NEW YORK (MainStreet) — One week into the new year, we feel like we're making real progress on our money resolutions. Two weeks in, we might be falling slightly behind on our goals--building our emergency savings, paying down debt, whatever--but we're still confident that we can make a go of our resolutions before too long. By the third week of January, inertia starts to rear its ugly head, and a month in, we've all but abandoned our dreams of crushing that student debt in 2015 after all.
It doesn't have to be that way, according to Leona Tam, associate professor at the University of Wollongong in Australia and co-author of a study published in Psychological Science called "Saving in Cycles: How to Get People to Save More Money," which addresses people's motivations around savings resolutions. The key, she says, is to adopt a "cyclical" view of your goals. In her study, participants using her proposed cyclical savings method saved an average of 78% more money than those who didn't.
But what does cyclical saving actually mean?
"Our lives have different time periods that come in circles," Tam says. "The four seasons will return each year, so we can prepare different seasons of clothing or food to eat. Similarly, all our incomes come in cycles, like receiving a paycheck every two weeks, for most people."
Most people take a linear view of the world, which entails viewing today before tomorrow before next week. This kind of view usually comes with an assumption that the future is a long time away. A linear view encourages us to keep our eyes on the long-term prize, like the total we need to save for retirement or the amount we want in our emergency fund.
For example, a linear thinker might focus on saving a few million dollars to retire. That sounds tremendous, so every time you contribute a couple hundred dollars, you're using a spoon to empty the ocean. That's not a very effective way to think about a problem, Tam says: "People with a linear orientation are forward-looking, expecting a better, bigger future. That leads to thinking that if there's something you don't do today, you can always catch up later."
By contrast, taking a cyclical view means paying less attention to long-term goals and instead focusing on each "cycle" for its own sake. If you organize a savings goal around your paycheck cycle, you can't justify procrastination.
"For example, say you set a goal to save [a certain amount from] each paycheck," Tam says. "If you didn't put away [that amount] from your last paycheck, you need to try to catch up immediately in your next paycheck. Catching up means you need to put up double the amount. That's quite hard."
In other words? A cyclical outlook means you can't afford to fall behind.
"I'd suggest putting savings aside automatically with a bank from one account to another," she says. "Then it's less likely you'll cheat."
Carrot and Stick Incentivizing
Whenever you fall behind on a cycle, like not meeting your savings goal for this paycheck, Tam recommends doing even more than simply making it up next time.
"Every time you cheat, immediately give yourself a penalty," she says. "By doing that, you're visualizing the consequences."
Typically, if you cheat on something like your retirement savings, you won't feel the pain until much further down the road. Penalizing yourself right now--by socking away extra into savings, denying yourself that gourmet coffee, eating at home instead of going out for that pricy date night--will make sure you feel the pain immediately.
"Instead of waiting for things to happen, you're putting the consequences in now," Tam says.
Of course, that's easier said than done. Every paycheck has its limits; if you simply can't afford to catch up because you've set your savings goal too high, then you might need to reassess your resolution in the first place, Tam says: "If it's not an achievable goal from the outset, you won't do it. If you try twice to save $100 per paycheck but find you're restricting yourself a lot, you can't be on a diet forever, so O.K., maybe you're actually quite comfortable setting a goal of $50. We are making these kinds of saving plans with the assumption a person is actually motivated to make a savings goal."
That said, paychecks are only one common cycle. In some cases, it might make sense to orient your goals around different cycles in your life.
"For some people with less stable income streams or without a regular paycheck, it might be a bit harder to think about saving in this way," Tam says, "like if you're talking about a cab driver whose sole income comes from taxi fares."
She suggests looking back over the past two to five years of your life to identify some recurring cycles. For example, you might spend more in some seasons than others, so you can plan your savings around those slightly longer seasonal cycles.
"Maybe you say, 'I know that I spent a lot of money in May and December,'" Tam says. "So then you have to cut back to smaller cycles before that. What else do you spend on that you can cut back every week?"
Or, instead of navigating your finances seasonally, you can orient your spending to your expense cycle, such as your regular mortgage or rent payments.
One important point about cyclical thinking, she says, is that orienting yourself toward smaller cycles shouldn't preclude you from reviewing your progress in the future.
"Look into your savings account once a year or so to see what kind of harvest you've put away," Tam says. "That gives you satisfaction. Otherwise you're doing the hard work of putting away money, but how does it look and feel? Don't look every month [because that can derail you], but if you go back every year you get to feel joy from your progress, which will motivate you to go further."
--Written by Allison Kade for MainStreet.