How to Overcome Common Obstacles that Can Stifle Your Retirement Savings
A famous psychologist named Walter Mischel pioneered an iconic ‘marshmallow test’ where he offered participants the choice between having one marshmallow right away or having two later. Surprisingly, most participants chose to have a single marshmallow simply because it’s in our human nature to want instant reward and think of only ‘here and now’.
This scenario is applicable to many aspects of our lives including our financial future and retirement. According to a survey, one out of three adults in America haven’t stashed away anything in their savings account and here are the three common obstacles they face when it comes to retirement saving.
OBSTACLE 1: Letting emotions cloud your financial judgement
Humans are emotional creatures by nature and there is nothing you can do to prevent them from meddling into your everyday life and the decisions you make. In fact, research shows that people who experience malfunction in the part of their brains responsible for emotions tend to find it harder to make the simplest decisions such as choosing the right attire for the day or deciding what to have for breakfast – but these people tend to be better than the rest when it comes to investment since they don’t experience the feeling of fear before making a financial decision.
Experts say that almost all of us have a sense of fear when it comes to money because we do not want to lose it, but the key to making smart decisions is by using these emotions to your advantage and not let them run your life. Fear can be a great motivator to help you save for the future. If you happen to have a family or children, remind yourself to put aside money in order to secure a stress-free future for them as well as yourself.
OBSTACLE 2: Having too much optimism about the future
Going back to the aforementioned marshmallow test, humans tend to live in the moment and not plan enough for any obstacles that may occur in the future. Having too much optimism for the future can also to be linked to our egoistic nature which makes us think that we are special and different than everyone else. This confidence isn’t always a bad thing, but when it comes to certain areas of our lives such as retirement, it can hurt our chances of preparing adequately for the future.
The reason why most people haven’t set up a retirement fund yet is because they think that they’ll always have a well-paying job and there will be plenty of time to start saving in the future. But what would happen if you run into an unfortunate problem such as losing your job or your health? Our optimism bias prevents us from thinking about these negative possibilities which is why we don’t prepare ourselves for the worst.
OBSTACLE 3: Letting procrastination get in the way of saving
Most of the obstacles that prevent us from making sound financial decisions are connected to the basic human psychology and our natural instincts – procrastination is no different. Humans have an innate instinct to put things off till later simply because our mental inertia prevents us from starting something new.
We are also wired to think in the short-term and it becomes hard to comprehend financial gains so far in the future which is why saving for retirement is a huge challenge for most of us. One way to overcome this challenge is by visualizing what your retirement will look like and jotting down the things you want to do when your daily nine-to-five grind is over.
Maybe you want to nice beach house or a grand vacation with your family or loved ones. All these things require a lot of money which you won’t have after you stop working – unless you were smart enough to start saving early. If you need a reality check on how much difference compound interest can have on your savings, sit down with a financial advisor to do some calculations and discuss the best investment options for you.
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