When it comes to financing her life, Tamara Benavente, 30, looks a decade forward when setting her money goals.
When she arrived in Miami at 21 years old from Argentina, her focus was funding her education and her vacations. After her last birthday, however, Benavente decided she wanted to be the kind of adult with a retirement account, an emergency fund, and the financial cushion to start a family.
To that end, she has always — and she means always — put 20 percent of the paychecks she ears as a receptionist into savings. When she gets called by production companies to pursue her passion of filmmaking — and work on music videos or commercials — she uses that money in its entirety to pay her taxes each year.
“My 20s were about surviving and trying to move forward with a career,” she says. “But in my 30s, I can think of bigger things. This is the decade where I say, ‘Wow, if I don’t get things done they’re not going to happen.’ ”
When you consider the personal savings rate in America is 5.80 percent — down from a long-term average of 8.39 percent — it seems we’d all do well to take a cue from Benavente. The little known trick, however, is duplicating her cyclical approach to savings. That means attacking our finances with an eye on short-term chapters.
New research indicates that we tend to get overly optimistic about the future. And that causes us put off today what we assume will most certainly be easier tomorrow.
“If you’re looking at a circle of time and think smaller, you’re thinking about what you need to do now,” says Leona Tam, a professor at the University of Wollongong in Australia. “When we say, ‘I can skip saving today because I can catch up in the future,’ it’s not impossible but it’s very uncertain.”
Tam and her team took American subjects, divided them into two groups, and performed a series of experiments. In one, they simply talked about different ways of looking at life. The “linear group” was told that events — such as childhood, adolescence and adulthood — are over once they’re in the past.
The cyclical group was told that events repeat just as the four seasons return each year, and that creating routines in the current cycle makes a person more likely to repeat them in the next. This group reported 78 percent more savings a few weeks later.
“By thinking in cycles, you’ll start to realize, ‘What I do today will affect what I do next week and next year,’ ” says Tam. “We figured there were fundamental differences in the way people looked at saving.”
That’s for sure, says Olivia Mellan, author of Money Harmony: A Road Map for Individuals and Couples, who specializes in coaching people on how to merge their money styles. Sometimes our brains are hard-wired to spend or save, says Mellan; in other cases, our upbringing shapes our relationships with money. Regardless of the reasons, some people hoard money and others worry about it. Some of us overspend and others can prioritize and budget.
“People with different money styles operate in different universes,” says Mellan.
If we need to change our habits, Mellan says it’s best to start by doing one or two things that don’t come naturally. That means adopting new behaviors for one or two weeks, such as avoiding online shopping or depositing money from your paycheck directly into a savings account. Write down how it feels to operate out of your comfort zone, says Mellan, and give yourself a free or low-cost reward when you’ve earned it.
“It’s about developing muscles you’ve never had before,” says Mellan, who agrees that thinking in cycles can help over-spenders to more easily save. “It makes sense to cut things up into bite-size chunks you can handle.”
A good way to start thinking about cycles is to consider the many recurring financial rotations we see over and over again, says Denise Winston, who runs the financial education company, MoneyStartHere.com.
Annual cycles include everyone’s favorite debt-accumulating time of year, the gift giving holidays of December. And each April, we are legally required to pay our taxes.
Then there are the annual amounts you pay to maintain a car, such as insurance, maintenance. Don’t forget about health insurance, you pay premiums but there’s also an annual deductible. Every weekend, you’ll want to be entertained or served at a restaurant. If you have kids, you’ll need to suit up in different sports gear each season.
And if you have a job, you’ll need to every two years buy continuing education classes, new clothes and admission to networking events.
“The best thing you can do with any unexpected financial windfall,” says Winston, “is to better position yourself for these cycles.”
Saving for cycles
Think you have your whole life to save? To start socking away money now, remember that these recurring expenses cycle back:
▪ Each year: Holidays, birthdays, health insurance deductibles, taxes, car insurance.
▪ Each month: Mortgage or rental payments, car payments.
▪ Each week: Entertainment expenses, fuel expenses, food costs.