribers of Making of a Millionaire.

If you a subscriber to Making of a Millionaire on Substack, head over to the paid subscriber perks page here for instructions on how to set up your savings cue reminder email.

A version of this article originally appeared on the Making of a Millionaire Substack, the home of my most thoroughly researched articles designed to help you use money to live your best life.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.