A few months ago, I interviewed a behavioral economist named Dr. Stephen Wendel on my podcast. He suggested an idea that’s so crazy it might work.
We were discussing the fact that people often stand in their own way; there’s a gap between intention and action. We know what we “should” do, but we don’t follow through. We procrastinate. We make excuses. We act against our own self-interests.
We have an image of our ideal self, we have the reality of our current self, and it’s harder than expected to bridge that divide. Why?
Most people try to figure out the problem. “Why can’t I stick to my goals?” But during our interview, Stephen turns this conventional wisdom on its head.
Maybe we should approach this as treatment first, diagnosis second.
He suggests that you try a handful of solutions. When you find the one that works, you’ll know the problem.
Here’s what he said:
“First, we have to figure out what the obstacle is that’s stopping us. This doesn’t come necessarily from self-reflection. This can come from just trying new things.”
“Let’s say you want to save more for the future … One way is to say, ‘Okay, maybe it’s a problem of inattention. Let me set some reminders that at the end of each month I’m gonna do it.’ For some people, that’ll work; for some people, it won’t.”
If that works, Stephen says, then you’ll know that you were struggling from inattention to finances. But if it doesn’t work, then try something else. He continues:
“For others, maybe it’s, ‘ … When I think about saving for the future, it just doesn’t seem real … It’s too far away. I’m just focused on the present.’ Well, in that case, [there are many] great tools that can help people think more about the future, right?”
Try setting specific goals with deadlines, such as “I’d like to spend two months traveling South America with my family, and I’d like this trip to take place before my oldest child turns 10.” Based on that goal, you know that you have a deadline of four years, and this brings the future into the present.
Alternately, download an app that digitally ages your appearance, like AgingBooth, AgeMe or Oldify. If you see what you’ll look like when you’re 65, you may be more motivated to save for traditional retirement age.
If that doesn’t work, spend an hour writing creative fiction about your life when you’re 65, or write a scene depicting your family life when your children enroll in college. This can make the idea feel more real, which can act as a motivator to save.
But if you try these solutions, and none of them work, then perhaps the issue isn’t that the future feels too distant. Perhaps there’s another issue at play.
“For other people, [the problem] might be, ‘… I know that savings alone isn’t enough. I need to invest, but wow, in order to invest, I need to go spend all this time researching what are the right funds, etc.’ That’s a self-efficacy or an ability problem.”
If the issue is self-efficacy, then reading books, blogs and listening to podcasts, or meeting with a fee-only financial advisor or coach, may be helpful.
The broader idea is that you don’t know what you don’t know. Sometimes, the problem is retrospective. Try different tactics and see if something works. If a tactic works, then the solution identifies the problem. Treatment first, then diagnosis.
How to Bridge the Gap
Okay, so the underlying problem might be lack of confidence or a deep-rooted fear or anxiety. That sounds like a lot to grapple with. What are the potential solutions? How can you bridge the gap between where you are and where you want to be?
Here are five of the many solutions Stephen talks about during our interview.
You know what you ‘should’ do. But you don’t do it. That’s normal.
The solution is to automate as much as possible. Automation is one of the most effective strategies for bridging the gap between knowing what you should do and actually doing it.
“If there’s a general rule in behavioral science, it’s that these challenges that we face, they’re part of how our minds are wired. They’re not going away. They’re part of our humanity. One of the ways out of these problems is to avoid our humanity.
“For example, if we’re really bad at planning, [we might] say, ‘Yeah, when I get my tax refund … I’m gonna save it all.’ That would be an example of not being able to forecast your own future behavior.”
“Well, one of the things you can do is pre-commit [to] that. Set up a transfer from your checking account or wherever the tax refund is [getting deposited]. Have it automatically withdraw the money on the day … when the money’s gonna hit. That way, you’ve already locked in your intention.”
If your actions don’t match your intentions, don’t worry. Automation essentially saves you from yourself.
Try earmarking dollars for specific purposes. Your first paycheck of the month is used for savings only. Your second paycheck of the month is used for paying bills.
The benefit of creating mental accounts is that every dollar has a purpose, every dollar has a job or a meaning ascribed to it.
During our interview, Stephen says:
“Mental accounting is this: theoretically, money is fungible. A dollar for one purpose is the same for another purpose. [But] in our minds, it isn’t.
