Money Lab 

Can saving cyclically help you put away more?

Email  Print Print  

Cylical saving may trump the way we normally save?

You probably have lofty goals and high hopes for your financial future.

Forget about them.

New research suggests that, when it comes to saving, a cyclical mindset trumps linear, goal-oriented thinking. People tend to save more money when they think about the present instead of the future, researchers found.

“When people focus on the present, they focus on what they can do now, rather than what they would like to do in the future,” says the study’s author, Leona Tam. “When the focus is on the present, actions are taken rather than procrastination.”

Tam is an associate professor of marketing at the University of Wollongong in Australia who, along with her colleague Utpal Dholakia, published the study, “Saving in Cycles: How to Get People to Save More Money.”

Some background: Western culture tends to think of time as linear: progress, happy endings, climbing corporate ladders, etc.

“Americans tend to be linear in their time orientation,” Tam says. “However, we believe people can change their time orientation to be a learned habit.”

The paper explains that linear thinking promotes the hope that someday, things will be different. You’re probably familiar with the thought process: “I’ll make more money one day. When I’m rich, I’ll save more.”

Linear thinking is the reason some people don’t even think about saving for retirement until they hit 40. A “when I’m rich” mentality promotes procrastination, abstract goals and unrealistic predictions about saving.

Saving in cycles may help you make progress

In contrast, cyclical thinking assumes that this is as good as it gets. Tomorrow will be the same as today. If it helps, think Bill Murray in “Groundhog Day.”

I’ll admit, it’s kind of a depressing thought, but this mindset does favor implementation over optimism. More “Just do it!” and less “I’ll do it when things get better.”

And it works. Here’s what researchers found:

Across the studies, individuals using our proposed cyclical savings method … save an average of 78% more money when compared to those using a linear savings method.

If you were rolling your eyes before, I’m betting that percentage got your attention.

An experiment in saving

Tam and Dholakia separated their subjects into three groups: cyclical, linear and the control group. They gave the cyclical group the following instruction:

“Make your savings task a routinized one: just focus on saving the amount that you want to save now, not next month, not next year. Think about whether you saved enough money during your last paycheck cycle. If you saved as much as you wanted, continue with your persistence. If you did not save enough, make it up this time, with the current paycheck cycle.”

The linear group’s instruction:

“Make your savings a planned one: just focus on the total amount of your savings goal for the future. Think about discrete savings tasks and do each task one day at a time. Do not think about what you have or have not saved in the past.”

The control group didn’t have any instruction at all. From there, subjects were asked to keep track of their savings for two weeks and then report “how much money they had saved and the extent to which they applied the savings method explained to them.”

Here’s the unsurprising part: Cyclical savers reported saving cyclically, and linear savers reported saving linearly. Here’s what was surprising: Cyclical savers saved an average of $223, whereas the linears saved $140. The control group saved $133.

As someone who wants to save more, this is great news. As someone who writes about money, I can’t help but facepalm. I’ve read an endless amount of savings advice in an endless amount of personal finance books and blogs, and the whole time, the key to saving significantly more money can be summed up in one simple sentence:

“Focus on saving the amount that you want to save now, not next month, not next year.”

Testing ‘cyclical’ versus ‘linear’ saving on myself

Of course, I had to put this thought process to the test.  I asked Tam how someone might get started.

“We suggest people start looking into each paycheck and see how much they can save from there. Without setting a long term goal, set up a per-paycheck goal and stick to it. If she or he falls behind in the last paycheck in terms of saving, catch up now, in the current cycle.”

I decided to apply the cyclical mindset to my saving for retirement. In Mint, I have a retirement goal set up that includes the total amount I want to save based on a certain date. I ignored it. I re-read the instructions and applied it to my retirement savings. I asked myself, “If this is how much I’m going to make everyday for the rest of my life, how much do I want to save now?”

To make sure I had enough to save, I applied the same tactic to my budget. “If this is how much I’m going to make forever, how much am I willing to spend on food, entertainment, shopping, etc?”

In short, I made a budget and savings goal based on the idea that this is as good as it gets. I only checked Mint to make sure I was staying within my budget; I ignored my goals.

My results

As a freelancer, my income is highly variable. For example, last month, I earned about eight times less than I did in October. Because my income is so wonky, when describing my own little test, it isn’t really helpful to talk about specific amounts, but percentages.

