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In a recent study, a team tested whether positive emotions could be harnessed to achieve financial goals & improve financial decision-making. More specifically, it was an experiment to judge people’s emotional engagement in their savings behaviors & other financial habits.
“Being rich is having money; being wealthy is having time.” – Margaret Bonnano
The participants were randomly assigned into one of two groups: 1) a control group, and 2) an experimental group. Both groups were surveyed before the experiment, immediately after the experiment, and three weeks following the experiment. The experiment was a double-blind study, meaning that neither the participants nor the presenters knew which group they were in (experimental or control), nor were they aware of what was happening in the other group.
When participants arrived at the study location, the control group received a standard financial education presentation. This presentation focused on educating participants on the importance of saving, the power of compound interest, and various savings strategies, with time for questions and answers. In contrast, the experimental group participants did not receive an education on savings. Instead, they experienced a presentation that focused on immersive, emotion-based exercises designed to evoke positive memories and feelings. With these positive emotions evoked, the presentation shifted to naming these emotions and the underlying values, and how these values and emotions relate to their future savings goals. Three weeks after the study, both groups were contacted and reported back on their savings behaviors. The results were dramatic.
Outcome of Study
Both groups significantly increased their rates of savings as a percentage of gross income. However, there was a significant difference with regard to the magnitude of these increases. While the control group participants increased their savings by 22%, the experimental group participants increased their savings by a whopping 73%—an increase three times greater. If maintained over the course of the year, this change could represent an average of $10,020 in annual savings for the participants in the experimental group, compared to their average of $5,838 in annual savings prior to the study.
A variety of savings beliefs and behaviors were also positively impacted. The experimental group participants showed statistically significant increases in their readiness to save, confidence toward saving, and their financial health from pre-experiment to post-experiment. (Content credit to ‘Money Mammoth’ by Brad Klontz).
Seven Steps to Achieve Your Financial Goals
In the study, the experimental group participants were able, through positive, emotionally charged visualization, to develop a deeper emotional incentive for saving money. The exercises they engaged in may have enabled them to relate saving money to their family, life values, and goals that mean the most to them.
You must engage your emotional brain if you want to change your financial behaviors. If you want to improve your financial health, try some of the same exercises the experimental group participants experienced in the study. These seven steps can massively improve your chances of achieving your financial goals. Put these seven steps into action, and you will be able to get what you truly want.
Step 1: Choose Three Financial Goals
To harness emotions and gain financial confidence, come up with an exciting vision of what you are saving for by asking yourself the following questions: What would saving for the future get you? What is it you truly want? Get specific: What does it look like? How would it feel to have it? Who might you enjoy it with? Where are you? What do you see, feel, experience? Identify at least three financial goals. A house, an early retirement, a vacation, a new car—what is it?
If you’re having trouble with this step, just sit back, close your eyes, and try to picture your ideal life 5, 10, or 20 years from now. Where are you? Whom are you with? What are you doing? Where do you live? What are you driving? How does it feel?
Step 2: Passion Test Your Goals
For these financial goals, we want to make sure you really, really want them. You’ve got to be passionate about them. You’ve got to be hungry for them. When you think about your financial goals, we want you to be pumped! So look at each goal. If you can’t give it a 9 or 10 on an excitement scale of 1 to 10, with 10 being the most exciting, then pick a different goal. So now that you have your three top financial goals—goals that absolutely thrill you—you can move on to the next step.
Step 3: Name Your Goals
There’s nothing more boring than a “savings account” and cutting out joy to fund it. Do you want to go out to eat or save $40? Umm…go out to eat. Do you want to save $5 or get a latte at Starbucks? I’ll take the latte, please. How about putting $30 in the savings account or playing a round of golf? Is that a trick question?
Savings accounts suck, well, at least the name does. It is too boring, too nonspecific! Savings accounts are nothing to get excited about. We need to give our financial goals NAMES—specific, exciting names. We need give them names that conjure up images and feelings that thrill us. So instead of having a vacation goal, name your goal a Family European Vacation. Instead of a vehicle goal, how about a four-wheel-drive Toyota Tacoma? Instead of a retirement goal, call it your Financial Freedom Fund. Link your passion and excitement to the financial goal by naming it something exciting!
Step 4: Timestamp Your Goals
Now, go back to your goal and add a date by which you want to achieve it. So your “Family European Vacation” goal could be your “2022 Family European Vacation” goal. Your “Financial Freedom Fund” could be your “Financial Freedom at 50 Fund.”
Step 5: Picture Your Financial Goals
Now, when we say “picture,” we mean an actual picture, and this is where the activity gets fun. Remember, our research subjects who did this actually increased their savings rates by 73%, so you have to find a picture! For this part, we want you to imagine that you’re back in kindergarten and it’s time to have fun. We want you to find a way to create visual reminders of your savings goals. In our study, we had people use a poster board and draw words or pictures, or cut out pictures and tape or glue them. If you’re serious about achieving your goals, it’s worth a trip to an arts and crafts store to pick up a poster board and complete the step. Take some time to create visual representations of your financial goals. Cut out words and pictures; draw pictures; have fun. Spend some time with this.
Now create a visual motivator. For example, cut out a picture from a magazine depicting your goal and tape it to a mirror or hang it on a wall. Better yet, put a picture of your goal as your screensaver or smartphone wallpaper, where you can see it several times a day. Once you are done, keep this visual reminder close to you; carry it with you. These visual reminders are so powerful in helping to keep you focused on what matters most to you. They keep you passionate, motivated, and focused.
Step 6: Create Subaccounts
In this step, you’re going to create specific savings or investment accounts for each of your financial goals. This technique is based on your natural tendency to separate your money into separate mental accounts. In this case, it will help you achieve your goals because a general “savings account” is easy to draw from; but “robbing” your Financial Freedom at 50 Fund for an impulse purchase is less likely to happen. Creating subaccounts is easy for investments like retirement plans that have their own account names. But you can also do this for other financial goals too. Many banks now let you divide your savings account into subaccounts you can name, and you can direct specific amounts of money to go to each one every month. So set these up and give them the names and dates you created in Steps 3 and 4.
Step 7: Automate Your Success
Now that you’ve got a clear vision of what you want, a picture that you can carry with you, and you’re passionate about getting what you want, capitalize on this clarity and passion to automate direct transfers from your checking account to your subsavings accounts. You may not be able to save all that you want to save right now, but you can revisit these and increase them as your income increases. If you set payments to pay for what you want most first, you’ll surprise yourself as you quickly and easily adjust your lifestyle to get what you want.
Automation capitalizes on what we call the “status quo” bias, meaning because we have a natural tendency to just keep things the way they are, once we set up an automatic transfer, we will keep it going because it takes extra effort to stop it. So use the motivation you feel right now to set up automatic payments.