“In our minds, we often tag money for a particular purpose. I have kids. I have money set aside for my kids’ education. It would feel really, really wrong to take that money and buy a really cool scooter, which I know I want. I would love to have a scooter, [but] that would just feel wrong. However, if I got a bonus, that money — it doesn’t have a specific purpose yet. I’d feel perfectly okay using that for a scooter.”
Money is, essentially, a tool that allows us to survive. But we layer this with emotional, psychological and symbolic meaning.
Given that our natural tendency is to ascribe meaning to money, why not use that tendency to our advantage?
In sheer mathematical terms, a dollar is a dollar is a dollar. If your net worth is $X, then your net worth is $X, and you have that entire amount as a giant lump sum to deploy however you choose.
But if you’ve mentally earmarked a specific subset of your net worth for your child’s college, or for retirement, or for an emergency fund, you’re less likely to use that money at a high-end sushi restaurant.
Once you’ve assigned a job to each dollar, it’s easier to avoid the temptation to spend your money in ways that don’t fit your goals.
#3: Create vivid scenes
Long-term goals are crucial, but it’s easy to bias towards the short-term. We know we should save for retirement, for example, but it’s tempting to see a dozen other ways we’d rather spend today. And these reasons often feel more compelling because the future is a distant, hazy idea.
Stephen describes a technique that researchers use called ‘vivid imagining’ that makes the future feel more immediate:
“Pick a day. Let’s say it’s Thursday, October 27th of this year that you’re planning [to retire]. What does your house look like?
“What does your kitchen look like?
“What do you see outside the window?
“What are you doing at noon?
“Okay. After you’re done with that, what do you do next?”
As Stephen went on to describe, the brain is naturally inclined to respond to detailed stimuli. The present moment is vivid because we’re living in it. We can fight our tendency to focus on the “now” by making the future, if not as vivid as the present, at least vivid enough to inspire action.
#4: Practice perspective hindsight
Another way to make sure you’re living in alignment with your long-term goals is to project yourself into the future and then look back in hindsight.
“Perspective hindsight is a technique where you imagine a future point and you have yourself look back. What did you really enjoy? What did you regret? It’s a matter of getting out of the current moment and seeing what really matters to you.
“I actually did this exercise in my own retirement planning. I wrote it all out and said, ‘Okay. I’m 30 years out. If things go really well for me, what will I be happy about? If things go really poorly, what will I be sad about? … What will I really regret?
“Oddly, never in that picture did it come down as, ‘Wow. I wish that I’d spent another five hours each night in the office.’ That wasn’t one of them … It’s sorting out what parts of your life, what parts of your work, what parts of your family life, really matter.”
If you make decisions by asking yourself, “What will Future Me regret not having done now?” (or, conversely, “What will Future Me regret doing?”), you can use the benefit of hindsight to make decisions about what to do in the moment.
This tactic uses the Fear of Missing Out, FOMO, to your advantage. FOMO is the low-level anxiety that comes from worrying, “What if, 20 years from now, I look back and realize I missed out on X, Y or Z?”
Sure, FOMO can apply to the fear of missing out on partying or traveling or other Instagram ideals, but it can also apply to not saving enough for retirement or to the way that you treated your health.
Sure, there are some regrets we can never anticipate because we don’t know what our priorities will be in the future. Maybe 20 years from now, you’ll regret not having learned how to juggle. That type of thing is tough to predict.
There’s no way that we can reasonably predict everything, but we can reasonably predict regrets we may have around not taking care of our future self. That’s the premise behind perspective hindsight: care for your future self. Your job is to take care of the future version of you.
This tactic is a bit counterintuitive. It doesn’t require you to do more. In fact, it asks you to embrace a little bit of “less.”
“For somebody who’s an expert in the field [of retirement planning], it might seem perfectly reasonable and obvious [to say] … ‘You go to this calculator. You figure out what your long-term medical expenses are going to be. You figure out … whether Social Security’s going to be there and you factor in that probability. And then you do this over time. You take in inflation and what the stock market’s gonna do.’ Right?
“Experts in the field are like, ‘Oh yeah, this is obvious. You just go do that.’ For everybody else, it is like flying an airplane with no training. We don’t do those things. How do we get over that lack of self-confidence and see that it’s in fact not actually that complex?”
Those are the operative words: you’ll see that it’s in fact not actually that complex.
Don’t let the perfect be the enemy of the good. Approach your finances in a way that’s simple, manageable, actionable and good enough, and then leave good enough alone. Sometimes that’s all you need.
You can listen to the full interview here:
Or you can listen directly here: