If you’re like millions of other investors, the number of accounts and bills you have to deal with has grown over time and your financial life has become increasingly complex. It probably seems like it’s tough enough to make ends meet, much less save for retirement.
You know you should be keeping better track of your expenses, resisting frivolous spending, putting money away each month and rebalancing your portfolio at regular intervals to avoid being knocked around by bubbles and panics.
Why are such simple steps so hard to take on a regular basis? A growing body of behavioral finance research indicates that our brains didn’t evolve to handle problems in which rewards and punishments are far in the future. We face the same issue in trying to manage our weight. Imagine being constantly tempted with a refrigerator full of cake and ice cream while being expected to slam it shut and drive across town to the natural food store every time you’re hungry.
Sound ridiculous? We expect ourselves to do the financial equivalent with our money every day. What if we turned that approach on its head? One of our planners tries to keep his house full of nothing but healthy foods to make it an effort to eat something unhealthy.
You can do the same thing for your finances by making healthy financial choices your default options. One way you’re probably already doing this is by contributing to a 401(k) or similar retirement plan. Once you’ve opted in, you make contributions on a regular basis without lifting a finger–a move that studies show makes people much more likely to contribute and to do so in larger amounts.
Full story: Five Steps For Building Wealth Automatically – Forbes.com