Wealth Building

Some of us do not really need a financial expert to say that saving for retirement is very difficult. The question we must ask ourselves is: what is our problem with saving money?

There are four psychological determinants intrinsic to us, who could answer this question, as the political economists.

The four psychological principles that prevent most people in savings, are as follows:

1. Even with the interest of saving more, many people lack the willpower to do so.

2. The restrictions are much easier to accept if they come into force later in life. That's why most people lose time and the intention of saving the next year instead of going out now.

3. Most people are much more sensitive to losses than gains. Cash recorded a loss identified many of us on the ground that he can not bring instant gratification that we need at this point.

4. We think in nominal rather than real money. This is called the "money illusion." A wage increase even though it is well below the inflation rate is considered a gain. So people can not understand that the cost of living is rising faster than their cash flow.

The "Save More Tomorrow" System

Through these psychological concepts indicted, came Richard H. Thaler and Shlomo Benartzi economists with a new retirement savings plan called Save More Tomorrow. It works by inviting people to participate in an upcoming savings plan that will start in their next scheduled pay increase. Once they get their pay raise is automatically a part of their 401 (k) contributions. It's really good because people do not feel a reduction in their wages, yet they are actually saving more.

Let's say you are in your mid-thirties, planning to retire in 1965, no savings in 401 (k). You just have to average household income of $ 49,777 and a 3% salary increase each year. If you save only two-thirds, you can add and contribute to your 401 (k) when you retire you will have accumulated a rough $ 1,500,000.

"Save More Tomorrow" method can be used for all your unexpected income. Why not hide some of your extra income from your bonuses, tax refunds and other income from your retirement savings? Anyway, it would not hurt to put the money you have lived outside to begin.

Every dollar reserves figures gap. Not as small as it is, it has the potential for accumulation. When you start to get results, you'll probably notice how the savings can become addictive. You will become excited and the whole economy more aggressively targeted. So the way to the beginning of his happiness in retirement.