After saving my cyclically set amount at the end of the month, I calculated the percentage I’d managed to put aside: 20 percent.

Then, I looked at my savings amounts of the past — when I saved linearly, based on my goals. While I did save a lot, the amount was only eight percent of my income. Granted, my situation was much different from one month to the next, but still: that’s a big difference.

Something happens when you stop thinking about what you want to save in the future and instead focus on what you can save now. You get out of fantasyland and instead think about reality.

“The cyclical mindset does not endorse a progressively improving life pattern,” said Tam. “Thus the decision maker will be less optimistic (and prone to) defer saving money.

Of course, I still think goals have a place in personal finance. Money issues are often based on mindset, and because we like to look to the future, it helps to have goals and consider our future finances. Goals keep us optimistic, and optimism is helpful and great. But when it comes to saving, implementation is better.

For the sake of saving, it’s worth a shot to go “Groundhog Day” on your finances.

(Photo by Alf Melin/ CC BY)

(GIF: Cheezburger Network)

{ 9 comments, please add your thoughts now! }

Related Posts

RSS Subscribe Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.

9 Responses to “Can saving cyclically help you put away more?”

  1. GC says:

    This is great Info.

  2. bloodbath says:

    There might just be a saving gene ’cause I don’t find it difficult at all.
    A habitual saver, I’ve been saving from the age of 18 to the present.
    My motivation is simple I like to see my savings grow and grow.
    I subtract all monthly expenses from my net monthly income then I save at least 50% of the remainder.
    I’ve never earned less than my monthly expenses because I do not incur more debt than I can pay for.

    • Kristin Wong says:

      That’s great! Yeah, I think this tactic probably works especially well for people who aren’t great at saving. But…I was a decent saver, too, and I was surprised that my saving percentage was even higher when I saved ‘cyclically.’

  3. Ryan says:

    I was on board until I read this:
    “From there, subjects were asked to keep track of their savings for two weeks and then report how much money they had saved …”

    Two weeks is all the time they are basing their results from? I didn’t read the report just this article. I think many people could save more for a few weeks while the instructions are fresh in their mind but track them for a year and see how much they can save before reporting huge figures like 78%.

    I too try to save as much as I can for a rainy day, I don’t really have a monthly goal in mind though, I am a big believer of automatic withdraws to my savings accounts and I operate as if that money isn’t available (live well below my means).

  4. Jon Maroni says:

    This is incredible! I’m really glad that you tried the technique out for yourself, if you hadn’t I would have been more skeptical about it. I think that the very best line you offer here is “think as if this is the best it is ever going to get.” That takes us away from the “things will get better then I will save” mentality. I’m totally stealing this idea, are you sticking with it long term?

    • Kristin Wong says:

      Pretty much. And without getting too heady, I’ve actually been adapting this ‘cyclical’ mindset to other areas of my life, and it’s helpful. Someone shared a cool quote with me recently: “If you are depressed, you are living in the past. If you are anxious, living in the future. If you are at peace, you are living in the moment.” This isn’t to say you shouldn’t have goals (despite my sensationalist opening line), but focusing on the present makes you, well, present.

  5. Lily says:

    I think this is another version of “pay yourself first.” My freelance payments arrive irregularly; I tend to get a big chunk o’ money and feel quite rich for a brief while. That’s the perfect moment to send large amounts to my savings account and to charity. Whether I’m saving for some particular thing or not, it’s when I’m flush with cash that I feel most able to divert some of it to savings.

  6. Mark Thomas says:

    Saving needs to become a mindset. It needs to become a part of your personality. If you do calculations to save for a specific goal, you’ll only be able to convince yourself to save what you feel is the bare minimum. If you change your outlook entirely and realize that managing your money is actually kinda fun, you’ll get ahead with your finances.

  7. Ms Hickman says:

    Yes this is true as one is saving more than what they are spending. When the focus is on the prior success/ failure of saving then one makes corrections.
    Now this can be a task for someone who gets paid once a month. Because unplanned expenses DO arise and savings is where one has to go to pay for them.
    The article shows that notion to save can be seen as successful and that gives motivation to improve and keep saving.

Please Leave a Reply
Bargaineering Comment Policy

Previous Article: «
Next Article: »
Advertising Disclosure: Bargaineering may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.
About | Contact Me | Privacy Policy/Your California Privacy Rights | Terms of Use | Press
Copyright © 2016 by All rights reserved.