Here’s to a promising future
There is a saying that “a promise is a debt” but promises can actually be hugely helpful in saving and investing – and other financial situations, such as paying off debt.
In technical terms, these promises are sometimes called commitment contracts.
Research by Harvard University’s Brigitte Madrian finds that promising to save until a certain goal is met or until a set date can boost savings. As detailed in the eZonomics slideshow Five intelligent tips to help retire in comfort, in a study savers who chose to restrict the right to withdraw their money saved 82% more. Madrian writes that these types of promises are so effective because they reduce temptation to spend and provide a basis to ignore pressure from loved ones to dip into savings.
Build a savings habit
Regular saving every month also taps into the idea to “pay yourself first”.
A favourite technique of many personal finance experts, it prioritises saving at the start of the income cycle rather than leaving it until the end of the month, just before money runs out. Committing to save every month for a year can create a habit that means saving happens as a priority.
When the promise ends
A blogpost by Decision Science News details a study about what happens when commitment contracts end. The study itself was about promises to lose weight and it found weight was regained once commitment contracts ended.
The advice? When your commitment to save every month for a year expires, renew it. It could prevent slipping back into bad habits or developing new ones.