Best Savings Motivator? The X Factor

Carla Fried

Let’s face it; the notion of delayed gratification is not something that comes easy to many most of us. Making a choice today that requires us to forgo an immediate payoff so we might have a bigger payoff years down the line just doesn’t get our motors revving. Sure, we know that delayed gratification is the key to building financial security-saving more in an emergency fund, or Roth IRA, or increasing our 401(k) contribution rate-but that doesn’t make it any easier to pull off.

In the spirit of helping provide extra motivation to become a devoted practitioner of delayed gratification I offer the 10X carrot to entice you to save more.

The 10X Factor

The next time you are pondering a purchase, multiply the dollar amount of the purchase by 10. Now ask yourself if you want to spend that much today.

So if you are considering paying $100 for something ask yourself if you’d still be interested in buying it at a price of $1,000 or so. Is a $1,000 vacation worth $10,000 to you?

That 10x factor is indeed what today’s dollars could be worth in 40 years if you didn’t spend them, but rather tucked them into an investment that grows at an annualized 6 percent rate. Why 6 percent? That’s me hewing to the “New Normal” idea that returns going forward may be lower than the long-term historic norms (10 percent for stocks, 6 percent for bonds).  You can of course plug in any expected return you want; at higher rates of return your X factor would of course increase.

I am sticking with 6 percent and the 10x factor over 40 years. Of course, if your investment goal is in less than 40 years, your X factor will be lower. If you are saving for a goal 20 years off, try a 3X factor.

Granted, those are very long time periods, and it’s sure a lot more enjoyable to spend today to enjoy today. But finding the motivation to practice just a bit more delayed gratification is vitally important.  The next time you are thinking of spending “just $50” or giving yourself a $500 splurge, stop for a second and do the X factor calculation in your head of what those dollars might be able to buy you years down the line if they are saved, not spent in the here and now. It just might be the extra motivation you need to beef up your commitment to saving more for the future.